Escape from the Staple Trap: Canadian Political Economy after Left Nationalism 9781442617056

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ESCAPE FROM THE STAPLE TRAP Canadian Political Economy after Left Nationalism

From fur and fish to oil and minerals, Canadian development has ­often been understood through its relationship to export staples. This understanding, argues Paul Kellogg, has led many political economists to assume that Canadian economic development has followed a path similar to those of staple-exporting economies in the global South, ignoring a more fundamental fact: as an advanced capitalist economy, Canada sits in the core of the world system, not on the periphery or semi-periphery. In Escape from the Staple Trap, Kellogg challenges statistical and historical analyses that present Canada as weak and disempowered, lacking sovereignty and economic independence. A powerful critique of the dominant trend in Canadian political economy since the 1970s, Escape from the Staple Trap offers an important new framework for understanding the distinctive features of Canadian political economy. paul kellogg is an associate professor in the Centre for Interdisciplinary Studies at Athabasca University.

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Escape from the Staple Trap Canadian Political Economy after Left Nationalism

PAUL KELLOGG

UNIVERSITY OF TORONTO PRESS Toronto Buffalo London

© University of Toronto Press 2015 Toronto Buffalo London www.utppublishing.com Printed in the U.S.A. ISBN 978-0-8020-9941-9 (cloth) ISBN 978-0-8020-9654-8 (paper)

Printed on acid-free, 100% post-consumer recycled paper with vegetablebased inks.

Library and Archives Canada Cataloguing in Publication Kellogg, Paul, 1955–, author Escape from the staple trap : Canadian political economy after left nationalism / Paul Kellogg. Includes bibliographical references and index. ISBN 978-0-8020-9941-9 (bound). – ISBN 978-0-8020-9654-8 (paperback) 1. Economic development – Political aspects – Canada.  2. Canada – Economic conditions.  3. Canada – Foreign economic relations.  4. Canada – Economic policy.  I. Title. HC115.K4365 2015   330.971   C2015-903242-3 This book has been published with the help of a grant from the Federation for the Humanities and Social Sciences, through the Awards to Scholarly Publications Program, using funds provided by the Social Sciences and Humanities Research Council of Canada. University of Toronto Press acknowledges the financial assistance to its publishing program of the Canada Council for the Arts and the Ontario Arts Council, an agency of the Government of Ontario.

Funded by the Financé par le Government gouvernement du Canada of Canada

Contents

List of Tables and Figures  ix Acknowledgments  xiii Preface  xv What Could Be More Canadian?  xv Some Preliminary Notes  xix “US” instead of “American”  xix “Non-resident” instead of “foreign”  xix “Historical materialist” instead of “Marxist”  xxi On the use of statistics  xxi Statistical discourse analysis  xxiii A work in progress  xxiii 1 Introducing the Argument  3 Political Economy’s Staple Trap  3 Toronto and Detroit  3 Three Moments of Left Nationalism  4 The staple trap  8 The pull of the global South  11 The Case for Political Economy  14 A difficult engagement  15 Sovereignty and the Canada Question  18 Military Parasitism  19 2 One of These Things Is Not Like the Others  23 The Semi-periphery and Twenty-first-Century Left ­Nationalism  23 World Systems Theory  23

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Canada and Mexico compared  26 Semi-peripheral, semi-proletarian  32 Building on Wallerstein I35  Of outsiders and insiders  39 Building on Wallerstein II  41 Bringing politics back in  45 Conclusion: An Unsustainable Framework  49 3 From Levitt to Watkins to You  57 Dependency Theory and the Classic Moment of Left ­Nationalism  57 Kari Levitt  58 Liberal Party nationalism  60 The trout in the milk: Canada and neoliberal global ­governance  62 Deindustrialization  65 Non-resident Ownership  74 Conclusion: Return to Akwesasne  84 4 Something Rings Hollow  86 Non-resident Corporate Acquisitions and Foreign Direct ­Investment  86 Who’s Hollowin’ Who?  86 The Uses and Misuses of FDI  95 The Rise or Decline of the United States  105 5 Of Nails and Needles  110 The Profile of Canada’s External Trade  110 Trade and Canadian Political Economy  113 Glen Williams  114 The Prima Facie Empirical Case  117 The bitumen sands effect  123 The Auto Pact effect  127 Fabricated Materials, Inedible  135 The Dominion Bureau of Statistics: Fabricated statistics, ­incredible  137 Conclusion  139 6 Canada as a Principal Economy  141 The Free Trade Moment of Left Nationalism  141 From NAFTA to the FTAA  141 The Other Macdonald Report  145 Unemployment  148

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Output per capita  159 Productivity and international competitiveness  161 Conclusion: An Empirical idée fixe  163 7 A Very Canadian Bourgeoisie  167 The Canadian Capitalist Class and “Subcontracted” ­Sovereignty  167 Entrepreneurship  167 A Comprador Elite?  169 An Independent Canadian Capitalist Class  175 Subcontracted Sovereignty  185 8 Escape from the Staple Trap  189 The Home-Market Origins of Canadian Capitalism  189 Harold Innis and the Staple Approach  189 The Home-Market Alternative  191 Paralyzed by custom?  198 Manufacturing in Canada in Global Perspective  201 Conclusion  206 Conclusion 211 Political Economy Outside the Trap  211 Toronto and Detroit Revisited  219 Notes  229 Bibliography  235 Index  263

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List of Tables and Figures

Tables 2.1 Country Base of Top 100 and Top 500 Corporations, G7 Countries, Australia, Norway, and Mexico, 1998–2014  51 2.2 Relative Weight of Top 100 and Top 500 Corporations, G7 Countries, Australia, Norway, and Mexico, 1998–2014  52 3.1 Civilian Employment in Manufacturing and Industry, G7 Countries, 1960, 1974, and 1987  68 3.2 Civilian Employment in Manufacturing, G7 Countries, 1992, 2002, and 2012  70 6.1 Average Annual Employment Growth, G7 Countries, 1960–2013 158 6.2 Change in Value Added in Manufacturing, Top 7 OECD Countries, 1971–2013  164 8.1 Total Relative Manufacturing Output, 10 Leading World Economies, 1860–1980  204 8.2 Relative per capita Levels of Industrialization, 10 Most Industrialized Countries, 1750–1980  205 8.3 Employment in Manufacturing, Canada and the United States, 1971–2014 208 Figures 2.1 Market Exchange Rates for the Australian Dollar, Canadian Dollar, Mexican Peso, and Norwegian Krone Relative to the US Dollar, 1994–2014  29

x  Tables and Figures

2.2 GNI per capita, Australia, Canada, Mexico, and Norway, Relative to the United States, 1962–2013  30 2.3 Employment in Agriculture as a percentage of Total Employment, Australia, Canada, Mexico, Norway, and the United States, 1995–2012  33 2.4 Child Labour in Mexico, 2004–2011  34 3.1 Employment in Manufacturing and the Services Sector as a percentage of Total Employment, Canada and the United States, 1969–2013 72 3.2 Manufacturing as a percentage of GDP, Canada and the United States, 1946–2012  73 3.3 Non-resident Control of the Canadian Economy, by Capital Employed, 1926–73  76 3.4 US Control of Assets and Revenue in the Canadian Economy, 1965–2012 77 4.1 Value of Canadian versus Non-resident Corporate Acquisitions, 1993–2013 90 4.2 Number of Canadian versus Non-resident Corporate Acquisitions, 1993–2013  92 4.3 Value of Canadian versus US Corporate Acquisitions, 1993– 2013 93 4.4 Number of Canadian versus US Corporate Acquisitions, 1993– 2013 94 4.5 Direct Investment and Foreign Direct Investment, Canada and the United States, 1945–2013  96 4.6 Canadian Direct Investment Abroad and Foreign Direct Investment in Canada from All Countries, 1945–2013  97 4.7 Canadian Direct Investment in the Global North and Foreign Direct Investment in Canada by the Global North, 1987–2013  99 4.8 Canadian Direct Investment in the Global South and Foreign Direct Investment in Canada by the Global South, 1987–2013  100 4.9 US Share of World Manufacturing, 1970–2013  107 5.1 The Composition of Canada’s Export Trade, 1943–62  119 5.2 The Composition of Canada’s Export Trade, 1961–2014  120 5.3 Crude Petroleum Exports as a percentage of Energy and Mining Products Exports, Canada, 1988–2014  125 5.4 The Composition of Exports (excluding Crude Oil and Bitumen, and Motor Vehicles and Parts), Canada, 1988–2014  130 5.5 Motor Vehicle and Parts Production as a percentage of GDP, Canada and the United States, 1997–2014  134

Tables and Figures xi

6.1 Women in the Workforce as a percentage of Men, G7 Countries, 1985–2013 159 6.2 GDP per capita, G7 Countries, “High-income: OECD,” and World, 1993 and 2013 (purchasing power parity, in constant 2011 international $)  161 7.1 Distribution of Control, Canadian and Non-resident Large and Medium-sized Enterprises, 1999–2012  182 7.2 Distribution of Control, Canadian and Non-resident Mediumsized Enterprises, 1999–2012  183 8.1 Relative Weight of Manufacturing Employment, Canada and the United States, 1969–2014  207

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Acknowledgments

My associations with Athabasca University, Trent University, the University of Toronto, and the University of Toronto Press have been extremely rewarding. Intellectual life exists both on and off the campus. But the work of producing a book-length manuscript is made considerably easier when surrounded by supportive faculty, staff, students, and editors. At Athabasca University, I have been fortunate to find such support from my faculty (Humanities and Social Sciences), my C ­ entre (Interdisciplinary Studies), and from the graduate program where I teach (Master of Arts – Integrated Studies). My two years at Trent, in the Department of International Development Studies – a department with an extraordinarily profound sensitivity to the dynamics of life in the global South – considerably helped me to conceptualize properly Canada’s place in the world economy. An appointment in 2014 as Associate Professor (status-only) in the Department of Political Science at the University of Toronto allowed access to the unparalleled research facilities at that university. The editors at the University of Toronto Press, Daniel Quinlan and the late Virgil Duff, have been very supportive in the preparation of this manuscript. The diligent work of copy editor Barry Norris was indispensable. The index would not have been possible without the careful, accurate work of Angela Pietrobon. The anonymous reviewers of the manuscript were careful and demanding, and they have my thanks. I am grateful for research support from Athabasca University, including a Research Incentive Grant, several Academic and Professional Development Grants, and the 2014 President’s Award for Research and Scholarly Excellence (PARSE). I am also grateful for publication

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support from the Awards to Scholarly Publications Program of the Federation for Humanities and Social Sciences. Librarians at four institutions have been always helpful, always patient. Thanks to the folks who gave me assistance at Rutherford Library at the University of Alberta, Stauffer Library at Queen’s University, Robarts Library at the University of Toronto, and of course the staff at the library of my home institution, Athabasca University. I was pretty sure I would not be able to get my hands on a physical copy of a long out of print 1915 pamphlet written by a little-known Swiss academic (Golay 1915). The receipt of a PDF of that very pamphlet from the librarians at Athabasca – in time to incorporate it properly into my conclusion – confirmed a long-held belief: university librarians are, without question, another of Canada’s undervalued resources. Finally, without a long history of collaboration and discussion with Abbie Bakan, few of the ideas in this book would have taken shape in their current form. My life with Abbie and our two children – Adam McNally and Rachel Kellogg – has been an indispensable part of the process of research and writing. The inevitable mistakes are, of course, my responsibility alone. Mackenzie Paul Kellogg, Edmonton, January 2015

Preface

WHAT COULD BE MORE CANADIAN? Although none of us there knew it at the time, to grow up in Cornwall, Ontario, in the 1960s was to grow up in a microcosm of Canada. Its smokestacks spewed forth the filthy residue of typical Canadian industries: pulp and paper giant Domtar to the west, with its piles of stinking sulphur, rayon- and textile-producing Courtaulds to the east, the smelters of Aluminum Company of America (now Alcoa) across the St Lawrence on the US side. We predicted the weather by which one’s stench overwhelmed us. If you could smell nothing, cold weather was coming – there were no plants in the north of town. But it wasn’t just industry that made Cornwall a Canada in miniature. If you went to a hockey game at the Water Street Arena, in the east end, you were in a part of town where the main language was French – some one-third of the population was Franco-Ontarian. If you went west, the proud neighbours of Cornwall Collegiate and Vocational Institute (CCVS) would gladly point out that it was one of the oldest secondary schools in all of Canada. Descendants of the United Empire Loyalists (UEL) – who settled what came to be called Upper Canada – were everywhere. If you travelled south to the United States, you would drive over what we called “Cornwall Island,” home to 12,000 Kanienkehaka or Mohawk people. It wasn’t until years later that I learned the name of the larger entity of which Cornwall Island was a part: Akwesasne (Mohawk Council of Akwesasne 2011). It was from the people of Akwesasne that I first learned a little politics. Travelling to Massena, New York, in December 1968, our family station wagon encountered protest signs: “Akwesasne, Mohawk Nation: You

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Are on Indian Land.” Much later I figured out the significance of this protest – triggered by tolls demanded of the Akwesasne residents, a consequence of the monstrosity called an international bridge that had planted its ugly legs deep into the soil of their land (Ransen 1969). As I recall, during the protest there were two toll booths: just in front of the official one was an unofficial one staffed by protesters. My father – a teacher in the best sense of the word, one who educated by example – was very happy to put money in both. Those were some of the key characteristics of 1960s Cornwall: stinking industry, a key one organized around the exploitation of a resource staple; a sometimes tense relationship between French and English; an unresolved relationship with First Nations; and the great shadow to the south, the United States. What could be more Canadian? The themes of life in that era in Cornwall remain some of the main themes of the now very old school of Canadian political economy (CPE). This book aims to make a contribution to that school of thought by addressing one simple question: what is this place called Canada? How do we conceive of it and its relationship to the world system as a whole? The mainstream of CPE, as it has developed over almost half a century, has imagined this relationship in various ways. Most recently the frameworks of choice have been semi-periphery and resource colony. Earlier frameworks were dependency, rich dependency, neo-colony, or semi-colony. In this book I make the case that all these approaches are linked, all are expressions of a political current best described as “left nationalism,” and all are mistaken. Canada is now, and has been for some decades, a full participant in the core of the world system. It is an advanced capitalist economy, at the very top of an extremely hierarchical world economy, coexisting there with a small handful of similarly privileged states. This economic status goes along with a corporate capacity for profit taking from the global South in a manner that will be familiar to those who have studied British and US corporate actions in that part of the world; and with a state capacity to act abroad – in Afghanistan, Haiti, and elsewhere – in the manner of an imperialist nation. None of this, of course, is on the scale of the principal centre of corporate power and imperialism, the United States. But small size did not prevent Belgium and the Netherlands from playing imperialist roles in the nineteenth century, and it does not prevent Canada from doing so in the twenty-first. Unravelling and critiquing the hegemonic imaginaries about the Canadian state is not simply an interesting academic exercise. Without

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soberly confronting the problems of more than two generations of political economy, CPE risks losing its relevance as a framework for navigating the complex terrain of the twenty-first century. Establishing Canada’s place in the world system is not, of course, the whole story. Many, many other issues need to be confronted and addressed in a complex era marked by neoliberalism, militarism, globalization, and financialization. The second volume of this two-volume study will ­attempt to grapple with some of these issues. This first step, however, is fundamental. Without taking it – without knowing, in other words, what Canada is and what it is not – Canadian political economy will be unable to navigate the key problems of the twenty-first century or come up with public policies to address them. A series of related, and misleading, imaginaries about Canada’s place in the world system has so dominated and shaped CPE that to engage with them properly requires a volume unto itself. The preparation of an early product of this research – my PhD dissertation at Queen’s University (Kellogg 1991) – was greatly assisted by the able supervision of George Perlin and Grant Amyot. I dedicated that dissertation to my parents, the Reverend James Clare Kellogg and Mary Helen Kellogg (née Rutherford). My Dad passed away in 2007. Born on a small farm in the little community of Welcome, Ontario, he loved all aspects of the story of Canada, and simultaneously hated all  manifestations of oppression. His “teaching by example” during Cornwall’s 1968 bridge protests was a lesson in respecting and learning from our neighbours in Akwesasne. This sensitivity to the complex relationship between oppressor and oppressed continued even after his death. He defied his own UEL background by having his ashes buried in his beloved Gaspé, in rural Quebec. I hope that some of this sensitivity to national oppression has helped to shape this work. Understanding which nations are oppressed makes it much easier to identify which are not. My Mom was also part of old rural Ontario, born and raised on a farm in Northumberland County. She and my Dad understood the ­importance of books and learning, and always encouraged any and all excursions into this or that course of study, no matter how obscure. As this manuscript was being finished, my Mom told me that her father (my grandfather) Mackenzie Rutherford and his wife (my grandmother) Grace Rutherford (née Peebles) had headed off to Ottawa in either 1933 or 1935 to protest some aspect of the policies of the then Tory ­government of R.B. Bennett. They were joined in that excursion by

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Mackenzie’s cousin Charlie Rutherford and his wife Helen Rutherford (née Haig). The reasons for that Ottawa trip are lost in time. If it was in 1935, it might well have been in conjunction with the great On-toOttawa trek of that year. If 1933, it might have been to attend an early meeting of the Co-operative Commonwealth Federation, the forerunner of the New Democratic Party, just formed in 1932. But whatever the details, it was a “radical” story about which little was said in family circles in subsequent years. The four individuals involved in that half-remembered story were all remarkable in their own right. Mackenzie was a decorated survivor of the Great War, as was cousin Charlie, who was a holder of the Victoria Cross and perhaps, at the time, “the most decorated soldier in Canada, if not the Commonwealth” (May 1989). From Scotland and Ireland to farms in Ontario to the horrors of the trenches of the First World War, Mackenzie, Grace, Charlie, and Helen were all deeply embedded in what is usually considered the mainstream of Canadian history. But their stance against Tory policies in the 1930s is a useful reminder that,  within every mainstream, there are countercurrents of critique and opposition. That Mackenzie was active in fighting against oppression in the 1930s should have been a surprise to no one. Grace Peebles was a no-­ nonsense schoolteacher and principal, but also a suffragette. The two of them led a difficult life, pulling a living from the land, and they had a deep respect for learning and ideas. Some years prior to Mackenzie’s death in 1970, I was visiting him at the house in Grafton, Ontario, to which he and Grace had retired some years previously. He called me into his book-lined den, and gave me two wonderful gems: Donald Creighton’s Dominion of the North: A History of Canada (1966) and John Porter’s Vertical Mosaic (1965). He told me not to read them right away. “You’re too young just now,” he said. “But keep them. And in a few years, when you’re ready, take them down from the shelf and have a look.” I did. Reading the Porter book, in particular, was a formative experience – an analysis, by a liberal, of the deep cleavages of status that divide the people who reside in the territory over which the Cana­ dian state exercises sovereignty. It was not a big step from Porter’s elite analysis to the embrace of the significance of social class – a category I have attempted to deploy in this and all my writings. Central to this study’s framework is an understanding that the Canadian elite, in the years that immediately followed the failed rebellions of 1837–38, was able to assert effective national sovereignty

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over the territory that was to become the centre of the Canadian state. Creighton’s book – despite its sometimes-offensive language – see the reference to John Norquay (Creighton 1966, 359) – was extremely helpful in working out the narrative behind this assertion of sovereignty. Also useful in tracing this story was a thirty-two-volume collection of books – Chronicles of Canada (Wrong, Langton, and Haley 1914) – acquired from my Dad’s mother, Jesse Kellogg (née Macklin). A schoolteacher before she married my Grandfather (Gordon Kellogg), she had given the collection pride of place in a glass-door bookshelf in the ­parlour of her farmhouse on the Toronto Road in Welcome, Ontario. Because that shelf was also the stand for part of her enormous collection of ferns, both it (the shelf) and its contents (the books) are marked by visible water damage. The volumes are also marked, even more than the Creighton book, by the often-offensive language of an arrogant settler class, steeped in an overwhelming sense of “superiority” naturally accruing to anyone with roots in the British Isles. This notwithstanding, the narrative provided in those water- and culturally-damaged artefacts was invaluable. So, to Mackenzie Rutherford, war veteran and critical thinker; Grace Rutherford, school principal and suffragette; Gordon Kellogg, farmer and husband; Jesse Kellogg, teacher and housewife; my Mom, Mary Kellogg, and my late Father, the Reverend James Clare Kellogg, I dedicate this book. Some Preliminary Notes

“US” instead of “American” Throughout, as much as possible, I use the term “US” as an alternative to “American,” thanks to my friends from Latin America and the Caribbean who point out that to call the US economy the “American” economy is to ignore the fact that the United States is only a small portion of the Americas. The “American” economy should really be seen as referring to all the Americas – North, South, and Central.

“Non-resident” instead of “foreign” Defining hallmarks of the CPE tradition have been the related frameworks of dependency and semi-periphery. For both frameworks the question of things foreign – either “foreign ownership” or “foreign

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direct investment” (FDI) – are crucial. But the binary couplet “foreignCanadian” is not satisfying. In the now more than ten years since 9/11, the extent to which the use of the term “foreign” can be politically and racially charged has become clear. Political economists, simply because we tend to deal in the world of statistics, are not immune from critically examining the terms we deploy. We need to take seriously the analysis of Bonnie Honig, ably summarized by Rita Dhamoon, and Yasmeen Abu-Laban: For Honig, foreignness does not merely describe or maintain the subject marked as foreign; it also institutes and reinstitutes markers of national citizenship and belonging … [D]iscourses of foreignness produce images of the founder, immigrant, and citizen, whether these are positive and negative, or privileging and penalizing images … [F]oreignness is necessary to nation-building precisely because it is productive in determining which subjects are legitimate and which are illegitimate citizens … Foreignness thus differentiates “us” from those Others who are outside the nation-state. (Dhamoon and Abu-Laban 2009, 166–7)

Many of the residents of Akwesasne, as an example, do not self-identify as Canadian. They are very much not “foreign,” however, having roots here thousands of years older than the United Empire Loyalists in my own family tree. In Quebec a large section of the population feels quite alienated from things Canadian, but is similarly not “foreign.” One does not have to look far to find an acceptable, political economy alternative to the adjective “foreign.” F.H. Leacy, in his extremely useful compilation of Canadian historical statistics, uses “non-resident” instead of “foreign” (1983). Until 1967 “non-resident” was also the adjective employed by the Corporations and Labour Unions Returns Act (CALURA) in its authoritative annual compilation of key statistics concerning Canadian corporations. So, for instance, in its report for 1967, CALURA described its mandate as “to document the extent and relative significance of non-resident ownership of Canadian industry” (Dominion Bureau of Statistics 1969a, 12). Contrast that with its terminology of one year later (and representative of the choice of terminology used every subsequent year): “Foreign ownership of non-financial corporations in Canada increased again in 1968. The proportion of the assets of non-financial operations belonging to foreign-owned corporations … rose by one percentage point” (Dominion Bureau of Statistics 1970a, 11).

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The word “foreign” has an implied political content – “they” are not like “us” – in contrast to the descriptive and relatively neutral term “non-resident.” In addition, as well as being less laden with implications, “non-resident” is simply more accurate than “foreign.” This book therefore uses “non-resident” except where “foreign” is ubiquitous, as in the phrase “foreign direct investment.” FDI is a universally recognized and understood category of economics, and throughout the term FDI has been retained.

“Historical materialist” instead of “Marxist” Liberal political economy is not the property of any one individual, any more than is historical materialist political economy the property only of Karl Marx. Yet traditional practice has been to individualize the latter under the frame of “Marxist.” Here, where possible, I avoid this personification of the framework, and use instead the more accurate term “historical materialism.”

On the use of statistics This study relies heavily on statistics. Such an approach is inevitable. The discussion unfolding in Canadian political economy often presents itself as a contest between two competing conceptions of the “facts,” and all claims to facticity need to be clearly documented, studied, and examined from all angles – particularly when, as is often the case, the results emerging from statistical analysis are counterintuitive. An indispensable process in the establishment of facticity is the study and presentation of statistics. The word “facts” has here been put in quotation marks for a reason. Statistics always boldly masquerade as facts, but, just as with quotations taken out of context, they can easily be misused to conceal, rather than reveal. As with quotations, context is extremely important, along with scale and comparability. I have tried to keep all this in mind when presenting statistics as “facts.” Several things follow. The citations for by far the majority of the tables and figures are prefaced with “author’s compilation from data available in,” to indicate that they are my own creation, compiled from the sources indicated. To the greatest extent possible, I have gone to the most reliable and wellmaintained databases to create my own tables and figures, and not relied on the interpretations and presentations of other authors. Among the most helpful have been Statistics Canada’s CANSIM – Canadian

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Socio-economic Information Management System* – World Development Indicators, maintained by the World Bank; and the statistical ­databases maintained by the International Labour Organization, the United Nations Statistics Division, and the Organisation for Economic Co-operation and Development. Second, as much as possible, the raw data have been supplemented with figures (charts and graphs) of various sorts. Compilations of raw data are the indispensable foundation of statistical analysis. However, it has been my experience as a teacher that, when it comes to numbers, visual representation can more readily illustrate an argument than the raw presentation of numbers. This is particularly the case when the statistics challenge received wisdom, as is often the case in this text, which (to coin a phrase) is at times engaged in a kind of “statistical discourse analysis” – more on this below. Third, when given a choice, I present the way the data have changed over time, rather than a snapshot of the data at one moment in time. A high degree of non-resident ownership in one period has a very different significance for our investigation if, thirty years later, it has declined considerably. Fourth, to the greatest extent practical, the data have been presented in a comparative framework. A good part of this comparative approach is made inevitable by the evolution of the literature, which to a very large extent has revolved around a comparison between the United States and Canada. Other comparisons are of my own choosing. Some comparative frameworks – such as between Canada and sections of the global South – I use, but with a very different emphasis than in much of the literature. Fifth, where possible, monetary figures have been adjusted for inflation. One billion dollars today is a very different sum of money, with a very different meaning, than one billion dollars in 1960. And the newly popular use of the word “trillion” is almost completely an invention of the twenty-first century, and would have seemed simply bizarre in the



*As this research was being worked on, proposed budget reductions imposed by the Harper government meant that as many as half of the five thousand people employed by Statistics Canada were at risk of losing their jobs. According to Michael Veall, president of the Canadian Economics Association and an economics professor at McMaster University, “there is no doubt that the cuts can’t be absorbed without reducing the amount of information Statistics Canada produces” (quoted in Curry and Tavia 2012). This could have serious negative consequences for researchers in years to come.

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1960s. An inflation-adjusted presentation of the facts is the only way to allow monetary figures from one era to “speak” to monetary figures from another. Finally, all of this has been done with the scepticism of a political scientist, a discipline in which I was trained at Queen’s University and York University. Statistics might be indispensable as raw material, but they alone do not provide a frame around which one can develop an analysis, any more than the paint on the wall can support a roof. They are illustrative, but not definitive. There is no substitute for careful historical analysis with a deep sensitivity to the dynamics of class, nation, exploitation, and oppression. Facts might well be “stubborn things” – a phrase usually associated with John Adams, but that actually has an older lineage (Quote Investigator, 2010) – but this does not absolve one from the time-consuming task of critical, social, and political analysis.

Statistical discourse analysis Care and specificity in the use of statistics is really a subset of what Michel Foucault calls “discourse analysis.” Let’s adapt Foucault, and call the method deployed here “statistical discourse analysis.” The practice of discourse analysis is best understood as the practice of archaeology – the archaeology of knowledge. The archaeologist digs into the subsoil to find fragments of past civilizations, and pieces the fragments together to discern the outlines of a social formation. The archaeologist of knowledge digs into the subsoil of discourse to find fragments of meaning, and pieces them together to discern the outlines of a discursive formation. This is about discovering not just what is said, but what is not said. Foucault says that a “discursive formation … is a distribution of gaps, voids, absences, limits, divisions” (2002, 134). In the discursive formation that is Canadian political economy, the “gaps, voids, and absences” are as important as those bits of evidence that are presented as fact. Those “facts” often reveal themselves as statistics. Applying statistical discourse analysis to the statistics that are central to the discursive formation known as CPE allows one to make visible the actual, not the imagined, contours of the social formation called Canada.

A work in progress This book and its projected “sister volume” – Arms and the Nation – are very much works in progress. This is true in two senses. First, the engagement between political economists and the social and economic

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reality of life in the Canadian state is now a prolonged one. This is my attempt to contribute something to the discussion. Second, for me, the labour to produce these books has been a principal focus in research that stretches back through several academic institutions. Throughout, the reader will find references to conference papers in which I had the opportunity to workshop various aspects of these ideas. In addition, publications with their roots in my PhD research have appeared in various scholarly publications. Two of them figure in the research of this volume: “Kari Levitt and the Long Detour of Canadian Political Economy” (Kellogg 2005a) was published in Studies in Political Economy; Chapter 3 and portions of Chapter 4 incorporate and update much of  this article. And “Of Nails and Needles: A Reconsideration of the Political Economy of Canadian Trade” (Kellogg 2008) was published in  Socialist Studies; Chapter 5 incorporates and updates much of this article.

ESCAPE FROM THE STAPLE TRAP Canadian Political Economy after Left Nationalism

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1  Introducing the Argument

POLITICAL ECONOMY’S STAPLE TRAP Research projects sometimes originate in the most unusual places. At first the question thrashing around in my mind seemed rather simple: why were Toronto streets so clean? It is one of the more stereotypical images of Canada – quiet, peace loving, and, oh, so clean. But after seeing New York, Chicago, and Philadelphia, and then living in Ottawa, Toronto, Kingston, and Edmonton, the least I can say is that the “clean” part of the stereotype is true.

Toronto and Detroit The question emerged while studying political economy at York University. There I stumbled upon a newspaper story that compared the street-cleaning cultures of Canada and the United States: “The most frequent compliment visitors have for the city of Toronto is that it is so clean … Joan Lipson, account executive and tour guide with Insight Planners, said many visitors cannot believe how clean the streets are kept. ‘They wonder when the city has time to keep everything so spotless.’” The contrast between Canadian and US cities posed problems for Canada’s film industry. According to one Toronto alderman, “a U.S. crew making a film on a downtown street … wanted the street to look like part of a U.S. city so it spread a considerable amount of litter around. When the crew members came back after a coffee break they found the street swept clean.” Central to the cleaning of Toronto streets is the litter picker: “The litter picker, armed with bag and broom, is considered the backbone of the street-cleaning operation. Litter-picking

4  Escape from the Staple Trap

is carried out seven days a week in the downtown core and in particular in commercial and tourist areas such as Yorkville, Kensington Market, Harbourfront, the Beaches and around the CN Tower.” In 1985, when this newspaper article appeared, the City of Toronto employed 120 litter pickers to clean its 1,443 kilometres of city streets (Baker 1986); by 2004 the number had increased to 170 (Toronto 2004). The Toronto of 1985 was the Toronto before amalgamation in 1997, and had a population of just 590,000. Across the border the situation was completely different. The city of Detroit at the time was twice as large. But in 1986 Detroit’s annual street-cleaning budget was $3.1 million, less than a third of Toronto’s budget of $10 million. As that same newspaper article reported, Detroit only has 11 litter-pickers downtown. The cleaning of residential streets takes place only three times a year, between April and November. The downtown commercial streets are cleaned six days a week. The city only recently resumed flushing of streets. The city of Buffalo, with a population of 435,000, spends about $1.2 million a year on street cleaning. Thirty litter-pickers operate on the main downtown commercial streets and one in each of 12 neighborhood commercial areas. Street flushing and sweeping takes place three to five times a week in the commercial areas and periodically on residential streets (Baker 1986).

Three Moments of Left Nationalism Toronto awash in street cleaners, US cities bereft of same – a small point of comparison, about which I forgot for some years as I pursued the study of political economy in various universities. Within political economy, there existed a specific stream, so developed that it had acquired its own label: Canadian political economy (CPE). Early on this tradition proclaimed itself as a “New Political Economy” (Panitch 1981, 7), and saw itself emerging as an alternative to the modernizing assumptions of traditional liberal political economy. The CPE tradition is quite accurately captured through the couplet “left nationalism.” CPE was, and is, a left tradition, nurtured in the context of the radicalization of the 1960s and 1970s. In those decades it forced its way past ossified traditional political science and economics, and insisted that

Introducing the Argument  5

what we know as Canada could not be understood without a perspective that included the categories of class and imperialism. At its best, CPE insisted that, along with class and imperialism, race and gender had to be at the centre of analysis. The CPE tradition has made an enormous contribution to several generations’ attempts to conceptualize the Canadian experience. The central organizing theme for much of the CPE scholarship was the ever-present reality of the United States – the world’s biggest economic and military power – just across the border. With a perspective that Canada was dependent on the United States – oppressed by the United States – sometimes explicitly, often implicitly, Canadian nationalism accompanied the left perspective. The tradition thus was “left,” concerned with class, gender, ethnicity, and national oppression, and it was also Canadian nationalist, centred on a concern for the threat to Canadian sovereignty, development, and values implicit in a relationship with the United States that was usually seen as dependent. On many issues of profound contemporary relevance, CPE scholars have proved to be pioneers of the scholarship in Canada. A very partial list would include: • Kari Levitt (1970), who published her critique of the pernicious role of multinational corporations some thirty years before the rise of the antiglobalization movement; • Robert Laxer (1973), who raised alarm bells about the decline of manufacturing employment, employing the term “deindustrialization” a generation before the recession of the 1990s that devastated manufacturing in southern Ontario and two generations before the Great Recession again damaged manufacturing in Ontario; • Gary Teeple, who, almost forty years before Michael Hardt and Antonio Negri published Empire (2001), helped to make the term “imperialism” acceptable as a serious category in contemporary political economy, writing about “the modern era of imperialism with its super-profits gained in exploitation of colonial peoples” (1972, 80); • Daniel Drache and Duncan Cameron, who, in a widely circulated critique of the policies that were to lead to the 1988 Canada-US Free Trade Agreement (CUFTA) (1985b),1 brought together some of the first voices to raise concerns over the imposition of neoliberal trade deals – nine years before the 1994 implementation of the North American Free Trade Agreement (NAFTA), sixteen years before the massive Quebec City demonstrations against the Free Trade Area of

6  Escape from the Staple Trap

the Americas (FTAA), and a quarter of a century in advance of the opening of discussions between Canada and the European Union over the proposed Canada-European Comprehensive Economic and Trade Agreement (CETA); (for the background to CETA, see Hübner 2011); and • preceding all of these was Mel Watkins, who warned of the dangers of the “staple trap” (1963, 151) – the phrase from which this book takes its title – half a century before addiction to the heavy oil stuck in Alberta’s bitumen sands became a central concern in Canadian politics. But these terms did not just enter an empty ideological field. All were coloured by a particular notion of Canada’s place in the world economy – one centrally revolving around Canada’s perceived deeply subordinate relationship with the United States. For those who have pursued the study of CPE in any Canadian university, it will be common knowledge that comparisons with the United States – on trade, industrial structure, levels of research and development spending, and, of course, the level of US control of the Canadian economy – form the principal subject matter of much of the curriculum. CPE students will also know that, in many of the key texts, the relevant starting point for these comparisons is a weak Canada, living in the shadow of its much richer, much more powerful, much more developed southern neighbour. Some of these texts see Canada’s role as that of a dependency, albeit rich but underdeveloped, some see Canada as a semiperiphery, while others go so far as to see Canada as a neo-colony. These orientations profoundly shaped the scholarship, leading to conclusions that might look quite surprising from the standpoint of the twenty-first century. Levitt, for example, specifically targeted US multinationals, premised on an expectation of the uninterrupted increase of US power in the world system. But in the years since, we have seen a proliferation of multinationals based, not in the United States, but in countries throughout the advanced capitalist world, including Canada, accompanied by the erosion, not the reinforcement, of US hegemony in the world as a whole. Robert Laxer saw deindustrialization, not as a shared experience across capitalist countries, but as a strategic goal of the United States, aided and abetted by union leaders in the United States. Yet, in the years since, manufacturing job losses have been considerably more intense in the United States than in Canada, devastating private sector

Introducing the Argument  7

union membership there to a far greater extent than in Canada. And Teeple’s view of imperialism focused exclusively on US imperialism, a perspective that was to become hegemonic in CPE. Not only was there no room for a notion of Canadian imperialism; Canada was seen as an oppressed nation. Like Laxer, Teeple had a particular focus on the role of US unions, seeing them as “a major link in the system of U.S. domination of Canada,” providing “U.S. imperialism with a base in Canada, one worth more to it than outright acquisition of a province or outright ownership of a number of major industries” (1972, 117). For most of these writers “dependency” was the defining analytic tool, and its defining political ideology was left nationalism. Greg Albo has accurately summarized the key elements of this left-­nationalist framework, which, by the 1980s, was hegemonic: “Canada was a ‘rich dependency,’ skewed in its industrial development by a weak manufacturing base and massive staples exports to the US market. The weak Canadian capitalist class, and a state controlled by financial, staples and comprador capitals, could not be expected to alter this cumulative regression to dependence, and consequent balkanization, of Canada. Rather, an alternative project, to reclaim the economy prior to implementing socialist measures, depended on an industrial strategy backed by an alliance between national capitalists and Canadian workers” (1990, 163). This left-nationalist approach to Canadian political economy was to prove tenacious, even when key aspects of its underlying dependency framework were called into question. In 1990 Albo labelled the late 1960s and early 1970s, the era from which this hegemonic political economy emerged, as the “‘nationalist moment’ in politics” (1990, 167) – a moment that has cast a shadow into the twenty-first century. To grasp the contours of CPE, it is useful to identify, in fact, three left-­ nationalist moments. The first is the original, and very powerful, leftnationalist moment of the 1960s and 1970s, influenced by dependency theory and symbolized politically by the Waffle; I sometimes call it here the “classic” or “dependency” moment. The second is the partial reassertion of this dependency framework in the late 1980s and early 1990s in the context of opposition to a series of trade deals involving Canada and the United States; I sometimes call it the “free trade” moment. The third is a twenty-first-century left-nationalist moment that continues to this day, introduced by a short-lived call for a “nationalist resistance” to capitalism in the context of the antiglobalization movement, and shaped theoretically through the use of World Systems

8  Escape from the Staple Trap

Theory to analyse Canada as a semi-periphery in the world system; I sometimes call it the “semi-periphery” moment. These three moments of left nationalism will be used as a frame for the analysis in the pages that follow. Evidence will be presented, relevant to all three, to show that the political economy on which they are based has proved inaccurate. The logic of the facts, from every indicator of development and underdevelopment, indicates that the image of an oppressed, weak, dependent, or semi-peripheral Canada is wrong and must be discarded. The rigour of political economic analysis ­demands a theorization of Canada as an imperialist nation, not an ­oppressed one – a member of the core economies of the world system, not on the semi-periphery. Gordon Laxer has argued strongly that left nationalism needs to be revived in Canada, and suggests hybridizing the term as “left-nationalist internationalism” or “progressive internationalist nationalism” (G. Laxer 2001, 2003, 2004, 2005). It will be argued here that, in an imperialist nation, it is impossible to combine “left” with “nationalist.” The call for something like a “nationalist resistance movement” – a call serious folks made as recently as 2002 (Canadian Dimension Editorial Collective 2002, 16), when directed towards the mobilization of the Canadian nation, opens the door to the political right, not to the political left, regardless of the intentions of the authors. If you have any doubt, try calling for a “nationalist resistance movement” in Germany, France, Italy, Japan, or the United States – and then reflect upon the history of the twentieth century.

The staple trap What about the image that shapes the title of this book, the staple trap? This quite important and extremely evocative term requires separate treatment. It crept quite tentatively into the Canadian political economy literature half a century ago. Tentatively, because in 1963, when Mel Watkins first introduced it, the “staple trap” was not yet loaded with the significance it was to acquire in later years.2 Being caught in a staple trap – condemned to a future of exporting raw materials and unable to develop an indigenous manufacturing capacity – was one of a series of possible outcomes that Watkins suggested could happen to “new countries” whose economic roots were tied to the export of staples. At first this had no particular implied significance for Canada. With the burgeoning of the CPE school in the 1960s and 1970s, however, the “staple trap” term came to acquire considerable significance

Introducing the Argument  9

for Canada. Writer after writer premised her or his analysis on the assumption that Canada had failed to emerge as a mature, manufacturing-oriented capitalist economy because it had become caught in a “staple trap.” Moreover, this trap had been sprung by non-resident domination – meaning US domination – of the most important sectors of the Canadian economy. This framework for understanding Canadian economic development has acquired the status of common sense. In 1989 Gordon Laxer employed the term to address what he saw as the lack of manufacturing development in Canada, and praised Sweden, by contrast, for its capacity to get “out of the staple trap.” In 1993 Colin Read contrasted the economic trajectories of Canada and Japan, arguing that “the Japanese economy has been spectacularly successful in adapting and evolving, while … Canada and Canadians have been caught in the staples trap” (314). In 1994 CBC Radio’s Ideas series looked back at the legacy of Harold Innis, and central to the arguments presented was that, although Innis did not use the “staple trap,” many Innis-inspired theorists did, with much efficacy, to explain the Canadian reality (Sinclair 1994). In 2001 Roger Hayter and Trevor J. Barnes argued that the claim that Canada is “stuck in a ‘staples trap’ … should not be dismissed as an old, radical notion, not to be taken seriously any more” (Hayter and Barnes 2001, 38). The prima facie case for the “staple trap” analogy is compelling. Think of Canada, and you are likely to think of fields of wheat, acres of trees, mountains filled with precious minerals, and, of course, mud soaked in oil. Is it not the case that Canada’s wealth is grotesquely rooted in the exploitation of natural resources, and that the export of these staples – furs in an earlier era, oil, timber, and minerals today – is the core, and a very unstable core, of the Canadian economy? And have not many economies become caught in a “staple trap” – rich when their staples are in demand, impoverished when their staples run out or the demand for them has subsided? There is such a thing as a “staple trap” in the history of the development of capitalism, and it has ensnared many economies. But classically the economies caught in this trap have been oppressed nations of the global South. Cuba has struggled with dependence on sugar exports. Brazil for years was a prisoner of the coffee bean. Venezuela has the same oil-soaked mud as does Alberta – but oil-soaked Venezuela is poor, and oil-soaked Alberta is very rich. (More accurately, there is a far greater concentration of wealth in Alberta than in Venezuela. That Alberta’s wealth does not trickle down to the east-side neighbourhoods

10  Escape from the Staple Trap

of Edmonton or the impoverished indigenous towns in the North is a question of the unequal distribution of this wealth, not of its existence.) Those who apply the simple “staple trap” analogy to Canada almost always fail to interrogate the analogy from the standpoint of Canada’s hugely privileged place in the world economy – a world economy that is extremely hierarchical. The economies at the top of the hierarchy benefit from, and aggressively work to sustain, the conditions that trap poor countries into dependency on staples – and Canada is very much ensconced at the top of this hierarchy of nations, not at the bottom. It is one of the architects of the current world system, not one of its victims. The staple-trap analogy is a useful tool with which political economists can identify oppressed nations in the world hierarchy of nations. Deploying the analogy as an organizing principle with which to capture life in Canada led directly to the conclusion that Canada, like other trapped economies, was oppressed – by the United States. But how did this conclusion accord with Canada’s role in the global South? On 26 March 2008 the Canadian bank RBC acquired control of Trinidad’s RBTT. The Economist (2008) noted: “Canadians now control the Englishspeaking Caribbean’s three largest banks, with $42 billion in assets, four times those commanded by its 40-odd remaining locally owned banks.” A 2011 article on Canada’s mining operations abroad documented that “Toronto is the mining finance capital of the world, raising 30 to 40 percent of the world’s mining equity most every year, and Canadian mining companies account for a world-leading 40 percent of global exploration expenditure. As of a few years ago, companies listed on Canadian stock exchanges held interests in over 3000 mineral properties in Canada, 1400 in Latin America, close to a thousand in Africa and about 500 in each of the USA and Asia, Europe and the former Soviet Union” (Canadian Dimension 2011). This overseas presence of Canadian capitalism is not recent. A pioneering 1975 article by Tim Draimin and Jaimie Swift documented the massive presence of Cana­dian corporations throughout Latin America: “There are now over 200 Canadian corporations operating in Latin America. With the completion of Inco’s new nickel mine in Guatemala, Canadian-based firms will hold the single largest foreign investment in three Latin American countries (also Brascan in Brazil and Falconbridge in the Dominican Republic)” (1975, 8). And how does the oppressed Canada metaphor square with the complex relationship between nations within Canada? Canada’s indigenous people clearly have experienced a long history of

Introducing the Argument  11

oppression at the hands of the Canadian state, while the Québécois have a strong historic claim to their own history of national oppression. The two stories – indigenous and Québécois – commingle in the extraordinary story of the Métis. Is the Canadian state – constructed on top of a dependent economy, locked in a staple trap by its subordinate relationship with the United States – to be put in the same category of the oppressed as the First Nations, the Métis, and the Québécois? Some have tried to make this case. My life experience growing up in the heart of Ontario as a descendant of United Empire Loyalists made me strongly doubt its veracity.

The pull of the global South Since the mid-1980s it has become axiomatic to argue that CPE has moved beyond the dependency paradigm in which it was initially framed. Daniel Drache and Wallace Clement, two figures pre-eminent in the left-nationalist movement during the 1970s heyday of dependency theory, made this explicit in the mid-1980s: Canadian political economy is at a crossroads because the issue of American domination, once the central problematic, is no longer the overriding theoretical preoccupation of political economists … With the enormous changes that have taken place in the economy in the last decade alone, dependency theory is no longer adequate for understanding our relations either with the U.S. or with other countries. Clearly, neither dependency theory nor any other single theory can explain the variety of forces defining the relations between the world economy and the national economies. However, the rejection of dependency theory by Canada’s state theorists and most of the new labour historians as the unifying perspective in the discipline has left a void that remains to be filled. (Drache and Clement 1985a, x.)

But that void has been filled again and again, if not with an explicit return to dependency theory, then with an implicit acceptance of its key assumptions. This is clearly reflected in the attempt to displace last century’s dependency paradigm with a twenty-first-century semi-­ periphery paradigm. The new framework retains and amplifies the earlier one’s habit of using the countries of the global South as relevant points of reference for the Canadian experience, which is inherent when the staple-trap analogy is deployed to explain the Canadian reality.

12  Escape from the Staple Trap

From 2000 to 2006, Gordon Laxer supervised a $1.9 million project funded by the Social Sciences and Humanities Research Council of Canada. The project, “Neoliberal Globalism and Its Challengers: Reclaiming the Commons in the Semi-periphery,” was organized around a comparative analysis of the experiences of four countries. Three of these countries – Canada, Australia, and Norway – are firmly established in the global North, but the study asserted that they were semi-peripheries and could usefully be grouped together with Mexico, very much a member of the global South (University of Alberta 2013). This project has helped shape the recent discourse of CPE, and has resulted in an impressive series of books (Bowles et al. 2008; Clarkson and Cohen 2004a; Laxer and Soron 2006; Otero 2004). In Chapter 2, I make the case that this is a fundamentally flawed project. Oil plays a central role in the current staple-trap imagery of twentyfirst-century CPE. Almost universally, Alberta’s tar sands are seen as an addiction, condemning the Canadian economy to a boom-bust economic cycle and tying Canada’s fate to other staple-trapped economies. Addictive they might be, but oil exports in themselves say almost nothing about the internal dynamics of an economy. Here the attempt to equate the Mexican experience with that of Canada is extremely helpful, if only by way of negative example. Mexico, like Canada, is a major oil producer and, like Canada, its principal market has been the United States, but the trajectories of the two economies over their decades of oil development have been completely different. Mexico’s deep pools of poverty, massive collections of underused rural labour, and manifest underdevelopment contrast sharply with the situation in Canada. Cancún, Mexico City, Tijuana, and Oaxaca exist in a different world than Calgary, Montreal, Toronto, and Ottawa. Years ago David McNally warned against the “commodity fetishism” that can result from attempting to deduce economic development solely from the fact of commodity export specialization (McNally 1981). If that warning held true for economies specializing in producing grains for export in the nineteenth and twentieth centuries, it is doubly and triply true for economies specializing in oil export in the twenty-first century. Mexico, Venezuela, Nigeria, and Canada all have oil for export, but the economic dynamics of the first three countries are qualitatively different than those in Canada. Before Drache and Clement wrote their obituary of Canadian dependency theory, the use of the global South analogy was commonplace. The habit stretched to political economists who were very much

Introducing the Argument  13

outside the left-nationalist dependency paradigm. Tim Draimin and Jamie Swift, in their important mid-1970s article cited above, at one point argued that Canada should be classed in the same category as Iran and Brazil (1975, 7) since, like Canada, both were sub-imperial. Hammer and Gartrell also attempted to link Canada and Brazil, pointing out “some striking similarities between the Canadian and Brazilian developmental histories” (1986, 203). Ehrensaft and Armstrong (1981) classed Canada with a group of five “dominion capitalisms” that ­included Argentina and Uruguay. When Drache and Clement wrote their obituary, a historical materialist critic of dependency theory such as Glen Williams could go some distance towards replacing the left-­ nationalist paradigm, yet argue that the structure of Canada’s exports and imports, distorted by the country’s relationship with the United States, “leaves us squarely in the company of Brazil and India” (1986, 10). And one of the leading historical materialist critics of the Canadian dependency school, Leo Panitch, wrote in the midst of the late 1980s debate over free trade with the United States that “the marginal vestige of bargaining power retained by the Canadian state by virtue of our being a neo-colony rather than a mere colony of the American Empire (the difference between Puerto Rico and Canada in formal terms) has been further reduced” (1988, 14). This practice has not been by any means the exclusive property of the left. William Graham, the Liberal candidate in the Toronto riding of Rosedale during the 1988 federal election and who would re-emerge as  defence minister in the early twenty-first century, could describe Canada as “the richest underdeveloped nation in the world.” As the Globe and Mail (1988a) reported, “[a] professor of international law and international economics at the University of Montreal, McGill University and the University of Toronto, Mr. Graham says he teaches his students that Canada is no different from many Third World countries. ‘We are a commodity exporter and a technology importer, which is the economic profile of every Third World nation,’ he told a student audience recently.” This habit of using a global South comparator for the Canadian experience has the effect of pulling twenty-first-century semi-periphery analyses back to problems encountered by the twentieth-century dependency framework. We will encounter this slippage into global South categories repeatedly in the pages that follow. Given Canada’s very different place in the world hierarchy compared to that of any of Mexico, Iran, Brazil, Argentina, Uruguay, India, or Puerto Rico (documented in

14  Escape from the Staple Trap

Chapter 2), this practice seems suspect. It would never be applied to the United States, Germany, France, or the United Kingdom; the very idea of using any global South or “Third World” country or region as a point of reference for their experiences would seem bizarre. But it has become commonplace in Canadian political economy. The Case for Political Economy In a comparative analysis in which one of the comparators is Canada, it is crucial to hold onto the qualitative distinction between the global North and the global South. The central error of the CPE tradition in the 1970s was to take criteria useful for understanding the dynamics of the global South and transpose them to Canada, a country very much in the global North. The semi-periphery literature of the twenty-first century is repeating this mistake. For phenomena such as non-resident ownership of manufacturing, trade in “staples,” and many other categories, empirical similarity between two economies does not automatically equate to developmental similarity. This is abundantly clear when it comes to non-resident ownership of the Canadian economy, perhaps the central empirical “fact” around which Canadian political economy developed. It is now clear that global North countries at the top of the hierarchy of nations react quite differently to high levels of non-resident investment than do the oppressed and very poor economies of the global South. Non-resident, particularly US, ownership of all sectors of the Canadian economy was indeed very high in the 1970s, including in the key manufacturing sector. But these levels have been steadily declining ever since. And even if there had been a return to increasing levels of US or other non-resident control of the Canadian economy in the twenty-first century, that would not be the decisive factor. Left nationalism assumed that the impact of non-resident ownership in an advanced capitalist economy such as Canada’s was at least partially analogous to its impact on the economies of the global South. In the latter case, there is a strong correlation between high levels of non-resident ownership and high levels of poverty and distorted development. No such correlation exists in Canada. High levels of non-resident control or not, the Canadian economy remains entrenched in the top tier of the global North. Stressing these issues involves insisting on using the “political” half of the couplet “political economy,” something that will be attempted throughout this study. Politics is often decisive in questions of economic

Introducing the Argument  15

development – in particular, the political category of “sovereignty” has proved to be one of the most powerful tools that shape economic development. The global South has had its development progress stalled or even reversed by the long history of imperialist suppression and distortion of its political sovereignty. We now talk about the industrial revolutions taking place in China, Indonesia, India, and elsewhere in Asia. But the prologues to that economic development were political: massive social movements to assert national sovereignty. In Canada, it will be argued, for a very long time effective sovereignty has been asserted by a Canadian-based elite. This will be explored in detail in Chapters 7 and 8.

A difficult engagement Exploring the limitations of the left-nationalist CPE mainstream puts the researcher on dangerous ground. The image of Canada as weak, dependent, oppressed, semi-peripheral, and in a staple trap has transfixed Canadian political economy. The polemic between those who hold to that image and those who differ – often framed by political positions staked out decades ago at the time of the left-nationalist Waffle movement – sometimes is marked by an undue amount of vitriol, which inhibits political discussion. In 1990 Greg Albo underlined this inhospitable atmosphere for an emerging generation of political economists: “Tensions at political meetings, political codes, and even individual rivalries, often date back to some Waffle episode in which we had no part” (1990, 167). Such vitriol inhibits, not just political practice, but also political economy scholarship. One example can put this into sharp relief. Although the principal concern of Prairie Capitalism – the classic 1979 work by John Richards and the late Larry Pratt – was not to critique left-nationalist political economy, its approach, in fact, was a strong challenge to the then-­ hegemonic view. “In our study,” the authors wrote, “we find no confirmation of the thesis that provinces heavily dependent on the exploitation and sale of staples are thereby placed in a permanent position of political dependency vis-à-vis external capital” (1979, 8). This put them on an unfortunate collision course with the CPE mainstream. In a quartercentury retrospective, Pratt outlined what happened upon the book’s publication: “We got called down to a meeting at York University,” to meet with, in his words, “all the big pooh-bahs of left nationalism.” Pratt continues: “The book had just come out, about a month before,

16  Escape from the Staple Trap

and they laid it on the line: it was a fundamentally flawed book, a dangerous book. We had transgressed the party line. I didn’t know whether to laugh or cry” (Mouat 2005). Vitriol or no, the discussion has continued in the years since, with versions of the staple-trap paradigm proving to be overwhelmingly dominant as the organizing framework for the entire CPE tradition. But Toronto’s litter pickers refused to fade from memory. If Canada is caught in a staple trap, more vulnerable to crises, more prone to deindustrialization, small, weak, and unprotected, and declining vis-à-vis the imperialist to the south, why did Toronto have the time and the money to employ far more litter pickers per capita than cities in the United States? Perhaps the difference is cultural. But I have the political economist’s habit of peering behind the cultural explanation to try to discover the “material substructure” – the differences in class, social strata, and the economy that, like the relationship between the unconscious and the conscious in psychology, are often more important and more powerful than surface cultural and ideological awareness. Besides, why would hockey and the Tragically Hip dispose one to clean up more thoroughly than baseball and New Orleans jazz? The problem reshaped itself as a series of questions. Litter-picking, a subsection of street-cleaning, is important. While teaching municipal politics at Ryerson University, I came to understand that it is actually a key aspect of public health, an underappreciated tool in the struggle to decrease the risk of infection and disease. Important or not, you can cut back on street-cleaning much more readily than you can cut back on building the streets themselves, manufacturing the autos that drive on them, and constructing the steel plants that feed the auto factories. It would jeopardize working-class health to do so, but that kind of cold calculus has been used a few times previously in capitalist societies. If one compares two broadly similar societies and discovers that one society is putting more resources into economically “secondary” activities than the other, is it not reasonable to conclude that the society with the leisure, time, and money to invest in these activities is somewhat better off, somewhat more advanced, somewhat more developed, than the society that lets its streets become fouled with refuse? But this conclusion flew in the face of the conventional political economic wisdom. The citations noted above are just a small sample of an extensive body of literature in which Canada is seen as less developed than the United States, its economy as having structural weaknesses compared to that of its southern neighbour and sometime rival – caught

Introducing the Argument  17

in a staple trap and almost bereft of the high-tech manufacturing sector that is the future of the advanced industrial world. It is seen as having less, not more, leeway than the United States for the “trivial pursuit” of street-cleaning. It is seen as a weak, dependent, deficient, truncated, poor, second cousin. After comparing every conceivable indicator of development, ­however, the conclusion was inescapable: the image of a weak, semi-­ industrialized, dependent, semi-peripheral, distorted Canadian capitalism is wrong. By any measure, Canada’s industrial structure is far more similar to than different from those of the United States and the other advanced capitalist countries. Further, since the early 1960s, the Canadian economy has outperformed the economies of many other such countries. Canadian streets are cleaner than US streets because there is more surplus available to the Canadian state than to the US state, enabling it to indulge in such pursuits. The “Great Recession” of 2008–09 reinforced the need for such a reappraisal. By every indicator, that recession was far harder on the United States than on Canada. Take just one example, that of unemployment. The Great Recession devastated whole sections of the US economy, with national rates of unemployment in May 2010, one year into the recovery, still at 9.7 per cent. At the state level, it was much worse in many places. California, with an economy bigger than Canada’s, had an unemployment rate of 12.4 per cent, Florida 11.7 per cent, Illinois 10.8 per cent, Michigan 13.6 per cent, and Nevada a crushing 14 per cent. These rates were unprecedented in the modern period (United States 2010). The grim truth, however, is that these statistics actually understate the problem. In 1994 a major revision of methodology at the US Bureau of Labor Statistics (Bregger and Haugen 1995) had the effect of excluding from the ranks of the officially counted unemployed those who are “marginally attached” to the workforce. Such people fall into two categories: those who, in the short term, have become discouraged from seeking work and those who want full-time work but can get only part-time work; and a second group who have given up looking for work for more than a year – the “long-term” discouraged. Adding the first group to the unemployed would have pushed the unemployment rate in 2010 to around 15 per cent, while also adding the second group would have sent the rate to the truly alarming figure of 20 per cent (Williams 2012). The recession was much shallower in Canada; unemployment never reached anything like US levels, and by 2010 the economy had begun to

18  Escape from the Staple Trap

recover. Indeed, the contrast between the two countries became the subject of speculation and envy in the US press. The Los Angeles Times reported that, “on healthcare, as well as on such critical issues as the deficit, unemployment, immigration, and prospering the global economy, Canada seems to be outperforming the United States” (D. Lee 2010). The widely read Huffington Post ran an article advising US unemployed to head north to look for work in Canada, “where hiring is booming and home prices are rising” (McCarthy 2010).3 Whether the measure is unemployment, house prices, public sector finance, gross domestic product, or salaries and wages, by all of them the Canadian economy negotiated the slump much more readily than did that of the United States. For the supposedly dependent country to navigate the waters of economic crisis with greater resilience than its oppressor seems to demand an interrogation of received wisdoms. Chapter 6 will return to the story of comparative unemployment statistics, showing that the gap between Canada and the United States did not suddenly appear in 2008, but in fact has much deeper roots. Sovereignty and the Canada Question Canada, the global North, and the global South are not automatically “given” facts; they are historically and socially constructed. Central to this construction is the assertion, or the suppression, of political sovereignty. European colonialism and imperialism was the great “fact” in the world economy for some five centuries. It had (and has) two related aspects – one “political,” the other “economic” – but in reality both ­operating in a tight relationship. Politically, imperialist and colonial domination of oppressed countries relocated effective sovereignty to the Great Powers’ imperialist centres. Economically, this relocation of sovereignty made possible the relocation of surplus accumulated in the oppressed country to the global North. Gold and silver from the Andes, coffee from Brazil, sugar from the Caribbean, slaves from Africa, oil from the Middle East, spices, silk, tea, teak, and opium from Asia – little of the vast wealth represented by these commodities, animate and inanimate, would have enriched the cities of the global North had not effective sovereignty been smashed, distorted, or prevented from developing in the global South. The sweated labour of the colonies and half-colonies congealed as superprofits in the imperialist centres. This was the central rationale for a half-millennium of colonialism and ­imperialism, a half-millennium in which world capitalism built its

Introducing the Argument  19

institutions. Countries at the core experienced that half-millennium as the creation of civilization, the foundation of modernity. Countries on the periphery or semi-periphery, denied effective sovereignty, experienced this half-millennium as regressive and barbaric. The question of sovereignty, as it applies to Canada, is almost always seen as in a mirror, with all the key features reversed. Many authors, perhaps most in the CPE tradition, deny the existence of effective sovereignty in Canada, seeing the country as having been first subordinate to Britain and now to the United States. Such an analysis is indispensable to the maintenance of a left-nationalist framework. Again and again we are told that a subordinate, “comprador” Canadian elite sells out the interests of the country to imperial masters abroad. This, however, is highly misleading. Canada’s elites were able to acquire effective political sovereignty in the years between the rebellions of 1837–38 and Confederation in 1867. This establishment of sovereignty was the ­necessary political accompaniment to the economic establishment of a home market, which emerged into clear view during the political period dominated by Sir John A. Macdonald. That home market was the indispensable building block of the wealth and power of Canadian capitalism. It could not have been created without the assertion of political power through the Canadian state. The empire of the West and the North provided the foundation for the creation of the capitalist Canadian economy, and empires do not create themselves – they are created by states. The very sovereign Canadian state of Macdonald, Wilfrid Laurier, and their heirs suppressed rebellions, acquired an empire bordered by three oceans, interred indigenous peoples in “reservations,” and established populous and prosperous new settlements on land that had been forcibly emptied. This book will end, therefore, with the examination of, in Chapters 7 and 8, the dual establishment of sovereignty and the home market in Canada, deploying the term “subcontracted sovereignty.”4 Military Parasitism All this done, however, the story still will be only half-told. If Canada did, in fact, outperform the United States during the recent recession – and, by many indicators, has done so over something like two generations – how is this to be explained? How does an economy with a smaller home market, industrializing later in its history, encumbered with enormous geographic and climatic barriers to its development,

20  Escape from the Staple Trap

and with quite high levels of non-resident control of its economy manage to make up ground as measured against the world’s biggest economy, its closest trading partner, and (arguably) its chief rival? Chapter 4, but particularly the projected “sister volume,” Arms and the Nation, will deploy the concept of “military parasitism” to suggest an answer to this question. This involves entering the terrain of a vitally important economic sector – that of state-directed military production – and the quite different relationships Canada and the United States have had with this “arms economy” over the past half-century. In the exploration of “military parasitism” – both in outline form here and in the next volume – the political half of political economy will take centre stage. Economies are not just about the creation of things and the delivery of services in the abstract; creation and delivery occur in a highly charged political field, one where wars, empires, and imperialism – the subject matter of international politics – play an enormous role. But actions taken in this political world have very real, sometimes very profound, economic consequences. The United States has been the centre of empire since the end of the Second World War. It has “kept open for business” spheres of influence encompassing much of the world, in large measure through the maintenance of by far the most massive arms sector in the world. But this has entailed considerable overhead costs, which, over time, have become a burden on its domestic economy. Meanwhile, its allies – Japan, western Europe, Canada – have participated fully in exploiting business opportunities in the spheres of influence opened up through US arms without having to bear anywhere near an equivalent fiscal burden. This “military parasitism,” it will be argued, is one of the chief reasons that a small economy such as Canada’s could, over half a century, make up ground vis-à-vis the world’s biggest economy.5 The weight of the evidence on the negative impact of militarism is so clear that it is extraordinary that the Canadian economy has not caught up with the US economy more than it has. The book will suggest that, if the United States is addicted to the extremely wasteful economy of arms production, then Canada is addicted to the only somewhat less wasteful economy of non-renewable extractivism. The trap this extractivism represents was on full display in early 2015, with an unexpected and quite steep fall in the price of oil. Billions of dollars worth of capital investment in Alberta’s north were put on hold, thousands of layoffs started to make their way through the system, the Alberta provincial government, once flush with cash, was suddenly staring at the

Introducing the Argument  21

need to finance a burgeoning deficit, and the federal government ­delayed bringing down its own budget – its capacity to move from red to black made suspect by the price move of what had been “black gold.” This extractivism crisis caught Calgary oil executives and Ottawa Conservative politicians completely by surprise, and it will cause much pain to the Canadian economy and to Canadian workers. But it is not a “staple trap” in the manner suggested by the bulk of CPE writing. It is not, in other words, a trap that has blocked Canada from entry into advanced capitalism. It is, rather, a trap, typical of advanced capitalisms, that wastes labour and capital on an enormous scale pursuing activities that might be profitable in the short term, but are wasteful and damaging in the long term. All of this suggests another trap looming in the field of Canadian public policy: addiction to militarism. Recent actions by both Liberal and Conservative governments have started Canada on the road to remilitarization. The peacekeeping moment ended in 1991 with Canada’s involvement in the First Gulf War. During the long military conflict in Afghanistan, the Canadian state made it clear that it was committed to a policy of systematic rearmament. But the evidence is now overwhelming that a political orientation towards militarism can become an economic addiction to arms spending – and that, in the long run, such an addiction systematically undermines the domestic economy. The second volume of this study will trace the contours of this most deadly trap facing Canada’s future economic development – the trap of addiction to war, an addiction that brought the Soviet Union to its knees and is doing real damage to the economy and society of the United States. The sceptic might say that all that is being suggested is that an economy that builds fewer missiles has cleaner streets. I am, I suppose, arguing at least that. But more than this is at stake. If avoiding dependence on an arms economy has been beneficial to the Canadian economy since the end of the Korean War – as will be argued in the second volume – then the new militarism of, first, the Chrétien Liberals and, now, the Harper Tories might well have very negative long-term economic consequences. This book is only one contribution to a bigger discussion, and I do not pretend that it covers the entire, and quite large, field of political economy. The focus here is on the dominant wing of CPE, the one that originated in the first left-nationalist moment of the Waffle, and then on the two left-nationalist moments in the decades since. There are other streams among political economists who study Canada. A new

22  Escape from the Staple Trap

literature is emerging, for instance, from political economists with a background in geography who are engaged in important and interesting research into both the internal dynamics of the world economy and Canada’s place within that wider world economy (Britton 1996). Theorists from this wing of political economy will be cited on occasion in the pages that follow, but they are not at the centre of the inquiry – it  is work enough for one volume to work through the mainstream of CPE. Research projects originate in unusual places. And sometimes seemingly small questions – a comparative political economy of litter-­picking, for instance – can open up quite serious and profound problems. Hopefully the investigation that follows will make some contribution towards a clearer understanding of Canada’s political economy.

2 One of These Things Is Not Like the Others

THE SEMI-PERIPHERY AND TWENTY-FIRST-CENTURY LEFT NATIONALISM What is this place we call Canada? This simple question has proved easier to ask than to answer. To begin shaping an answer, in the political economy sense, one must conceptualize the world itself – that is, one must place the different countries of the world into appropriate categories, like with like. If we accept that “Canada” can be used as a unit of analysis (and this should not be taken for a given), the second step is to determine where Canada fits in this conceptual picture: what grouping of national economies is the best fit as a place within which to conceptualize Canada? The “classic” moment of Canadian political economy – as defined in Chapter 1 – largely deployed versions of dependency theory to paint this mental picture. In the twenty-first century, world systems theory (WST) – since its introduction in the 1970s one of the most influential frameworks with which to conceptualize the world economy – has definitively displaced dependency theory as a means of painting a political economy image of Canada and its place in the world. A detailed examination of the WST framework, then, is the appropriate next step. World Systems Theory Developed by Immanuel Wallerstein, world systems theory has several key tenets. First, Wallerstein insisted that the principle unit of analysis for political economy could not be the national economy or the national state, but, rather, the world system as a whole. Probably as early as the

24  Escape from the Staple Trap

sixteenth century, there existed a modern world system that was definitely capitalist – in other words, a capitalist world economy. This capitalist world economy was, however, an extremely uneven place. By about 1640, three structural positions – core, periphery, and semi-­ periphery – had been established, and their interactions have played a  crucial role ever since in distributing wealth through the system. Wallerstein accepted the understanding of capitalism developed by Karl Marx that at the system’s core was exploitation: the extraction of surplus value from the proletariat by a class of capitalists. Wallerstein argued, however, that, along with this process of exploitation “internal” to national economies, there existed a parallel, system-wide process that operated between economies. For Wallerstein, “capitalism involves not only appropriation of the surplus-value by an owner from a laborer, but an appropriation of surplus of the whole world-economy by core areas” (Wallerstein 1974, 401). This relationship between a very small core and a very large periphery, containing the vast majority of the world’s population, would be inherently unstable if not for the extremely important existence of a group of countries – the semi-­periphery – situated between the core and the periphery. Just as within a national economy the middle class or petty bourgeoisie is essential as a “shock absorber” between the capitalist class and the proletariat, so between economies “the semi-periphery is needed to make a capitalist worldeconomy run smoothly” (403). Wallerstein argued that “the worldeconomy as an economy would function every bit as well without a semi-periphery. But it would be far less politically stable, for it would mean a polarized world-system. The existence of the third category means precisely that the upper stratum is not faced with the unified opposition of all the others because the middle stratum is both exploited and exploiter” (405). Two years later Wallerstein quantified his notion of the semi-periphery by developing a list of countries that he saw as playing this role in the world system. And in that list – “a wide range of countries in terms of economic strength and political background” – he included, among others, Mexico, Norway, Australia, and Canada (Wallerstein 1976, 465). In the early 1970s, parallel to Wallerstein’s developing his extremely influential world systems theory framework, Johan Galtung (1971) developed a quite similar theory, but rather than “core” and “periphery,” he used the terms “centre” and “periphery.” Galtung’s insightful contribution accepted the basic fact of the transfer of surplus from the periphery to the centre, but put special emphasis on specific mechanisms



One of These Things Is Not Like the Others  25

of domination – particularly the existence within the peripheral countries of their own internal centres and peripheries, and the links between the centres of the rich states and those of the peripheral states – links that enrich both while leaving the peripheral states as a whole dominated and exploited. Similar to Wallerstein, Galtung introduced a third category of nations that he called “go-between,” those existing “between the Center and Periphery nations.” Such nations “would exchange semi-processed goods with highly processed goods upwards and semi-processed goods with raw materials downwards … [and] would serve as an intermediate layer between the extreme Center and the extreme Periphery.” Like Wallerstein’s characterization of Canada as “semi-peripheral,” Galtung considered Canada a “go-between” state, in the sense of its being a buffer between the United States and what Galtung called “Anglo-America” – by which he probably meant the English-speaking Caribbean (Galtung 1971, 104–5). World systems theory is the organizing framework for the third moment – really, the twenty-first-century moment – of CPE left nationalism, but its roots go back to a 1989 paper by Daniel Glenday, who agreed with Wallerstein that “Canada deserves to be located in the semi-periphery” (1989, 213). It was not until this century, however, that senior Canadian political economists would apply this semi-periphery framework systematically to Canada. Stephen Clarkson took it as ­given that Canada and Mexico are “two semi-peripheral states” (2001, 514). Gordon Laxer launched a major semi-periphery research project, cited in Chapter 1, premised on the utility of assessing Mexico, Norway, Australia, and Canada as semi-peripheral. And in 2010 Glenday returned to this framework in the lead chapter of an important new textbook. There he indicated that his 1989 assessment had been based on the observation that Canada’s growing economy of the 1970s and 1980s made it “a strengthened semiperipheral region of the world economy” (Glenday 2010, 16), but that by the twenty-first century Canada had declined to a “weakened, semiperipheral status” (26). To arrive at this conclusion, Glenday put considerable weight upon Canada’s trade structure – particularly its increasing reliance on oil exports – and on a negative trade balance in manufactured goods. That a framework is widely used does not mean, however, that it is a useful one. In fact, any category that includes countries as different as Canada and Mexico is suspect on its face. As well, a host of international scholars have developed sophisticated models to map the zones of the world system, and – contra Wallerstein – almost universally place

26  Escape from the Staple Trap

Canada in the core. Moreover, Canada can be included in the same economic category as Mexico only by ignoring or misusing key aspects of  world systems theory. And, finally, developments since the Great Recession have gone in the opposite direction from that expected by scholars working in the Canada-as-a-semi-periphery school.

Canada and Mexico compared How different are Canada and Mexico? It actually feels a little strange typing such a question, so different are the realities of these two countries. There are, of course, superficial similarities. Each has a long b ­ order with the United States. Each has a trade agreement with the United States (and with one another). Each emerged out of a colonial relationship with a European country. But beyond that, little can be said. Life in the country of the Zapatistas operates in a completely different ­manner to that of life in the G7 country called Canada. This is not lost, of course, on the scholars who work within the Canada-as-a-semiperiphery framework. “Canada is considerably wealthier than Mexico,” write Stephen Clarkson and Marjorie Cohen. Mexico “is by far the least affluent of our four states” (the other three being Canada, Norway and Australia), “but it has much in common with Canada in its close and subordinate relationship with the US,” and “shares with Mexico export-oriented development strategies” (2004b, 7–8). Gordon Laxer also recognizes the differences: unlike Mexico, “Australia, Canada, and Norway have productivity levels, pay rates, and class formations that are indistinguishable from core countries.” Why, then, do we still call such countries semi-peripheral? Like Cohen and Clarkson, Gordon Laxer advances the fact of their “resource-export dependency,” the practice of sending their “non-renewable heritage” to “more powerful countries,” actions that “retard the development of more diverse activities for their citizens.” The problems with resourceexport dependency are exacerbated when such activities become “controlled by foreign corporations” because, then, the resource exports “can also be symbols of continued subservience. Unequal power comes into play, as core countries partially live off the carrying capacities of the semi-periphery by continually claiming portions of the latter’s non-­ renewable heritage” (G. Laxer 2004, xiii). These statements, however, are not sufficient to explain away the really quite massive differences between Mexico and the other three countries. So profound are these differences that they create problems



One of These Things Is Not Like the Others  27

of internal consistency in the volume in which Laxer, Clarkson, and Cohen insist that Canada is, like Mexico, semi-peripheral. That volume – edited by Clarkson and Cohen for the project overseen by Laxer – devotes an entire chapter to an empirical testing of the WST framework. Using per capita income to determine a country’s place in the world system, Satoshi Ikeda (2004, 267) attempts to quantify the zonal position – core, periphery, or semi-periphery – of 150 countries in 1980 and 1999. In both years he locates Norway (along with Luxembourg, Switzerland, and the United States) in what he calls the “upper core.” Australia, by his calculations, was a member of the “lower core” in 1980 but had descended to the middle semi-periphery by 1999, while Canada went from the lower core to the upper semi-periphery over that period. He places Mexico, in contrast, in the lower semi-periphery in 1980 and drops it into the upper periphery in 1999. In neither year, in other words, are any of these countries located in the same zone of the world economy. Norway is very much at the core of the world system in both years, while Mexico by 1999 had been reclassified as a periphery, pushed backwards by the peso crisis that engulfed the country following the implementation of NAFTA in 1994. Clearly, Ikeda’s detailed and serious empirical study completely undermines the basis for the entire framework of the volume and of the project as a whole. The editors partly address this contradiction in the introduction, indicating that the point of Ikeda’s study was principally to document the trajectory of economies in the world system between 1980 and 1999 and that, for the most part, it indicates that the direction was downward. They also point out that Ikeda uses the market exchange rate in his calculations of net income per capita – understood as gross national income (GNI) divided by the total population – and when “measured by the criterion of purchasing power parity [PPP], we find that the four economies under review in this book have had trouble holding their own – even Norway” (Clarkson and Cohen 2004b, 10). There are several conceptual problems with all of this. First, it was quite risky for Ikeda to have chosen market exchange rates as the standard by which to measure the place of national economies in the world system. At one level, his reasoning is sound: the market exchange rate measures one currency against the value of another – usually against the US dollar because of the dominant role that currency plays in international transactions. The market exchange rate, in other words, reflects more accurately than does the PPP-adjusted rate “how much can be bought by local income in the global market, where the US dollar is

28  Escape from the Staple Trap

the predominant currency. In this way, the market exchange rate is better than the purchasing power parity exchange rate as a measure of a country’s command over the global accumulation process” (Ikeda 2004, 265). But market exchange rates can be extremely volatile, as Figure 2.1 shows. It takes 1 January 1994 – the moment of the launch of the North American Free Trade Agreement (NAFTA) – and assigns the ratio of the value of a country’s currency relative to the US dollar on that date as 100. If the ratio changes over time to, say, 50, then the currency has lost half its value relative to the US dollar. By contrast, if the ratio goes to 150, the currency has appreciated in relative value by 50 per cent. The first thing that jumps off the page is the very different fate of the Mexican peso compared with those of the Canadian and Australian dollars and the Norwegian krone. The peso experienced a steep collapse with the introduction of NAFTA, and never recovered: by 2012 it had been reduced to less than 30 per cent of its 1994 value relative to the US dollar. The peso is one of the world’s weak currencies. By contrast, the other three currencies, relative certainly to the peso but even to the US dollar, are quite strong. In the early years of this century, each depreciated against the US dollar, the Australian dollar performing the worst. But after 2003 each rose steadily against the US dollar, fell sharply in the context of the Great Recession, then returned to strength. As this is written, there is much talk about the weakening of the Canadian dollar and other commodities-based currencies – including those of Australia and Norway – and in fact all three fell in 2014 relative to the US dollar. Nevertheless, all three currencies are still much stronger than they were in 1994: the Australian dollar by 30 per cent, the Canadian dollar by about 20 per cent, and the Norwegian krone by about 10 per cent. Another serious problem with Ikeda’s analysis needs to be highlighted. He attempted to determine if the rankings of national economies were ascending or descending in the world economy between 1980 and 1999. But the very volatility of market exchange rates, his chosen standard, seriously distorts his results. In January 1980, the Canadian dollar was worth 86 US cents (Statistics Canada 2013b); ten years later, its value was little different, sitting at 85.35 US cents. But by December 1999 the Canadian dollar had shrunk to just 67.84 US cents (OANDA 2014). Ikeda, rather arbitrarily, asserts that a national economy is part of the core of the world system when its per capita income is 80 per cent or more of US per capita income. If one accepts this as the standard and that per capita income should be measured in market exchange rates relative to the US dollar, then Canada’s and Australia’s places in the world system, in fact, declined between 1980 and 1999. In



One of These Things Is Not Like the Others  29

Figure 2.1.  Market Exchange Rates for the Australian Dollar, Canadian Dollar, Mexican Peso, and Norwegian Krone, Relative to the US Dollar, 1994–2014

Source: Author’s compilation from data available in OANDA (2014).

1980 Australia’s per capita national income, measured in market exchange rates, was 84 per cent of that of the United States, while Canada’s was 87 per cent, putting both of them, by Ikeda’s criteria, in the core. By 1999, using the same criteria, Australia’s per capita national income had shrunk to 66 per cent and Canada’s to 64 per cent of that of the United States – supposedly putting both in the semi-periphery. But this decline is entirely accounted for by the relative slide in the values of the two countries’ currencies against the US dollar in the 1980s and 1990s, a slide that has since been decisively reversed. By 2012, the last year for which comparable figures are available, Australia’s per capita national income not only had returned above the 80 per cent threshold; at 113 per cent it had actually slightly surpassed the GNI per capita of the United States. Canada, at 97 per cent, was not far behind. These recent results put both countries decisively in the core of the world system by Ikeda’s own criteria (see Figure 2.2). Is the resulting picture – of Australia and Canada sliding in and out of the core between 1962 and 2013 – a reasonable one? Or is it, by

30  Escape from the Staple Trap Figure 2.2.  GNI per capita, Australia, Canada, Mexico, and Norway, Relative to the United States, 1962–2013

Source: Author’s compilation from data available in World Bank (2014b).

contrast, confusing and misleading, distorted by the choice of market exchange rates as the standard by which to measure per capita national income? And what of Norway and Mexico, the other two members of the ­quartet of supposedly semi-peripheral countries? Norway crossed the 80 per cent zonal boundary line in 1974, four decades ago. In 1980 its per capita national income was 15 per cent greater than that of the United States, in 1999 just 3 per cent greater, but by 2013 soaring to an extraordinary level, 91 per cent greater than US per capita GNI. By this measure, Norway certainly cannot be considered semi-peripheral. Mexico’s GNI per capita, in contrast, was just 18 per cent of that of the United States in 1980, declined to 15 per cent in 1999, and rose to 19 per cent by 2013 – hardly a member of the core. Is it peripheral or semi-­ peripheral? It is certainly the only one of the four countries that, by Ikeda’s criteria, could in any sense be considered for membership in either category. His analysis thus completely contradicts the premise



One of These Things Is Not Like the Others  31

of Clarkson and Cohen (2004a), the volume in which his study appears, that the quartet are all semi-peripheral. In this universe of five countries, there are clearly two distinct categories: Canada, Norway, Australia, and the United States share a similar place in the world ­system, a place qualitatively different from and superior to the place ­occupied by Mexico. Choose any development indicator, and you will get the same result. The four rich countries – the United States, Canada, Norway, and Australia – share much in common. They share little in common with Mexico. The World Bank (2014b) reports that health expenditure per person in Australia in 2012 was 69 per cent that of the United States, in Canada 65 per cent, and in Norway 102 per cent; in Mexico, in contrast, the figure was just 6.95 per cent that of the United States. In the four global North countries, the incidence of tuberculosis per 100,000 people in 1990 ranged from a low of 6.8 in Australia to a high of 12 in the United States. By 2012, the US figure had plummeted to 3.6, Canada was not far behind at 4.6, while Australia and Norway trailed with figures of 6.5 and 7.5, respectively. In Mexico, the incidence of tuberculosis in 1990 was 67 per 100,000 people– tenfold the incidence in Australia that year. Mexico’s incidence has fallen this century, but in 2012 it still sat at 23, seven times the US rate. In a category called “improved sanitation facilities” (essentially, flush toilets), the figures for the four rich countries over the period from 1990 to 2012 were all so high that they rounded off to 100 per cent. In Mexico, in contrast, more than one-third of the population did not have access to such facilities in 1990, and 15 per cent still did not in 2012. Then there is one of the most basic indicators of development: the status of women. In Mexico, maternal mortality per 100,000 live births was 88 in 1990; in the United States that year the figure was 12, in Australia 7, in Norway 9, and in Canada just 6. By 2013, Mexico had reduced the figure to 49, while Australia had seen its figure fall to 6 and Norway to 4. Scandalously, maternal mortality had risen in both Canada (from 6 to 11) and in the United States (from 12 to 28). These latter trends in Canada and the United States are shocking and demand public policy scrutiny; they probably represent statistical evidence of the decline in health care caused by the neoliberal attack on the welfare state. The one point to make here, however, in terms of thinking through the categorization of these countries in the world system, is that it remains qualitatively more dangerous for ­women to give birth in Mexico than in Canada, Australia, Norway, or the United States. Interestingly, if there is any convergence in indicators

32  Escape from the Staple Trap

here, it is between the United States – the unanimously acknowledged centre of the world economy – and Mexico. One of these things, then, is indeed not like the others. In the terms used in development studies, four of these countries – Canada, Norway, Australia, and the United States– are in the global North, while the fifth – Mexico, the one not like the others – is in the global South.

Semi-peripheral, semi-proletarian The development indicators just surveyed are windows into the very different class structures of the economies compared in Ikeda’s analysis. For Wallerstein this was a decisive question in assigning a country its place in the world system. He argued that, for semi-peripheral countries, “[b]oth their internal politics and their social structure are distinctive” (1976, 463). More precisely, he went on to say that the mark of a “semi-peripheral country in comparison to a core country is: a larger external and a weaker internal property-owning bourgeoisie; a ­better-paid professional sector and a more poorly-paid sector of fully proletarianized workers, but a far larger (and probably worse off) sector of semi-proletarianized workers” (468). Much ink has been spilled on the first of these, the high levels of non-resident (“foreign”) control of the Canadian economy, something that will be reviewed in later chapters. As for the rest, one cannot find a “more poorly-paid sector of fully ­proletarianized workers” in Canada than in the United States and definitely not “a far larger (and probably worse off) sector of semi-­proletarianized workers.” But shift the comparison to Mexico, and this is precisely what one finds: an extremely large (and definitely worse off) sector of semi-proletarianized workers. A portion of this semi-­proletarian class is represented by the enormous mass of rural labour in  the Mexican economy. As Figure 2.3 shows, rural labour accounted for almost 25  per cent of Mexico’s workforce in 1995. The last year for which we have figures for all five countries is 2008. That year, agricultural employment accounted for 3.3 per cent of the w ­ orkforce in Australia, 2.6 per cent in Norway, 2.4 per cent in Canada, and 1.5 per cent in the United States. In contrast, the figure for Mexico, 13.1  per cent, while down from that of 1995, was still much higher than in the other four countries. This is statistical evidence of something with which any student of Mexico will be familiar: the poor, semi-­proletarianized section of the workforce found in both the countryside and in the cities. As a mass phenomenon, there is no equivalent



One of These Things Is Not Like the Others  33

Figure 2.3.  Employment in Agriculture as a percentage of Total Employment, Australia, Canada, Mexico, Norway, and the United States, 1995–2012

Source: World Bank 2014b.

to this in global North countries such as the United States, Canada, Norway, and Australia. There is one quick way to get a sense of just how much poorer is this  sector of Mexican semi-proletarianized labour compared to any segment of the workforces of our quartet of global North countries. The World Bank collects figures for economically active children between the ages of seven and fourteen in Mexico, but does not do so for our other four countries because there is statistically nothing to count; statistically significant levels of child labour disappeared long ago in all four countries. In Mexico in 2011, as Figure 2.4 shows, 9.1 per cent of boys and 4.4 per cent of girls ages seven to fourteen were in the workforce. In urban areas, 8.1 per cent of boys and 12.5 per cent of girls were economically active; in the countryside, the percentages rise to 44.6 per cent and 14.4 per cent, respectively. Comparing these figures to those of 2004 suggests that child labour is unlikely to disappear soon as a structural component of the Mexican economy.

34  Escape from the Staple Trap Figure 2.4.  Child Labour in Mexico, 2004–2011

Source: World Bank 2014b.

This has to be theorized. The class structures of countries such as Canada, Norway, and Australia are extremely similar to that of the United States. All four countries are highly proletarianized, with the vast majority of the labour force working for a wage or salary in offices or factories. Mexico’s class structure is extremely different. There are, of course, wage and salary workers, but, as in many other global South countries, there exists in Mexico a mass, impoverished class of semiproletarians, some in the countryside, some in crowded and underserviced urban settings. This enormous fact in itself necessarily has profound implications for any effort to deploy the semi-periphery framework in an analysis of Canada. Aware of this problem, others who have tried to import the semi-periphery framework to global North countries have tried to modify it to fit a Canadian reality far different from that of a country such as Mexico. In an important 1989 comparative study, the authors wrote, “[w]hile Australia, New Zealand and Canada may be semi-peripheral states in some aspects, they are certainly not ‘pure’ types. This is particularly the case with respect to



One of These Things Is Not Like the Others  35

the existence of a poorly paid sector of fully proletarianised workers and a large semiproletariat; neither of these is characteristic of Australia, Canada or New Zealand” (Boreham et al. 1989, 68). This is the minimum conclusion that needs to be drawn: Canada (and Australia and Norway) fit only with difficulty into the category of semi-peripheral. But there is another, more compelling conclusion: it is the wrong category. These rich, developed global North countries are not semi-­ peripheral but need to be conceptualized as a part of the core of the world system. We will return to this point. Building on Wallerstein I In the path-breaking 1976 article in which he sketched out the essence of world systems theory, Wallerstein, as I have noted, placed Canada, Norway, Australia, and Mexico all in the category of semi-peripheral. But Wallerstein cannot be taken as the last word. First, some of his core assumptions and predictions were clearly wrong. He concluded by speculating that “[t]he next 25 years will probably determine the modalities and the speed of the ongoing transition to a socialist worldgovernment. We could emerge with a real strengthening of world ­socialist forces” (1976, 482). Things have not quite developed in that direction. And his analysis is marred by something that, from the standpoint of the twenty-first century, seems almost otherworldly, resting as it does on a rambling, not too coherent quotation from North Korea’s then-dictator Kim Il-sung (473–7). Wallerstein’s article, though brilliant, is marked by its time. If we lean on it, we must do so critically. This was clear just ten years after Wallerstein wrote, and in a manner directly relevant to this discussion. In 1986 Giovanni Arrighi and Jessica Drangel took “Wallerstein to task for inconsistent, vague, and even ­contradictory depictions” as to “the location of the semiperiphery” (Babones 2005, 32). They argued that Wallerstein’s semi-periphery list was quite arbitrary, as it “simply includes all states that seem to occupy an intermediate position in the world-economy from the point of view of either their income levels or their power in the interstate system.” Canada, evidently, is not in an intermediate position, but towards the top of the world system. So, in a sense, Wallerstein’s categorization of Canada was based solely on the rather banal observation that it was a “Middle Power.” As Arrighi and Drangel (1986, 14) note, with a list drawn up in such a manner, “[t]he connection between such positions and the structure of the world-economy, as spelled out in the concept of

36  Escape from the Staple Trap

semiperiphery, is completely lost, and the list could have been drawn up without any reference to such a concept.” In the decades since, there have been serious attempts to categorize the world system into core states, peripheral states, and semi-peripheral states, based on more nuanced and useful criteria. In this now quite extensive literature, Canada has been located almost universally in the core of the world system. In one of her earliest published pieces, Elisabeth Gidengil set out to test empirically the framework developed by Galtung – his being in a sense a “cousin” to Wallerstein’s world-systems approach. She concluded that there was a cluster of twenty countries that “tend to exhibit the typical ‘centre’ pattern of interdependent trade with both partner and commodity diversification. At the same time, they tend to have a high level of processing economies, importing raw materials and transforming them into manufactured goods for export” (Gidengil 1978, 60–1). Aspects of the analysis, however, seemed unsatisfying. Most of the twenty countries – among them the United States, West Germany, and the United Kingdom – were self-evidently part of the “centre” of the world economy. But her criteria meant that India and Pakistan also appeared on the list, two countries so different in income level and class structure from those in North America and western Europe as to call her methodology into question (58). Of interest to the analysis being developed here, however, is that she quite matter of factly included Canada in her list of twenty “centre” economies. Philip Resnick took up the task just over a decade later, working explicitly with Wallerstein’s categories. He argued that Canada’s semi-­ peripheral categorization made sense in the nineteenth and early twentieth centuries: “Canada’s position with respect to Great Britain, following Confederation and vis-à-vis the United States for the first two-thirds of the twentieth century, can be seen as that of a semiperipheral country, providing many of the raw materials for the core, but also  engaging in industrialization and infrastructural development” (Resnick 1989, 264). But, Resnick continued, “there has been a qualitative change in Canada’s position over the past two decades and …, ­economically at least, Canada has now reached a stage where it must be seen as one of seven leading capitalist powers in the world” (265). Borrowing a phrase from Peter Lange, he suggested that, similar to a country such as Italy, Canada should be seen as existing at the “perimeter of the core.” This categorization was based on much more than Ikeda’s per capita national income criterion. Again leaning on Lange, Resnick suggested that the assessment of Canada’s and other countries’



One of These Things Is Not Like the Others  37

place in the world system had to be “measured along a range of dimensions that might include i) GNP [gross national product] per capita, ii)  structure of national production, iii) structure of national trade, iv) class structure, v) wage structure, and vi) patterns of development and political response” (266). These were the viewpoints developed by two scholars working in Canada. The list of scholars working outside Canada who have developed methods by which to categorize the world system is a long one and, with the exception of the original somewhat impressionistic list compiled by Wallerstein, there is unanimity among them: Canada is part of the core of the world system. Let us review this literature in chronological order. In 1977 Daniel Chirot developed an argument closely parallel to Resnick’s: Canada was outside the core at the beginning of the twentieth century, but it was not a “typical” member of the periphery. Canada, Australia, and New Zealand “were in the peculiar position of being wealthy societies that were somewhat under the political and economic control of the United Kingdom, but they were far more independent and powerful within the British Empire than most of the other colonies” (1977, 10). Their economies for some decades “were colonial adjuncts to those of the core” (24), but, unlike much of the rest of the periphery, colonial countries such as Canada “had the beginnings of an industrial economy, and their agricultures were relatively advanced,” while “the rest of the peripheral world had a minuscule industrial production, and virtually all aspects of technology were far behind technology in the core parts of the world” (25). This combination of factors moved Canada “into the ranks of the core” (75), symbolized by the fact that, after the First World War, “Canada … became a highly developed industrial economy” (95). Of real importance was the weight Chirot placed on the role of multinational corporations in structuring the world system. He argued that they were key to the functioning of the economy and to the distribution of wealth and power in the world, and that “[t]heir primary power lies within the core itself, the United States, Canada, Western Europe, and Japan” (175). In 1979 David Snyder and Edward L. Kick developed what they called a “blockmodel of the world system circa 1965 … based on four types of international networks: trade flows, military interventions, diplomatic relations, and conjoint treaty memberships,” and they grouped countries into different “blocks” based on the density of their network connections. They concluded that their data “[provide] strong

38  Escape from the Staple Trap

evidence for a core-semi-periphery-periphery structure” (1979, 1096). Of particular interest to this discussion is the authors’ network block model C, among whose twenty-one members are the United States, the United Kingdom, the Netherlands, France, West Germany, Japan, and Italy, but also Norway, Australia, and Canada (1110). This block of countries, including Canada, “is unambiguously at the core of the world economy” (1114). In 1980 John Boli-Bennett developed an interesting study of the increasing role of the state in the modern economy. As part of this analysis he divided the world into “central, semiperiphery, and peripheral countries,” and identified ten countries that each accounted for 3 per cent or more of world trade in 1970 (the endpoint of his analysis) as the centre – namely, “in descending order of centrality … [the] United States, West Germany, France, Japan, United Kingdom, Italy, U.S.S.R., Netherlands, Canada, Belgium” (Boli-Bennett 1980, 85). In 1985 Roger Nemeth and David Smith, using a method similar to that of Snyder and Kick, constructed their own blockmodel of the world system. They focused on quantifying mechanisms of “unequal exchange” – the export of capital-intensive finished and semi-finished products from the global North in exchange for relatively unprocessed labour-intensive raw materials and agricultural products from the global South – which, for world systems theorists, is a central mechanism in the transfer of surplus from the periphery to the core. Using United Nations Commodity Trade Statistics for 1970, they ended up with eight different blocks of countries. Four of these blocks (E, F, G, and H), including such countries as Tunisia, Pakistan, Liberia, and Malawi, were pre-eminently peripheral: victims of unequal exchange in the world system. Blocks B, C, and D were semi-peripheral countries such as Brazil, Libya, India, Mexico, and Nigeria: not as poor as those on the periphery and with some industrial development, but exhibiting political volatility (such as frequent periods of authoritarian government) and with large sections of their populations living in a semi-proletarian netherworld of poverty and exploitation. Block A consisted of Belgium, France, Italy, Japan, the Netherlands, the United Kingdom, the United States, West Germany – and Canada. “This block,” the authors summarized, “contains nations generally associated with the ‘core’ of the contemporary world-economy” (Nemeth and Smith 1985, 525–34). In 1986 came the study by Arrighi and Drangel (referred to above) which Peter Grimes calls “one of the most valuable contributions to the study of the whole core/periphery hierarchy” (1996, 54). Their goal



One of These Things Is Not Like the Others  39

was to arrive at a method to determine “organic members” of the core of the world economy. Their method was similar to Ikeda’s, with both its strengths and limitations: “GNP per capita expressed in a common monetary unit,” used as “an indirect and approximate measurement of the mix of core-peripheral activities that fall within the jurisdiction of a given state” (1986, 31). Applying this method, they compiled a short list of ten countries that had been core states from 1938 to 1950 and again from 1975 to 1983 (they excluded the period from 1950 to 1975 to eliminate distortions created by the enormous destruction of the Second World War): in alphabetical order, Australia, Canada, Denmark, Germany, New Zealand, Norway, Sweden, Switzerland, the United Kingdom, and the United States (66–9). True, they had some difficulty including Canada, as they perceived it as “structurally part of the U.S. economy” (48), which opens up the big question of non-resident control, a subject to which we will return.

Of outsiders and insiders It is necessary at this point to pause the survey, inasmuch as Glenday’s 1989 study placing Canada in the semi-periphery has not gone unchallenged. Murray Smith, for example, points out that Glenday leaned heavily on the “balance of trade in machinery and transportation equipment over the period from 1976 [to 19]86.” Canada exports more of such commodities than it imports, and even though in that period the ratio between the two was rising – Canada was increasing its exports of machinery and transportation equipment at a faster rate than it was importing them – this export/import ratio was nonetheless atypical of core countries, and therefore justified situating Canada in the semi-­ periphery. Smith continues, however: “Glenday neglects to comment on the fact that his data also show that … over the same period that the export/import ratio rose for Canada, it fell rather dramatically for the United States. Does this suggest that while Canada was moving closer to the core, the United States was moving toward the semi-periphery? The absurdity of this question underlines the problems with making too much of the marginal differences that exist between advanced capitalist countries in relation to a single economic indicator” (Smith, 2000, 359–60). Another aspect of Glenday’s analysis requires critique. He chose to  summarize the quite large and interesting collection of analyses ­surveyed above as representing the views of those – he listed Arrighi,

40  Escape from the Staple Trap

Drangel, Snyder and Kick, and Gidengil – he called “‘outsiders’ who are unacquainted with the vast literature on Canadian political economy” and who, therefore, “have imagined Canada to be a developed, rich and privileged nation” (1989, 209). This characterization is unfortunate. Arguments should be dealt with on their merits, not on the ­basis of a kind of political economy “essentialism.” When it comes to understanding Canada, those who were raised within its borders have no privileged perspective, any more than it takes a German to understand Germany. There is, however, privilege. Both Canada and Germany exist in privileged positions in the world system, and that privilege is often the least visible to those who reap its benefits. What would be the perspective of an outsider in Jamaica whose experience of Canada has been interaction with massive, very wealthy, and very profitable Canadian banks? What would be the perspective of an outsider in Poland whose experience of Germany in 1939 was invasion and occupation, or of the Herero people in what is today Namibia, on whom the German military practised its politics of extermination in the early years of the twentieth century (Ludtofte 2003)? The views of these “outsiders” are of real value in acquiring an accurate picture of the place of both Canada and Germany in the world system. Further, who qualifies as an insider? Those who have read the preface to this book will know that, in Canada, this author, whose roots go back to the United Empire Loyalists and beyond, would pass as a deep insider. But this insider status has been, if anything, a barrier, not an aid, to understanding the reality of Canada. The insider sometimes can experience psychological resistance to listening to the stories of others who do not share insider status. For this author, learning how to listen to these stories has been of absolute importance in acquiring an understanding of Canada and its place in the world system. There is, of course, a vast literature on Canadian political economy, much of which denies Canada’s privileged place in the world system. A critique of that literature is one of the tasks of this book. But there is also a vast literature on political economy written from within Quebec that documents the way in which the British conquest privileged the development of Upper Canada (Ontario) over that of Lower Canada (Quebec) and laid the ground for generations of grievances against the central state in Ottawa (see, for example, Bergeron 1970; Vallières 1974). Surely these views need to be considered those of “insiders”? And, most centrally, what of the stories and histories of the Haudenosaunee (Six Nations



One of These Things Is Not Like the Others  41

Iroquois Confederacy), Neheyiwak (Cree), Assiniboine, Métis, and other indigenous peoples of the way in which Canada used force to consolidate its developing capitalist economy (Adams 1975; Ryerson 1975, 309–423)? These histories tell a story of Canadian power and privilege – a power and privilege used to oppress and suppress the original peoples of the land today called Canada. Building on Wallerstein II To return to the main thread, the 1970s and 1980s saw a literature emerge that attempted to develop empirical tests to quantify the core– semi-periphery–periphery model developed by Wallerstein. This literature helped political economists paint a picture of the world economy that could differentiate like from unlike and group countries in meaningful categories. For many of these theorists, thinking of the world as  a series of regions was more useful than thinking of it as a series of countries. One interesting contribution focused on North America, which was host to the “first non-European sector of the core zone,” a significant change to the architecture of the world system. As Taylor (1988, 263) explained, [t]he nineteenth century territory of the United States could be viewed as covering all three zones of the world-economy: an increasingly core-like Northeast, a peripheral South, and an emerging semiperipheral West … all the major sections of the United States became core-like by the second half of the twentieth century. While this outcome justifies the use of the United States as a region, the boundary with Canada does separate two core-like territories. By contrast, the boundary between the United States and Mexico … so definitely coincides with a zonal boundary that nobody confuses Mexico City and Chicago as North American cities in the way … [there is] confusion over Toronto and Chicago. Anglo-America possibly is a region, but North America is not.

We have seen in this chapter that, in fact, such confusions have been relatively common. In these studies of the 1970s and 1980s, two conclusions were almost universally accepted: first, that the essential contours of the world system outlined by Wallerstein could be identified empirically; and, second, that Canada should be seen as an organic member, an unambiguous member, of the small group of rich and powerful states at the core of the

42  Escape from the Staple Trap

world system and that profit from the exploitation of the periphery. This pattern of conclusions has continued in the years since. For example, in 1992, David Smith and Douglas White set out to conceptualize the structure of the global economy through a network analysis of international trade between 1965 and 1980. They identified an extremely small core in 1965 consisting of just the United States, West Germany, the United Kingdom – and Canada, reflecting the devastation inflicted on Europe and Japan by the Second World War. By 1970 these economies were recovering, and by 1980 the core now included France, Japan, Italy, the Netherlands, Switzerland, Belgium, Luxembourg, and Sweden (1992, 877–9). Smith and White also attempted to identify movement within the world system, and concluded: “West Germany, Canada and Japan remain closest to the U.S. in the 1980 scaling, while the United Kingdom slips farther away” (875). The authors were aware that some might consider their findings on Canada – because of the country’s “dependency on the U.S.” – counterintuitive, but they argued that “the continuity of Canada as a country designated ‘core’ in this analysis – suggests that certain types of dependency may be compatible with ‘coreness’ and mobility in the world-system” (887). In their endnotes, they referred to pre-publication discussions with early readers of the article: A reviewer suggested that perhaps Canada’s core position is an artifact of its “almost unique trading and investment relationship with the United States.” We can unequivocally state that this is not the case. Our network analytic approach places Canada and the United States close to each other because they have very similar commodity trade profiles when exchanges with all export and import partners are considered. This result indicates that both are trading heavily with other core nations, have commerce that is diversified over a range of commodities, are very likely to be exporting heavy manufactures and high technology, and exhibit a similar “core” commodity trade pattern. (890)

In 1994 Roberto Korzeniewicz and William Martin investigated the global distribution of commodity chains, attempting in part to “provide a more systematic classification of the boundaries, membership, and degree of polarization across the zones of the world-economy” (1994, 67). They focused on the global production processes involved in six key commodities – motor vehicles, tires, crude steel, cotton yarn, cotton fibre, and wheat (88) – and their relative weight in each country’s



One of These Things Is Not Like the Others  43

production and trade. Using this approach, they developed a group of  core countries consisting of Australia, Austria, Belgium, Denmark, Finland, France, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Saudi Arabia, Spain, Sweden, Switzerland, United Kingdom, United States, West Germany (as in the Smith and White study, reunification was recent, and the datasets did not include the economy of Germany as a whole) – and, of course, Canada (87). In 1996 Ronan Van Rossem assessed the relationship between a country’s role in the world system and its dependency and development (1996, 508), and classified countries by their role and prominence as of 1993. At the core of the system were fifteen countries, with the United States first, Australia last, and Canada sitting in tenth position (515). He noted that “the United States and Canada are core nations,” even though “they are not equally powerful actors in the world system” (517). Also in 1996 came Peter Grimes’s PhD dissertation, which advanced the discussion considerably. Grimes insisted that the defining characteristics of an economy should be found, not in static snapshots of wealth and power, but in the social relations between classes – the social relations of production. He put at the centre of his analysis a core aspect of Karl Marx’s political economy, the “organic composition of capital,” best understood as a measure of the “capital-intensity” of the labour process. He argued persuasively that the high wages typical of core countries are not explicable solely on the basis of the extraction of surplus from the periphery (although that is a key factor). Rather, underpinning the capacity of core country capitalists to concede high wages is extremely productive labour based upon the increasing mechanization of work. Grimes integrated this analysis into his World System Position rankings, based on “1) the percentage of global product consumed by each country; 2) the organic composition of capital of each country; 3) the trade dependence of each country; [and] 4) the relative economic size of each country with respect to its trading partners” (Grimes 1996, 58). Applying these criteria to the world system put Canada in the core of the system during the period between 1950 and 1990, trailing only ten other countries (109). The last twentieth-century study to take up the task of empirical verification of world systems theory was Jeffrey Kentor’s Capital and Coercion (2000). To classify countries in the world system, he used four economic variables – capital intensiveness, productive size, trade size,

44  Escape from the Staple Trap

and global capital control; three military variables – military expenditures, military exports, and global military control; and three global dependence variables – export commodity penetration, foreign capital dependence, and military dependence (37–8). Kentor then developed rankings for positions in the world economy in five different years: 1900, 1930, 1950, 1970, and 1990. In the earliest year, the United Kingdom was the lead core power, but at all other moments, the United States, of course, was on top, with the Soviet Union in second place. Japan rose dramatically from sixteenth in 1900 to third in 1990. China, Germany, France, and Italy were also prominent each year. Canada did not rank in 1900, but placed twelfth in 1930, seventh in 1950, tenth in 1970, and ninth in 1990 (69); in other words, Canada has been a consistent and stable member of the core of the world economy since early in the twentieth century. In the first twenty-first-century study relevant to this subject, Edward Kick and Byron Davis combine economic and non-economic measures to develop network blockmodels in which to place a country’s place in the world system. Based on earlier work from the 1980s, they identify Canada as part of Block 1, the core, in both the 1960–65 and 1970–75 periods (2001, 1566–7). And in 2005, using a modified national income approach, Salvatore Babones identifies countries that are organic to – that is, stable and long-term members of – each zone of the world economy. Organic members of the core are, of course, the United States, the United Kingdom, France, Germany, and the other Great Powers, as well as Canada, Australia, and Norway. Mexico, according to assessment, is an organic member of the semi-periphery (2005, 30, 51). We now have, in other words, forty years of scholarship attempting to verify empirically the hypotheses of world systems theory. Among the conclusions held in common by the vast majority of these scholars are two relevant to this chapter: the world economy can be divided into three zones – a core, a semi-periphery, and a periphery – and Canada is unambiguously in the core zone. The combined weight of this scholarship powerfully buttresses the case made at the beginning of this chapter – namely, that categorizing Canada in the same zone of the world economy as Mexico is unhelpful. Now, unanimity of scholarship is not definitive proof. This entire line of reasoning might be fundamentally misguided, and the literature might be getting the Canadian reality completely wrong. But it is a substantial body of literature, and Glenday’s attempt to dismiss it on the basis of its outsider status was unsatisfying even in 1989. Given the



One of These Things Is Not Like the Others  45

impressive addition to the literature since then, Glenday’s dismissal of an entire school of thought simply does not work, and proving this multi-decade, multi-scholar framework wrong will require sustained, political economy critique. This is important, because problems of categorization can result in errors in analysis. Suggesting that Canada and Mexico exist in the same category of the world system invites the attempt at comparing the ­experiences of Mexico, a country in the semi-periphery, with those of Canada, a country very much in the core. Such attempts will result in nothing but extremely misleading (and puzzling) generalizations. Satoshi Ikeda, for instance, asserts that “foreign domination in the Canadian corporate sector has risen significantly under neo-liberal globalization,” a claim that will be examined and challenged in later chapters. But aside from the doubtful veracity of this claim, Ikeda tries to take the experience of non-resident control in the Canadian economy, and collapse that experience into the experience of non-resident control in the maquiladora zone in Mexico. The notion that both Canada and Mexico can be categorized as semi-peripheral leads to the unsupportable claim that the effect of non-resident ownership is the same in both countries. “An increase in manufacturing exports without local control and ownership” in Canada, he argues, “is similar to the dependency that is manifested in Mexican maquiladora industrialization along the US border where foreign corporations establish operations to take advantage of the low cost of production” (2004, 278). This claim has no basis in fact. Canadian wages are comparable, in virtually every field, not to Mexican but to US wages. “Maquiladoras are textile, electronics, and machinery-assembly factories located in low-wage regions in which workers assemble imported materials for export” (Fussell 2000, 61). In Mexico’s maquiladora zone, wages are notoriously far below US and Canadian standards. One 2000 study documents the massive increase in employment in the maquiladora zone between 1975 and 1997, even as hourly wages increased from under $1 an hour to barely over $2 an hour (Fussell 2000, 65). To equate the experience of the maquiladoras to that of southern Ontario is impossible – an attempt to adapt reality to an unworkable theoretical frame.

Bringing politics back in This chapter has been organized around a critique of the attempt to categorize Canada as a member of the semi-periphery. There are, how-

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ever, “minimalist” ways by which the term “semi-periphery” can be applied to Canada. Stephen Clarkson justifies his use of the term in such a way: “If peripheries act solely as objects of global forces adopting the rules that are made elsewhere, semi-peripheries can be understood as both objects and subjects – both rule takers and rule makers. Canada was a rule taker through joining NAFTA and the [World Trade Organization]. It was also a rule maker through its participation in the deliberations that established these agreements’ norms, regulations and disciplines” (Clarkson 2001, 512). In fact, the meaning of “semiperiphery” is quite specific, and is embedded in a sophisticated school of political economy. It is accordingly unsatisfying for Clarkson to use a minimalist definition, and then proceed to presume that Canada can be categorized alongside a country such as Mexico when scholarship, displaying an impressive mobilization of frameworks and evidence, overwhelmingly suggests that such a categorization is impossible. There is a certain irony in this exercise. Wallerstein, in first postulating the existence of the semi-periphery, was not all that concerned with the kind of economic criteria with which this chapter has been preoccupied. For him, the key economic link in the world system was the extraction of surplus from the periphery by the core. Return to a point touched on earlier: the principal role of the semi-periphery, existing between the core and the periphery, was defined by its political, not its economic, link to this process. The role of the semi-periphery was to act as a stabilizer for the system – a shock absorber to mitigate the development of unified opposition against a highly exploitative and unequal, core-dominated world economy. It is worth expanding on the quotation from Wallerstein cited earlier: This semi-periphery is then assigned as it were a specific economic role, but the reason is less economic than political. That is to say, one might make a good case that the world-economy as an economy would function every bit as well without a semi-periphery. But it would be far less politically stable, for it would mean a polarized world-system. The existence of the third category means precisely that the upper stratum is not faced with the unified opposition of all the others because the middle stratum is both exploited and exploiter. It follows that the specific economic role is not all that important. (Wallerstein 1974, 405)

With this as a starting point – an understanding of the role of the semi-periphery similar to Galtung’s notion of a “go-between” state – a



One of These Things Is Not Like the Others  47

discussion of Canada’s semi-peripheral role in the world system might be quite interesting. Canada’s political role in “greasing the wheels” of the world system since the Second World War has not been unimportant, but this is not the direction in which the literature has developed. Rather, the overwhelming preoccupation of the Canadian semi-­periphery school has been economic, using the categorization to identify Canadian economic weakness, vulnerability, and skewed development. The overwhelming orientation of the world systems scholarship outside Canada that has tried to quantify Wallerstein’s theoretical framework has been similarly economic – the marshalling of economic evidence to categorize empirically the structure of the world system. For good or ill, that is the terrain on which the debate is playing out. But bringing politics back into the discussion might provide a useful way to conclude this chapter. Returning to another key point in Wallerstein’s discussion of the physiognomy of semi-peripheries, he noted that “[b]oth their internal politics and their social structure are distinctive” (1976, 463). This chapter has already touched on the latter: the existence of a class structure in a semi-peripheral state such as Mexico that is characterized by a mass rural workforce that still makes up an important segment of the country’s overall employment, and a large proportion of the population that still lives as impoverished semiproletarians. Neither condition exists in the core countries of the global North, including Canada. This is worth exploring in a bit more detail. Terlouw (1993, 94–5) argues that, “[i]n a semiperipheral state the resistance from the proletariat to the exploitation by the bourgeoisie is complicated by the fact that both the bourgeoisie and the proletariat profit from the exploitation of the large semiproletariat.” This is, in part, because “[s]emiperipheral countries typically are rapidly industrializing, while experiencing colossal transitions in national institutions and human capital outcomes” (Kick and Davis 2001, 1563). This rapid industrialization, under way today in countries such as China, Indonesia, and Vietnam, is often portrayed as “urbanization” – which in part it is. More accurately, however, it is a case of rural peasantry “forced to give up their old way of life based on subsistence production under their own control” (Terlouw 2002, 8). The semi-proletariat is, then, in part a class in transition (sometimes trapped in that transition for a very long time) between subsistence production in the countryside, and proletarian wage labour in the city. It is from this difficult transition that the mass urban poor or semiproletarian class is created, and it is the instability of the resulting class

48  Escape from the Staple Trap

structure that is often the basis of deep political instability. As ChaseDunn (1998, 60) notes, “[t]hese multiple sources of tension result in a level of social conflict in the semiperiphery that is generally much higher than in either core or periphery,” an observation seconded by Terlouw (2002, 8): “The intermediate position between core and periphery results in an outstanding violent mixture of social tensions.” These are interesting and insightful observations about life in Indonesia, China, Vietnam, or Mexico; they are not in any way meaningful for Germany, the United States, … or Canada. One typical outcome of political volatility in the semi-periphery has  been the resort to authoritarian rule. An important 1985 book by Giovanni Arrighi uses this as a frame around which to assess the politics of southern Europe in the twentieth century. “It is significant,” he argues, “that by 1936 the fascist labor legislation first promulgated in Italy was echoed in Spain, Portugal, Greece, and Turkey” (1985, 11). Fascism was overthrown in Italy in 1944; in Spain and Portugal it lingered into the 1970s. Greece experienced the horror of civil war after the Second World War, then a period of unstable democracy, followed by a descent back into authoritarianism under the rule of the colonels. At the time Arrighi wrote his book, Turkey, too, had “resorted once again to military rule” (1985, 12), but in the other four countries military rule, fascism, and authoritarianism had been replaced by varieties of social-democratic rule. Arrighi’s hypothesis was that these shared patterns of political development – a prolonged experience with authoritarianism, followed by a leftward swing towards social-­democracy – were rooted in the shared experience of these Mediterranean countries as members of the semi-periphery: “The hypothesis that immediately became the focus of debate and controversy was the hypothesis that the Southern European pattern of political-economic convergence and transition could be traced to the growing integration of the region in the world-economy as a semi peripheral zone” (14). This is an important and intriguing hypothesis. On its face, it seems that such a perspective could also be applied to Mexico – a country that has also experienced a long history of authoritarian rule, and where, in emerging from under this authoritarian rule, a pronounced move to the left was signalled through the uprising in Chiapas beginning in 1994. It would be interesting to relate these developments, as Arrighi suggests for southern Europe, to “the growing integration” of Mexico “as a semi peripheral zone” for, in this case, the US economy. The importance of the maquiladoras could be one example of the mechanics by which such



One of These Things Is Not Like the Others  49

a process would manifest itself. But if it is quite easy to see how this interesting and important application of a semi-periphery framework designed for certain Mediterranean countries might be applied to Mexico, it is inconceivable to see how it might apply to Canada. There is nothing like the volatility of class relations in Canada as is seen in Mexico (or in Portugal or Greece, for that matter), and Canada has not had an extended period of authoritarian, military, or fascist rule. There is nothing in the political shape of the history of Canada that would allow a semi-periphery framework to have any relevance. Conclusion: An Unsustainable Framework Those who wish to analyse the Canadian reality using the framework of the semi-periphery can rely on none of the criteria advanced in the world systems literature. To sustain the designation and the applicability of that framework, they are reduced to three familiar and much more problematic claims: the weak presence of multinational corporations in Canada, the raw materials bias of Canada’s export profile, and high levels of non-resident control of the economy, all of which are rooted in the earlier dependency-influenced literature. What about the claimed relative absence of multinational corporations in the Canadian economy? Chirot, whose work was cited earlier, suggested that multinationals played an important role in the structuring of the world system: “Their primary power lies within the core itself, the United States, Canada, Western Europe, and Japan” (1977, 175). Yet Gordon Laxer says that, in fact, Canada is not a significant home base for multinationals, and that, for this reason, Canada should be considered a semi-peripheral country, along with Norway, Australia, and Mexico, because “none of the four countries is home base to any of the world’s hundred largest transnational corporations … In contrast, each of the other G7 countries [besides Canada] houses the home office of at least three of the world’s top one hundred transnationals” (2004, xiv). In a footnote, Laxer admits that these four countries “do better in the top 500 [transnationals]. Canada is home base to 18, Australia has 9, Mexico 6, and Norway 2” (xx). Laxer’s chosen database is the 2002 ­edition of the FT Global 500, the annual ranking of the Top 500 global corporations published by the Financial Times (see Table 2.1). There are limitations to this evidence. The FT Global 500 measures corporate size on the basis of market capitalization, which is notoriously volatile. By this method, Apple – because of the extraordinary increase in its share

50  Escape from the Staple Trap

price in recent years – was ranked as the world’s largest corporation in 2012, 2013, and 2014, even though Apple in those years was by no means the largest in terms of assets, revenue, or employment. These latter three categories need to be part of the equation when accurately assessing corporate size. This qualification notwithstanding, it is the database Laxer chose, and it merits examination. Table 2.1 draws from every second year of the annual FT Global 500 database for the period from 1998 to 2014 and highlights the country base for top 100 and top 500 corporations, listing, first, the six biggest economies in the G7 and, second, the four countries Laxer presumed to be semi-peripheral: Canada (which is also a G7 member), Australia, Norway, and Mexico. The United States dominates the list of top 100 corporations, but less so in 2014 than in 1998. As Laxer indicated, Canada, Australia, Norway, and Mexico did not have any top 100 corporations headquartered in their territory in 2002. But from 2004 on, Australia is home to several, and from 2010 on surpasses the number of three that Laxer saw as characteristic of the core economies in the G7. Canada achieved three in 2012, interestingly surpassing Italy, which had only one top 100 corporation in 2010, 2012, and 2014. In every year except 2008, Mexico remains at zero. When the range is shifted to the top 500 corporations, an even clearer picture emerges. Again, the United States dominates the list, and again less so in 2014 than in 1998. Canada more than doubles its presence on the list, moving from 10 in 1998 to 22 in 2014, now very much in the same league as Japan, Germany, the United Kingdom, and France, and considerably ahead of Italy. Mexico and Norway are home to very few of the top 500 corporations. Another layer has to be added to this analysis, however. The fact that Norway and Mexico have a similar number of top 100 and top 500 corporations headquartered in their territory does not mean that Mexico and Norway should be similarly categorized as to their place in the world economy. To really make sense of these figures, the population of the countries involved has to be taken into consideration. Norway has barely five million people, while the United States, with more than 300  million people, is the third most populous country in the world (trailing only China and India). Rather than the number of top corporations in each country, more telling is the importance of top corporations relative to the population size of the country. Table 2.2, which presents the information for Table 2.1 adjusting for differences in population, shows the relative weight of top 100 and top 500 corporations in each country, with the United States used as the standard – that is, US = 100.



One of These Things Is Not Like the Others  51

Table 2.1.  Country Base of Top 100 and Top 500 Corporations, G7 Countries, Australia, Norway, and Mexico, 1998–2014 Country Base

Number in Top 100 1998

2000

2002

2004

2006

2008

2010

2012

2014

United States Japan Germany United Kingdom France Italy Canada Australia Norway Mexico

61 2 6 10 4 4 0 1 0 0

54 12 5 8 3 2 2 1 0 0

55 5 7 10 6 3 0 0 0 0

56 5 5 8 5 4 0 1 0 0

48 6 5 9 5 2 0 2 1 0

33 5 8 10 9 4 0 2 1 1

37 6 4 9 7 1 2 5 1 0

39 5 5 8 4 1 3 5 1 0

47 2 7 9 6 1 2 5 1 0

United States Japan Germany United Kingdom France Italy Canada Australia Norway Mexico

244 46 24 53 28 15 10 9 1 1

219 77 20 46 26 14 8 9 1 2

238 50 21 37 29 11 18 9 2 6

225 50 18 33 25 11 22 7 4 4

163 42 19 27 27 8 27 13 3 5

173 36 19 33 23 8 25 14 3 6

203 34 20 32 28 7 22 11 3 4

Number in Top 500 197 60 19 34 30 11 22 9 4 4

169 39 22 30 31 7 24 11 3 4

Source: Author’s compilation from data available in Financial Times (2014 and previous issues, annually from 1998).

When a country scores 100, the relative weight of top corporations based there is identical to that in the United States. A score less than 100 indicates the extent to which the country trails the United States as a base for the world’s largest corporations, and a score greater than 100 indicates the extent to which the country leads the United States as a base for the largest corporations. The picture that emerges could not be clearer. In most years the relative weight of top 100 corporations in Mexico is zero – because there are none. By contrast, Australia, Norway, and Canada all have, for the most part, steadily increasing relative weights for both top 100 and top

52  Escape from the Staple Trap Table 2.2.  Relative Weight of Top 100 and Top 500 Corporations, G7 Countries, ­Australia, Norway, and Mexico, 1998–2014 Country Base Japan Germany United Kingdom France Italy Canada Australia Norway Mexico

Relative Weight as Base for Top 100 Corporations (US=100) 1998

2000

2002

2004

2006

2008

2010

2012

2014

7 33 79 31 33 0 25 0 0

51 32 72 26 19 35 28 0 0

21 45 90 52 28 0 0 0 0

21 32 71 42 37 0 26 0 0

30 38 94 50 21 0 61 136 0

37 90 153 131 63 0 87 197 8

40 41 123 91 14 50 191 175 0

32 50 105 50 14 71 179 165 0

11 59 98 62 11 39 147 136 0

Relative Weight as Base for Top 500 Corporations (US=100) Japan Germany United Kingdom France Italy Canada Australia Norway Mexico

42 33 104 54 30 38 55 26 1

81 32 102 56 32 34 62 29 3

49 31 77 58 24 71 56 54 7

52 29 73 53 25 92 46 116 5

73 35 86 73 29 104 67 133 6

56 48 90 88 21 132 93 115 6

64 44 84 80 26 153 113 119 8

53 43 97 65 24 133 113 112 9

43 39 81 67 18 100 75 95 5

Sources: Author’s compilation from data available in World Bank (2014b); Financial Times (2014 and previous issues, annually from 1998).

500 corporations. Australia and Norway in the twenty-first century score consistently above 100, while Canada scores consistently above 100, except in 2014, when the relative weight of large corporations is exactly 100 – that is, identical to that in the United States. These statistics can be used to illustrate a discussion about the semiperiphery and the core. They certainly display the considerable gap in the presence of multinationals in Mexico and the United States, and underline that Mexico is either semi-peripheral or peripheral. They also provide evidence for Arrighi’s argument, cited earlier, that the southern Mediterranean countries, including Italy, might be considered a semi-peripheral area of the world system – the presence of multinational corporations is noticeably lower in Italy than in other members



One of These Things Is Not Like the Others  53

of the G7. But these statistics cannot be used to justify including Canada, Australia, or Norway in the semi-peripheral category. The data from the very database chosen by Laxer, completely contradicts his conclusion. Daniel Glenday uses another category: the skewing of Canadian trade towards raw material exports. On that basis, he argues, Canada moved down in the world system in the 1990s and into the twenty-first century in large measure because “Canada’s wealth is increasingly ­dependent on the export of primary and semi-processed materials … [T]he abundance of natural resources in this vast country … likely accounts for Canada’s repositioning in the world economy” (2010, 25). Underlying his argument is an assumption that associated with this kind of export profile is a class and economic structure typical of semiperipheral countries, not of countries in the core. But the observation that Canada exports large quantities of raw materials and agricultural products can obscure more than it reveals. Jeffrey Kentor argues that the issue is not what is produced for export, but how it is produced and with what combination of labour and capital: “The core/periphery hierarchy is characterized by capital intensive production in the core and labor intensive production in the periphery. This distinction refers to the process, rather than the product, of production. Agriculture in the core is relatively capital intensive in terms of labor productivity, while peripheral agriculture is labor intensive. Core labor is relatively skilled and well paid. Peripheral labor is neither. Core labor is also ‘protected’ by labor organizations as well as the state, while peripheral labor is relatively ‘coerced’” (2000, 8). Gold is mined in Potosí, Bolivia, and in the frozen Canadian Arctic. But gold mining is similar in these two places only in the most basic sense that gold is being taken out of the ground. In fact, two completely different processes are at work: the labour-intensive, desperation-driven extraction of gold by the very poor in Bolivia and the capital-intensive, machine-driven extraction of gold by a skilled and relatively well remunerated workforce in Canada employed by powerful multinationals such as Barrick Gold. One of the most impressive contributions to world systems literature is Chase-Dunn’s Global Formation: Structures of the World Economy (1998). In a masterly survey of the different methods by which world systems theorists attempt to identify boundaries between different zones in the world economy, Chase-Dunn deals directly with the case made by Glenday. It is common in the literature, he argues, to look for zonal boundaries in “the division of labor between industrial production of

54  Escape from the Staple Trap

processed goods versus the extractive production of raw materials or agricultural commodities” (1998, 204). But this obscures the key question of capital intensity, which is central to much of what follows in the current book, and is worth quoting at length. “Core activity,” ChaseDunn argues, involves the production of relatively capital intensive commodities (core commodities) which employ relatively skilled, relatively highly paid labor. This is a relational idea because the level of capital intensity which ­constitutes core production during a specific period is defined as relative to the average level of capital intensity in the world-system as a whole. Since average capital intensity is a rising trend, forms of production which once were core production may become peripheral production at a later time. Capital intensity involves the utilization of techniques which facilitate high productivity per labor hour. Thus a large component of capital intensive production is the utilization of machinery, or capital goods, in the production process. Capital intensity is similar to Marx’s idea of the organic composition of capital – the ratio of capital to labor which is employed in the production process. It is also closely related to the idea of labor productivity, although both capital intensity and the speed and skill of human effort are involved in labor productivity. Capital intensity and the usage of skilled labor are usually combined, at least when we consider the overall production process. It may not take skilled labor to operate the machines, but it takes skilled labor to build them and to keep them running. A core area is an area in which relatively capital-intensive production is concentrated. Capital-intensive production is often in the manufacturing or industrial sector of a national economy, but it may also be in the service sector, the agricultural sector or other sectors. The definition of core production is not restricted to “industry” even though this is often the most capital-intensive sector. Agriculture in core areas is usually also capital intensive relative to agriculture in other zones of the world-system, and the same is true of services. (1998, 207)

This chapter previously cited Peter Grimes’s high praise of the attempt by Arrighi and Drangel to quantify zonal position in the world system. According to Grimes, there was one glaring weakness in their method, however, and that was to “explicitly dismiss mechanization as a criterion for locating core production.” Accordingly, one of the most valuable contributions of both Chase-Dunn and Grimes is to have directly situated “highly mechanized” or capital-intensive work – work



One of These Things Is Not Like the Others  55

that in Marx’s terms is associated with a high “organic composition of capital” – at the centre of a picture of the world system (Grimes 1996, 56). Chapter 5 will deal with this in extenso. That leaves just one criterion by which to separate Canada from the core of the system: the high-levels of non-resident ownership in the Canadian economy. Laxer asserts, just before making his – as we have seen – mistaken claim about the relative absence of large corporations based in Canada and the other three countries he designates as semiperipheral, that “all four countries … had high levels of foreign ownership before the current globalism era” (2004, xiv). When corporations based in core countries control, in particular, the extraction of raw materials in semi-peripheral countries, “unequal power comes into play, as core countries partially live off the carrying capacities of the semiperiphery by continually claiming portions of the latter’s non-­renewable heritage” (xiii). But does this apply to Canada? An early work by ChaseDunn explored the proposition that high levels of non-resident ownership would lead to problems in economic development, and concluded that, in fact, there was evidence “that investment dependence retards economic development” (1975, 733). According to Snyder and Kick, “[Chase-Dunn’s] most important finding is that the influence of domestic investment (capital formation) is positive and that of foreign investment negative. This result supports the dependency argument that it is not capital per se but the institutional locus of capital that is central” (1979, 1100). One needs to be extremely cautious about applying this kind of observation to the effect of non-resident ownership in a country such as Canada. As Snyder and Kick point out, Chase-Dunn’s interesting study used “a sample of poor countries” as a laboratory in which “to examine neoclassical and dependency models of the impact of foreign investment on economic growth and inequality” (1979, 1100). Indeed, as Chase-Dunn made clear, he was looking at the effect of non-resident ownership on a “sample of nations” consisting “of those with less than $406 per capita GNP in 1955 … Thus we are comparing poor, dependent nations with poor independent or isolated nations” (1975, 727). The danger of trying to apply such a framework – designed for understanding the periphery – to a country such as Canada, which is manifestly part of the core of the world system, will be examined in the next two chapters. This chapter began with a snapshot of the different histories of the currencies of Mexico – a genuinely semi-peripheral country – and those of Norway, Australia, and Canada, countries that cannot be so

56  Escape from the Staple Trap

categorized. That the currencies of the latter three countries operate in a different world than the Mexican peso was brought home forcefully towards the end of 2012. Until that year, the International Monetary Fund (IMF) had tracked five currencies in a quarterly report on central bank reserves. Four times a year, it tallied up, for central banks around the world, their holdings of US dollars, euros, yen, pounds sterling, and Swiss francs. In November 2012 “the IMF quietly endorsed a staff report … that recommends that both the Canadian and Australian dollars ‘be considered for inclusion’” in these quarterly tallies of central bank holdings (McKenna 2012). There was only one reason for the IMF to consider taking such a step – namely, that more and more central banks are holding a portion of their reserves in Canadian and Australian dollars. They do so because, as stable currencies of core states, they are a good store of value. Central banks do not hold pesos in large quantities because, as an unstable currency of a semi-peripheral state, the peso is not a good store of value. Also in November 2012 Mark Carney, five years into his seven-year tenure as governor of the Bank of Canada, stepped down to accept a position as head of the Bank of England, making him “the most prominent unelected official in the halls of British power” (Whittington 2012). In offering the post to Carney, the Bank of England was comparing “like to like” – the banking situation in Canada with that in the United Kingdom. These are not simply anecdotes but reflections, in current events, of precisely what is being argued in this chapter: any reasonable application of world systems theory to the Canadian reality needs to situate Canada in the core of the system, not in the semi-periphery. Any attempt to include Mexico in the same economic category as Canada, will quickly become tied up in knots. The conceptual and empirical difficulties now encountered by the Canada-as-a-semi-periphery school are, in their essentials, identical to those encountered by an earlier generation that tried to apply the dependency framework to the Canadian reality. In fact, in trying to untie the knots created by including Canada in the semi-periphery category, political economists increasingly are thrown back onto key tenets of the older dependency framework – in particular, the structure of Canada’s trade and levels of non-resident ownership. This review of contemporary scholarship, then, shines a light on the embedded problems one encounters when examining the earlier “classic” moment of Canadian political economy. The next chapters will focus on precisely these issues.

3  From Levitt to Watkins to You6

DEPENDENCY THEORY AND THE CLASSIC MOMENT OF LEFT NATIONALISM If the semi-periphery framework has shaped the twenty-first-century framing of Canadian political economy (CPE), as was suggested in the previous chapter, the defining hallmark of the CPE tradition in its first moment was the notion of dependency, a term that was hugely evocative in the 1960s and 1970s. The anticolonial movements – arguably the most important events of the twentieth century – revealed a world of deep structural inequalities, where even formally independent ­ex-­colonies found themselves “dependent” on the big economies of the global North – a dependency that did not lead to modernization, as Rostow (1990) and have others claimed, but rather to the cul-de-sac of underdevelopment (see, in particular, Frank 1969). It is hard to overstate the extent to which anticolonialism and the radical critique of modernization orthodoxy influenced a generation of intellectuals and activists in Canada and throughout the world. It was a dominant part of the intellectual context in which CPE was formed in the 1960s and 1970s. Left nationalism in Canada was, in part, an attempt to wed this radical dependency theory onto the Canadian reality (Panitch 1981, 8). The term “dependency” in the political economy literature did not have an ambiguous meaning. In the anti-imperialist literature of the 1960s, it was very much seen as one-half of a couplet, whose other half was “underdevelopment.” Associated pre-eminently with Andre Gunder Frank, the “classical” Third World dependency school analysed capitalism and the development of underdevelopment that arose from “the polarization of the capitalist system into metropolitan center

58  Escape from the Staple Trap

and peripheral satellites” (Frank 1969, 3). The satellites – in this case, Latin American countries – were doomed to structural underdevelopment because of the way they were inserted into the capitalist world economy. According to Frank, they could break out of the vicious cycle of poverty, despair, and underdevelopment only through socialist revolution. The framework was compelling, and unambiguous, when applied to the global South. But ambiguity emerged immediately when the framework was transposed to a country such as Canada, which all agreed was a member of the “rich” club of nations. The link between dependency and underdevelopment had to be qualified severely.

Kari Levitt Kari Levitt’s Silent Surrender: The Multinational Corporation in Canada (1970, reprinted 2002), without question one of the key left-nationalist texts of the classic period, was the crucial pivot around which the dependency/underdevelopment paradigm was adapted for use in the Canadian context. Levitt developed an argument that borrowed much from the dependency/underdevelopment school, writing that the “new mercantilism … based in the metropole … organises the collection or extraction of the raw material staple required in the metropolis and supplies the hinterland with manufactured goods” (2002, 3–4). Levitt, who originally focused on underdevelopment in Latin America and the Caribbean (see, for instance, Levitt and McIntyre 1967), was all too aware of the difficulties posed by transferring a ­dependency/underdevelopment framework to Canada, but she made the attempt nonetheless. To make Canada fit a modified version of the dependency paradigm, she argued that there exists a range of intermediate situations where a country stands, at one and the same time, in a metropolitan relation to some countries and in a hinterland relation to others. Canada falls into this category … Branch-plant development … results in the erosion of local enterprise, as local firms are bought out and potential local entrepreneurs become the salaried employees of the multinational corporation … [However] entrepreneurship does not bear any simple relationship to high levels of income … [Canada has] higher levels of per capita income than prevailed in the metropolitan countries during the heyday of private accumulation … A branch-plant economy dependent on imported technology is assured of a perpetual technological backwardness vis-à-vis the metropolis. (1970, 103, 105, 106)

From Levitt to Watkins to You  59

In other words, here at its birth, the dependency school of Canadian political economy was already aware of its limitations, anticipating the transition to the semi-periphery school analysed in the previous chapter. The dependency framework would be applied to Canada, but not in a “pure” sense. Canada – as the semi-periphery theorists were to argue thirty years later – stood in an “intermediate situation” in relationship to what Wallerstein later would label the core of the world system. But limitations or no, the attempt would be made to adjust the dependency framework to the Canadian reality. The manner in which Levitt chose to make this adaptation would be taken up and applied by many others in the years that followed. The issue of underdevelopment, associated with dependency when applied to the Third World, was sidestepped. In its place was substituted a notion of a dependency that results in underdeveloped entrepreneurship and technology but “developed” living standards. The hallmarks of dependency were seen to be the high level of non-resident (particularly US) ownership of key sections of the Canadian economy, the resulting branch-plant nature of the economy, and the debilitating structural weaknesses that resulted from this branch-plant dependency. Canada was seen to have underdeveloped manufacturing, research and development, high technology, and scientific sectors, and an overdeveloped primary sector oriented towards export for the US industrial market. Canadians, through this route, had moved from playing the role of “hewers of wood and drawers of water” for the old British Empire to playing the same role for the new US empire to the south. In the twentyfirst century, this discourse has returned, with Canada referred to as a “resource colony,” sometimes of the United States, sometimes even of China (Kellogg 2013b). Levitt’s book proved to be extremely influential in the 1970s, and has retained its influence through the decades. In 2006 it was ranked fiftythird among the Literary Review of Canada’s 100 Best Canadian Books. In his motivation for its place on the list, respected left-political economist Mel Watkins argued that Levitt’s book, on first publication, “took Canada – and especially college campuses – by storm. It explained better than anyone has before or since the power of multinational corporations in this country, notably their ability to get access to Canadian resources on their terms. Levitt has proven prophetic on Canada’s fate: North American economic integration (through free trade agreements) accompanied by Canadian political disintegration (Quebec’s nationalism and Alberta’s petro-provincialism). It helped inspire Canadian concern about foreign ownership, which led to a spate of new Trudeau-era

60  Escape from the Staple Trap

policies” (Watkins 2006a, 15). Watkins argued that the book had continuing relevance in the current political and economic context: “The spirit of Levitt’s writing lives on in the national movement against corporate globalization and ‘deep integration’ with the US economy” (ibid.). In his foreword to the 2002 reissue, Watkins also made it clear that he hoped it would become as important for the current generation of the Canadian left, asserting that “the continuing resonance and relevance of this book, thirty years on and counting, is remarkable. Call it a Canadian classic” (Watkins 2002, xi). Many others share Watkins’s estimation of the book’s importance. In 2011 another leading Canadian political economist, Duncan Cameron, reflecting on the origins of the nationalist movement of the 1960s, had this to say: “I think that the clearest statement that was made about the foreign ownership issue was Silent Surrender by Kari Levitt … Her little book … was just a magnificent demonstration of what the multinational corporation was about. What it showed was that Canada was, in a sense, a poster boy for foreign investment, but the whole world had to deal with this issue. It was part of a world-wide empire that the United States, and eventually its allies, were helping to support” (quoted in Flaherty 2011).

Liberal Party nationalism The fact that Canadian political economy emerged as a left current cannot be explained without a sense of the anticolonial context outlined earlier – an anticolonialism that usually took the form of anti-US imperialism. Levitt’s work, for instance, was originally prepared as a background study for the New Democratic Party (NDP) (Watkins 2002, xix). In the 1970s this left-nationalist intellectual framework took organizational form inside the NDP in the shape of the Waffle. Radical dependency theory, however, was not the only intellectual root of Canadian left nationalism: a coexisting nationalism had developed within the institutions of the Liberal Party of Canada. Opening the door to the origins of left-nationalist political economy takes us not just to the left, but also to debates inside what Reg Whitaker (1977) labelled as “Canada’s government party,” the Liberal Party of Canada. This Liberal Party ­nationalism is embedded in the very origins of CPE. Describing his introduction to nationalist ideas as a new employee of the Department of Finance in 1966, Duncan Cameron identified a sharp debate within the Liberal Party as opening up intellectual space

From Levitt to Watkins to You  61

for the emergence of a nationalist political economy. On the way from Edmonton to Ottawa for a new job, he had picked up, at Mel Hurtig’s Edmonton bookstore, a book called A Choice for Canada, written by former Liberal finance minister Walter Gordon (1966). My introduction to the Department of Finance, was reading A Choice for Canada. Now in 1966, Walter Gordon was no longer Minister of Finance, he had been replaced by Mitchell Sharp, and that summer there was a huge Liberal Party convention in Ottawa, policy convention, and there was a major debate between Mitchell Sharp and Walter Gordon, and it was over the issue of foreign investment in Canada, how bad was it for the economy, how much did it thwart our attempts to have a democratic control over our society: the fact that a lot of foreigners owned our economy, if they owned our economy, could they not in fact control our political system. So that was Gordon’s concern. And Mitchell Sharp argued the other side of that. He argued the side that was the position really of the provinces, particularly western provinces, that in order to develop we needed foreign capital, and we needed open markets, and if we were going to have open markets for our sales abroad, then we had to have open markets for foreign investment. So that was a major debate … It was going on, I discovered as time went by, within the Department of Finance. There were two groups: one group who were concerned about foreign investment, another group who weren’t concerned about it. So the whole, in a sense, nationalist moment in Canada, was personified politically by that debate within the Liberal Party, over whether or not it should be continentalist or nationalist. (Quoted in Flaherty 2011)

Watkins sees the sequence the other way around, arguing that Levitt’s book “contributed to a political environment that culminated in a veritable wave of economic nationalist policies by the federal [Liberal] government in the decade of the 70s” (Watkins 2002, xii). The economic nationalist policies carried out in particular by the Trudeau Liberals were, for Watkins, only possible as a product of the left-nationalist movement that preceded them. Economic nationalism, in this view, was wrenched out of a reluctant capitalist Liberal Party that quickly reverted to form once the left-nationalist wave had subsided, opening the door to “the deregulation and privitization [sic] of Canadian governments in the 80s and 90s” (xii–xiii). But if Cameron and Watkins differ on the direction of influence – from the Liberals to the left nationalists, or from the left nationalists to the Liberals – they both agree that

62  Escape from the Staple Trap

developments inside the Liberal Party were key. In the 1980s the overlap between left nationalism and the Liberal Party would result in some startling episodes, as we shall see later in this book. In his introduction to the 2002 reissue of Levitt’s book, Watkins uses two terms to describe Canada. One will be familiar to many: Canada, he argues, is “the richest dependent developed industrialized country” in the world (Watkins 2002, xii). This characterization of Canada as a “rich dependency” is nearly hegemonic in the CPE tradition. It is the central political economy idea, for instance, in Joseph K. Roberts’s 1998 introduction of Canada to a US audience, used by Roberts in a central chapter, “The Making of a Rich Dependency” (1998, 30–40), as well as by Leo Panitch in the Foreword (vii–viii), returning to a term he had first introduced in 1981. But Watkins, never one to shy away from controversy, does not stop there. Echoing Panitch (1988, 14), he asserts that Levitt’s analysis and the political economy school it engendered prove that Canada is “the most neo-colonial country in the world” (Watkins 2002, xii). Here Watkins is taking to an extreme the most problematic aspect of an influential 1976 essay in which Glen Williams referred to Canada’s “colonial and semi-colonial status” (30).

The trout in the milk: Canada and neoliberal global governance Williams’s semi-colonial label is an extreme one, as is the neo-colony label both Panitch and Watkins use. This book is organized around a deconstruction of this and similar claims that are often made about Canada. But it is worth pausing to reflect on an interesting dilemma posed by this type of framing. Canada, this semi- or neo-colony, is an established member of the G7, the club of the seven largest western industrialized countries. It was centrally involved in calling into being the G20, the club that emerged to prominence during this century’s Great Recession. The stories of Canada’s role in the G7 and G20 do not, of course, provide all the evidence one needs – in a court of law, these stories would be called “circumstantial.” But, as Thoreau famously remarked, “[s]ome circumstantial evidence is very strong, as when you find a trout in the milk” (1906, 94). The simple truth is, at the table around which these exclusive organizations sit, there is no place for a subordinate, neo-colonial country. Canada’s place at that table is pretty strong evidence that such frameworks are quite misleading. Let us take a short excursion into the story of how these exclusive tables were established.

From Levitt to Watkins to You  63

Writing in the early 1980s, Robert Putnam and Nicholas Bayne observed that, since 1975, “the leaders of the seven major industrial countries – the United States, Japan, West Germany, France, the United Kingdom, Italy and Canada – together with representatives of the European Community, have met annually to discuss international economic and political issues” (1984, 1). The emergence of this form of “collective management” of what was known at the time as “the West” was a reflection of the “relative decline of the United States” and the fact that “Europe and Japan had grown to rival US power in economic terms, if not in political terms … Europeans and Japanese were no longer so willing to accede to US dominance” (7). The G7 grew out of this conjuncture, despite the hesitation of ruling elites in the United States, who were not enthusiastic about ceding their previous hegemonic role (17). Hesitation or no, by the mid-1970s the G7 had taken shape as the international power structure adapted to the relative decline of the United States. Helmut Schmidt, then chancellor of West Germany, “is reported to have said: ‘We want a private, informal meeting of those who really matter in the world.’” The countries that “really mattered” were the United States, Germany, France, and the United Kingdom, whose finance ministers first met as an organized group “in the library of the White House in April 1973.” These initial four “soon added Japan” to become the Group of Five. Italy was invited in next, followed by Canada, so that, from 1976 on, the G7 superseded the G5 (Putnam and Bayne 1984, 17, 18, 60). Of course, bodies such as the G7 do not transform themselves for strictly economic reasons. As an ally of the United States in both the North Atlantic Treaty Organization and the North American Aerospace Defense Command, Canada could help strengthen the North American presence in a body that was becoming increasingly Europeanized. But it is nonetheless telling that Canada, despite its relatively small population, was at the table of the most exclusive club in the world, the seven countries “which really matter.” The G7 has lost much of its lustre. So hard hit were the big economies of the global North by the Great Recession that they have had to incorporate some of the key newly industrializing countries – including China, India, and Brazil – into deliberations about the world economy, resulting in the increasing importance of the G20, which convened its first summit in November 2008. The Financial Times (2008) was not alone in calling this a “shift in economic power.” Relevant to this ­discussion is the central role Canada has played in this

64  Escape from the Staple Trap

shift. It was Canada’s own Paul Martin – then finance minister in Jean Chrétien’s Liberal government – who, in the wake of the economic ­crisis of the late 1990s, mooted the issue of expanding the club. On 27 April 1999, Martin was sitting in the office of Lawrence Summers, then the nominee for US treasury secretary during Bill Clinton’s second term as president. Confronted with the economic collapse of many economies in southeast Asia, the spectre of mass hunger in Russia, and the threat of revolution in Indonesia, Martin could not find a piece of paper. So, on the back of a manila envelope, he and Summers jotted down the countries that should be brought to the table to deal with a crisis that was beyond the capacities of the major industrialized countries. “I would love to say we sat down and ran the numbers on whose [gross domestic product] was bigger, but we didn’t,” said Martin reflecting on the process. So it was “literally, a back-of-the envelope blueprint for what would become, today, the most powerful forum on economic and political matters in the world: the G20” (Ibbitson 2010). The point here is to highlight the role Canada’s elite play in the backroom discussions that shape the world economy. In the world of neoliberal global governance, the policies of the G7 and G20 have been implemented increasingly under the auspices of various trade and investment agreements and organizations, a key one being the World Trade Organization (WTO). An important product of the 1981 G7 Summit in Ottawa was the creation of a trade-centred group known as the Quad (for Quadrilateral Group of Trade Ministers). Its role was to become, de facto, the chief organizing centre for elite control of trade negotiations, helping to navigate the Uruguay Round of trade talks, which ended in 1994, and the creation of the WTO itself in 1995 (Wolfe 2008, 184–5). Decision-making at meetings to negotiate international trade deals – first under the General Agreement on Tariffs and Trades and after 1995 under the WTO – typically are restricted “to at most twenty members: all the most powerful developed countries plus representatives of other groupings within the WTO … Even here, these twenty members do not begin the trade negotiations from scratch. Rather, they are presented with a pre-agreed list of priorities negotiated before the Ministerial Meeting by members of the Quad.” And which countries comprise the membership of this steering committee of world trade? From 1981 until 1999 the Quad comprised the United States, the European Union, Japan, and Canada. This changed with the collapse of the WTO talks in Seattle in 1999. “One of the more striking images” from the fiasco of that particular Ministerial Meeting “was of trade

From Levitt to Watkins to You  65

delegates from developing countries standing alongside protestors ­outside the negotiating hall and lining up to brief the world’s press about how they had been excluded from the decision-making process” (Watson 2011, 448). Canada was one of the countries on the inside, one of the elite against which representatives of the global South and antiglobalization protesters were mobilizing. The formal role of the Quad ended with the 1999 Battle in Seattle, and there have been no formal meetings since of what is now called the “Old Quad.” The changing configuration of the world system has meant calling into being several other elite clubs, such as the G20, necessarily including actors from the global South sitting alongside the United States and the European Union. All such new elite cubs have met so far with, at best, limited success: the Doha Round of WTO negotiations existed on life-support during the first years of this century. The seizing up of formal mechanisms did not mean, however, the end of influence by informal elites. The “Old Quad” – and Canada with it – does not play the same formal role as it did from 1981 until 1999, but “it still meets informally,” and during high level elite trade negotiations “the members of the original Quad are always represented” (Wolfe 2008, 191, 195). One could say more, but this simple point is clear. Canada is not a neo-colony. It is not a semi-colony. It is not a colony. It is not a dependency. It is not semi-peripheral. It is a small, but nonetheless real, member of the elite group of nations entrenched at the top of the hierarchy of nations. Canada the neo-colony is hard to reconcile with Canada the active participant in the G7 and the Quad group of countries in the WTO.7 Levitt’s claim is not quite as bold. She argues, not that Canada is a neo-colony, but that it should be seen as a rich underdeveloped country. Both frameworks – neo-colonial and rich underdeveloped – are clearly related. Both are part of the long detour of Canadian political economy, whose practitioners for almost forty years have tried to square the circle – to suggest that the actions of a G7/Quad member country are the same as those of the world’s underdeveloped neo-colonies. Deindustrialization The long detour of CPE has been accompanied by many road maps, whose goal has been to keep analysts from straying off the stapletrap–dependency trail. Among the most important of these maps are two that are closely related, labelled “deindustrialization” and “non-­ resident ownership.”

66  Escape from the Staple Trap

Perhaps the most compelling expression of the dependency view came in 1973 at the peak of a left-nationalist radicalization that sparked the growth of a vigorous left wing inside the NDP and that had some resonance inside the union movement (through the unhappy names of the Waffle and the Pancake caucus, respectively).8 In that year, representatives of this new school of Canadian political economy published a collection of essays that, taken as a whole, amounted to a manifesto outlining their key political arguments. (Canada) Ltd. (R.M. Laxer 1973) displayed a depth, breadth, and coherence of analysis that arguably remains unequalled in the history of CPE. Although Levitt was a left nationalist, she was very much not in the tradition of historical materialism. Building on her analysis, however, the authors of (Canada) Ltd. consciously tried to “marry” her nationalism with the categories of historical materialism. Their analysis was clear: Canada was a dependency of the US empire. Moreover, the effects of this dependency were straightforward and negative: Canada was being systematically underdeveloped and deindustrialized to the benefit of the US ruling class and to the detriment of Canada’s working people. It was in the concept of “deindustrialization” that the authors bridged the anti-imperialist dependency school of Frank and the Canadian nationalist school of Levitt. Canada, in terms of living standards, might not currently be an “underdeveloped” society, but the effect over time of its dependent relationship with the United States would lead to a flight of industry south and to its progressive “deindustrialization,” pushing it into underdevelopment. Robert Laxer emphasized this in the Foreword: “Probably the most crucial aspect of the analysis presented in this volume is the thesis of de-industrialization. The drive to de-­industrialize Canada is not only a strategic aim of U.S. government policy as it tries to solve the crisis of over-production, now aggravated by its inter-imperialist rivalries with Japan and Western Europe. Such a policy to shift manufacturing and jobs to the U.S. has received official support from the top leadership of American labour” (1973, 9). This theme would become a touchstone for CPE in the decades that followed. In the 1980s Drache and Cameron argued that “a noninterventionist policy would accelerate deindustrialization” (1985a, xxxiii), while Phillips and Watson claimed that “the post-war period in Canada has seen a marked reversal in its industrial structure compared to the rapid expansion of manufacturing in the hot-house conditions between 1939 and 1945 … [and that there has been] a progressive deterioration in Canada’s secondary manufacturing base” (1984, 38). The evidence

From Levitt to Watkins to You  67

cited for this development is usually the same that Cy Gonick used in  his 1975 Inflation or Depression: “In 1960, only 24.5 percent of non-­ agricultural workers were employed in manufacturing. By 1973, the percentage had dropped to 22.4 percent. Among western countries only Greece and Ireland have a lower percentage of their work force employed in manufacturing” (275–6). Glen Williams, more than a decade later, reiterated this claim based on employment statistics from the Organisation for Economic Co-operation and Development. Canada, he argued, “has a lower than typical percentage of her workforce in manufacturing employment” (1986, 11; see also Clement 1989, 51). Like all statistics, these must be treated gingerly, over time, and comparatively. As Table 3.1 shows, among the G7, Canada, at 25.3 per cent, did indeed have the lowest percentage of its workforce engaged in industry in 1987. But notice that the country with the next-lowest percentage was the United States, and its figure of 27.1 per cent was comparable to Canada’s. When the more specific category of manufacturing is examined – where the CPE paradigm would lead us to expect Canada to perform even worse – Canada in fact does marginally better: still last on the list, but in a dead heat with the United States at 18.6 per cent. But perhaps of more importance than a static “snapshot” of the percentage of workers involved in goods-producing work in 1987 is the “moving picture” of the trend in this sector over time, seen in the last two columns of the table. Calculating the 1987 figure as a percentage of the figure in 1960 does not change the picture substantially. Only Japan increased its shares of employment in industry and manufacturing over the period, those in Germany and Italy declined marginally and in France a little more so, while the United Kingdom saw a fairly precipitous decline. Yet throughout this twenty-seven-year period, the shares of employment in industry and manufacturing in both the United States and Canada were almost exactly the same. The shares in both declined more than in France, but less than in the United Kingdom, and the rate of decline in the two countries was virtually identical. There is, however, a large distortion built into the picture so far. By 1987 the share of workers employed in goods-producing sectors of the economy was declining in all seven countries. The decline began at different points in each country, for complex reasons. The United Kingdom, the oldest industrial power in the world, has long had a substantial portion of its workforce employed in industry. Japan, in contrast, was a semi-feudal country until after the middle of the nineteenth century, and industrialized at breakneck speed until the Second World War,

68  Escape from the Staple Trap Table 3.1.  Civilian Employment in Manufacturing and Industry, G7 Countries, 1960, 1974, and 1987 Per cent of Total Civilian Employment 1960

1974

1987

1987 as % of 1974

1987 as % of 1960

Manufacturing Germany Japan United Kingdom Italy France United States Canada

34.3 21.3 38.4 24.2 27.3 26.4 24.6

35.1 27.2 34.6 28.0 28.3 24.2 23.0

31.9 24.1 23.6 22.5 22.1 18.6 18.6

90.9 88.6 68.2 80.4 78.1 76.9 80.9

93.0 113.1 61.5 93.0 81.0 70.5 75.6 Industry

Germany Japan Italy France United Kingdom United States Canada

47.0 28.5 33.9 37.6 47.7 35.3 32.7

46.7 37.0 39.3 39.4 42.0 32.5 30.5

40.5 33.8 32.6 30.8 29.8 27.1 25.3

86.7 92.4 83.0 78.2 71.0 83.4 83.0

86.2 118.6 96.2 81.9 62.5 76.8 77.4

Source: Author’s compilation from data available in OECD (1992, 40–1).

only to emerge from the ruins to begin an even faster round of industrialization. Indeed, Japan, Germany, Italy, and France all saw their civilian economies devastated by the war. The individual histories are not important, however, except to indicate that these seven great economies did not all come out of the starting gate at the same time. The shattered economies of Europe and Japan had to rebuild manufacturing, in some cases literally from the ground up, so rapid increases in their share of employment in manufacturing were to be expected. But by 1974 all seven countries had begun to experience a decline in their share of manufacturing employment, and calculating the 1987 ­figure as a percentage of the 1974 figure (the next-to-last column of Table 3.1) reveals some interesting results. In that thirteen-year period, manufacturing employment declined the fastest in the United Kingdom, followed by the United States, France, and Italy. Germany now led the pack, its decline having been the slowest of all, Japan was second, and Canada third. The figures are a little different for industry, with Canada moving to fourth.

From Levitt to Watkins to You  69

When these figures are extended into the twenty-first century, the results are fascinating. The International Labour Organization maintains a comprehensive database that attempts to collect reasonably comparable data across time. Three snapshots taken in 1992, 2002, and 2012 – covering roughly one generation and derived from the database of the International Labour Organization – provide an up-to-date p ­ icture of manufacturing employment as a percentage of overall employment for the G7 countries. Table 3.2 shows that, between 1992 and 2012, while the  percentage of the workforce devoted to manufacturing declined throughout the G7, Canada nudged ahead of the United Kingdom, moving from seventh to sixth place among the G7, and reduced the gap with the United States so that, by 2012, their two rates were virtually identical. But what is really interesting is the rate of change. The Great Recession occurred between 2002 and 2012, and it severely damaged manufacturing in Canada, more so than in any of the other G7 countries with the exception of the United Kingdom. But for the period as a whole, in 2012 manufacturing employment in Canada was 73.44 per cent what it had been in 1992, experiencing a rate of decline similar to that in Germany, Italy, and Japan, and noticeably slower than that in France and the United States – the latter seeing manufacturing employment in 2012 standing at just 62.89 per cent of the figure in 2002. The United Kingdom’s 47.45 per cent was by far the lowest for the G7 in that period. Clearly, it would be folly to lean too heavily upon this one set of statistics and draw definitive conclusions. Italy seems to have done “better” than Germany in terms of holding on to its manufacturing sector. But in the early years of the second decade of this century, Italy was embroiled far more deeply in the eurozone crisis than was either Germany or France. Here the insights of the world system theorists surveyed earlier might be helpful in differentiating the situation in these three countries. But given the way in which precisely these kinds of statistics have been used to demonstrate an ostensible relative weakness in Canada’s manufacturing sector, what one can say definitively is that they do not demonstrate any such weakness. Rather, the picture that emerges is one of shared experiences, a common profile of economies that are more similar than different. There is a tremendous similarity in trends among the advanced western capitalist countries in general, and Canada and the United States in particular. All have experienced a steady erosion of manufacturing employment as a share of total employment. In no way is Canada’s experience qualitatively different from that of the other members of the G7. In fact, until the Great Recession, Canada’s record was better than most.

70  Escape from the Staple Trap Table 3.2.  Civilian Employment in Manufacturing, G7 Countries, 1992, 2002, and 2012 Per cent of Total Employment Germany Italy Japan France United States Canada United Kingdom

1992

2002

2012

2012 as % of 2002

2012 as % of 1992

27.8 24.4 23.7 19.3 16.4 13.9 20.7

23.5 22.7 19.3 17.8 13.3 14.9 15.5

19.8 18.4 16.9 12.8 10.3 10.2 9.8

83.9 81.0 87.5 72.0 77.5 68.3 63.3

71.1 75.3 71.2 66.6 62.9 73.4 47.5

Source: Author’s compilation from data available in ILO (2014b).

The deindustrialization thesis had the merit of drawing attention to the instability of employment in manufacturing in Canada. This instability has multiple roots: some attribute it to growing productivity, some to globalization and the offshoring of production. But clearly a cause other than subordination to the United States will have to be discovered, given that the United States has experienced more deindustrialization than Canada and most other members of the G7. Alfred Maizels, an analyst to whom we will return on occasion, had an interesting observation on this phenomenon: “The general relationship between manufacturing productivity and the proportion of the occupied population engaged in manufacturing” is not, he argued “an easy one to describe in precise terms.” He continued: … as an economy becomes progressively more industrialized, the proportion of the occupied population engaged in manufacturing does not rise indefinitely – there is an effective limit, which may already have been reached by a number of countries. This limit comes into operation for two reasons. First, as the economy grows and incomes rise, the demand for workers in ‘service’ occupations, such as teachers, doctors, typists, government officials, etc., increases as fast as, or faster than, the demand for manufactured goods. Second, the productivity increase in manufacturing tends to outstrip by far the corresponding productivity increase in the distribution of goods from factory to consumer; thus, workers tend to be absorbed in distribution to match the increased flow of industrial products. If the demand for ‘service’ workers rises fast enough, and/or the rise in  productivity in distribution is relatively slow, it is likely that, after a

From Levitt to Watkins to You  71 certain stage of economic development has been reached, the proportion of the occupied population in manufacturing will actually fall off. (1963, 30–2)

The trends in manufacturing and services sector employment in the United States and Canada (see Figure 3.1) mirror Maizels’s analysis with interesting precision.9 The resulting picture shows us four things. First, half a century ago manufacturing occupied a larger percentage of the total workforce in the United States than in Canada; today the percentages in the two countries are virtually identical. Second, both countries have seen a slow, steady decline in employment in manufacturing as a share of total employment. Third, there has been a corresponding slow and steady increase in services sector employment. Fourth, and most important, there is no significant difference in the experience of the two economies, by this measure, over half a century – their trends are identical. When one disaggregates the services sector figures, the picture becomes even more interesting. In the context of globalization, there has been an important shift towards finance as the fulcrum on which privilege is organized in the world economy. This is reflected in the United States, where, in 1969, “financing, insurance, real estate and business services” comprised just 6.54 per cent of the overall workforce, but by 2008 (the last year for which we have comparable figures for the United States and Canada) had almost tripled its share to 17.73 per cent. The figures for Canada are very similar: in 1969 the finance sector was smaller than in the United States, comprising 4.54 per cent of the workforce, but by 2008 17.30 per cent of the workforce was employed in this sector. The smaller share of employment in manufacturing, the larger share in services, and the growth in employment in the financial sector corresponding to the increasing financialization of the world economy – all these trends are pronounced, and statistically identical in the two countries. This is not evidence of Canadian-specific deindustrialization, but, rather, of the changing shape of advanced capitalism in both Canada and the United States. Take a closer look at the two countries’ manufacturing profile. Manufacturing has been declining as a portion of Canada’s GDP over many decades: in the 1920s manufacturing accounted for just under one-quarter of the Canadian economy, but by 2011 it represented just 12.8 per cent of the economy – a trend that is in line with the experience of every single advanced capitalist economy in the world. Indeed, in

72  Escape from the Staple Trap Figure 3.1.  Employment in Manufacturing and the Services Sector as a percentage of Total Employment, Canada and the United States, 1969–2013

Source: Author’s compilation from data available in ILO (2014b).

the United States, the decline in manufacturing has been steeper than in Canada (see Figure 3.2).10 The first thing that can be said about these numbers is that, in terms of the role of manufacturing in the overall economy, the two countries are more similar than different. At the end of the Second World War, manufacturing represented about 25 per cent of the economy in each country, and got close to 30 per cent by 1951 in Canada’s case. In both countries, manufacturing declined as a percentage of the economy fairly steadily and at roughly the same pace until the mid-1990s. What can one claim from these data? That Canada is deindustrializing, but so is the United States? That might be so, but it has nothing to do with Canada’s supposed dependency or underdevelopment. If the metropolitan country suffers as much as the satellite, then the paradigm is  meaningless. A portion of the decline of manufacturing in both ­countries is certainly because of globalization and the emergence of ­competitors in the global South. But the corresponding increase in

From Levitt to Watkins to You  73 Figure 3.2.  Manufacturing as a percentage of GDP, Canada and the United States, 1946–2012

Note: US data begin in 1947, but are entered here in the 1946 column for comparison purposes. Sources: Author’s compilation from data available in Statistics Canada (1983, 2007, 2012a); United States (2012b, 2014).

employment in the two countries’ services sectors suggests an additional, possibly more important, explanation. A large part of the decline in manufacturing employment in both countries can be attributed to an increasingly productive manufacturing sector capable of producing more goods with less labour than in decades past, allowing for a larger and larger portion of the economy to be devoted to services and public administration. One explanation, however, does not present itself: deindustrialization in Canada caused by a shift of manufacturing production to the United States. Further, the data reveal a growing gap between the two countries in the twenty-first century, a divergence in experience, but not what one would expect according to the left-nationalist literature. The decline in  manufacturing has been very steep in the United States, with just

74  Escape from the Staple Trap

11.5 per cent of GDP represented by manufacturing in 2011 – noticeably lower than Canada’s 12.8 per cent figure. In complete contrast to what was predicted in the left-nationalist literature, the imperial centre, the United States, has experienced an intensification of deindustrialization, while the neo- or semi-colony – the “Canadian dependency” – has a somewhat higher proportion of its economy devoted to manufacturing. The deindustrialization thesis – the argument that Canada would be stripped of its manufacturing base as a result of its dependence on the United States – needs to be discarded in its entirety. Chapter 8 will return to this question – how to compare the manufacturing sectors of Canada and the United States. Non-resident Ownership That foreigners control this or that particular industry will trouble none but those earnest patriots who, in defiance of all the evidence, persist in believing that the Canadian capitalist is a different kind of being from the foreign, that the one is a philanthropist, the other a robber and cheat. – League for Social Reconstruction, 1935 (quoted in Park and Park 1973, xi)

The deindustrialization thesis was certainly the most dramatic position of left nationalism in its classic period. It was a straightforward attempt to insist that the underdevelopment half of the dependencyunderdevelopment couplet was still relevant, even though Canada clearly belonged among the rich countries. Less dramatic, but in a very real sense more basic, was the question of non-resident, particularly US, ownership in the economy as a whole, with a specific focus on high levels of non-resident ownership in the critical manufacturing sector, all seen as rooted in high levels of foreign direct investment (FDI), which the next chapter will examine. We saw in the last chapter that, when all other pillars are removed, the question of non-resident ownership remains indispensable for the twenty-first-century attempt to assert that Canada’s status in the world system is that of a semiperipheral country. Non-resident ownership, left nationalists claimed, would lay the basis for distortions in Canada’s economic development, the truncation of its manufacturing sector, and a much greater reliance on raw material exports than in the advanced capitalist countries of western Europe, the  United States, and Japan. Levitt’s classic work was by no means the only, and by no means the last, to lean heavily on the issue of non-­ resident ownership.

From Levitt to Watkins to You  75

When Levitt wrote, there was a quite plausible basis for a focus on the issue of non-resident ownership. For much of the twentieth century, there was a seemingly relentless growth of non-resident control of the Canadian economy as a whole, including the crucial manufacturing sector, as Figure 3.3 shows clearly. From 1926 through 1973, non-­ resident control of the Canadian economy (as a percentage of capital employed) increased from around 15 per cent to more than 35 per cent, the majority of this US control. In manufacturing, the statistics are astonishing. By the 1970s, fully 45 per cent of manufacturing in Canada was controlled by US residents, while total non-resident control of manufacturing was in the range of 60 per cent. One of the trickiest tasks in political economy, however, is to move from identifying trends in the past to projecting these trends into the future. The data in Figure 3.3 end in 1973. In the years since, interestingly, the trends have changed. Between 1988 and 2012, overall nonresident control of the Canadian economy increased slightly from 25.66 per cent to 29.36 per cent, measured as a percentage of operating revenue. But in the less volatile category of assets, there was a steady decline over the same period, so that, by 2012, just 18.43 per cent of assets in the Canadian economy were controlled by non-residents ­ (Statistics Canada 2001, 2014c). Since the largest single source of non-resident control of the Canadian economy has historically been US control, the key question is the history of US control of the economy. Figure 3.4 plots the rise and fall of US control of the Canadian economy from 1965 to 2012, by share of assets and share of operating revenue. As with all statistics, a little care is needed in interpreting the results. These data come from three ­different “moments” in Statistics Canada’s data collection. The biggest issue in the transition between these three moments is the shift from using “capital employed” (Figure 3.3) as a measure of non-resident ownership levels to using assets and revenues (Figure 3.4), and I have made no attempt to “link” these first two moments visually, but rather presented each as a separate figure. Further, in Figure 3.4, the apparently very large fall in US control of assets in 1988 is partly due to Statistics Canada’s shift to a new series that begins in that year, a new series that uses a somewhat different measure than do the earlier “moments.” An earlier presentation of this research (Kellogg 2005a), adjusted the pre-1988 data in line with the change in data collection methods in an attempt to make the earlier data compatible with the later. Figure 3.4, however, presents the unrevised data as collected by Statistics Canada.

76  Escape from the Staple Trap Figure 3.3.  Non-resident Control of the Canadian Economy, by Capital ­Employed, 1926–73

Source: Author’s compilation from data available in Statistics Canada (1983, G291–302).

None of these changes in measurement series, however, obscures the overall trend: a steady rise in non-resident – particularly US – control of the Canadian economy until the early 1970s, followed by a relatively steady decline in non-resident – and particularly US – control since then. US control of assets in the Canadian economy peaked at 27.7 per cent in 1968 but fell steadily to just over 10 per cent by 1991. After some slight rises and falls through the 1990s and early 2000s, US-controlled assets were just 9.05 per cent of Canada’s economy by 2012. A similar pattern emerges with respect to US control of operating revenue in the Canadian economy. Here the peak of 29.2 per cent was reached in 1969, and by 1990 it had fallen steeply to 16.26 per cent. Again, after rising somewhat in the 1990s and early 2000s, it fell to 15.81 per cent in 2012. US corporations do control a sizable minority of the assets and revenue produced in the Canadian economy, but by any measure the substantial majority is owned and controlled by Canadians, and this has been true, and relatively stable, for quite a long time. In 1988, 79.46 per cent of

From Levitt to Watkins to You  77 Figure 3.4.  US Control of Assets and Revenue in the Canadian Economy, 1965–2012

Sources: Author’s compilation from data available in Statistics Canada (1991, 2001, 2014c).

assets in the economy were under Canadian control; in 2012, the figure was 81.57 per cent. As for operating revenue, figures for the same years were 74.3 per cent and 70.64 per cent (Statistics Canada 2001, 2014c). Mel Watkins himself, in the introduction to the 2002 reissue of Silent Surrender, had to acknowledge that there are some problems with the strong claim of the inevitability of increasing non-resident control of the Canadian economy, saying, “we now know that the level of foreign ownership relative to Canadian ownership actually began falling in the 1970s.” He says, however, that, with the implementation of NAFTA, this was reversed: “Levels of foreign ownership in Canada relative to domestic ownership stopped falling and began rising again” (Watkins 2002, xiii). Yet this did not take place. The figures for the twenty-first century continue to show the steady decline of US and other non-resident control of the Canadian economy, a decline now two generations old.

78  Escape from the Staple Trap

Drache and Clement claimed in the mid-1980s that “American domination, once the central problematic, is no longer the overriding theoretical preoccupation of political economists” (1985b, x). But overriding or not, they and others insisted on maintaining that any decline of US control of the Canadian economy was bound to be temporary. The list of sceptics includes Glen Williams, Gordon Laxer, Daniel Drache, Wallace Clement, and Mel Hurtig. Their deeply rooted unwillingness to acknowledge the shift away from rising levels of US ownership indicates the deep hold the question of US control had on a generation. Glen Williams, writing in the mid-1980s, argued that, “[s]ince the early 1970’s [sic], a moderate decline [in foreign ownership] has set in. This has been the result of mergers, government takeovers, and a few controversial reclassifications by Statistics Canada of the nationality of some large corporations.” He did not indicate why a decline in control resulting from mergers and government takeovers was unimportant. He also did not indicate what these few controversial reclassifications were, but proceeded to argue that, “taken as a whole, then, this period was marked both by striking advances in industrial activity and foreign control of the firms responsible for carrying it out” (1986, 103). It is probable that the “statistical reclassifications” to which Williams referred are the same as those F.H. Leacy identified in his compilation, Historical Statistics of Canada, where he noted an “unusually large reclassification” for the “other mining and smelting” category in 1972 (Statistics Canada 1983, G291–302). The annual report under the Corporations and Labour Unions Returns Act described this reclassification as follows: [A] major change in control was recorded between 1971 and 1972 that has resulted in a large structural shift in the mining industry. The International Nickel Company of Canada Limited (Inco) was reclassified from foreign to Canadian control, reflecting the fact that Canada became the country in which the largest number of voting rights were held. To avoid the disclosure of confidential data for this corporation, it has been necessary to suppress financial data in the metal mining and other mining sectors. This statistical reclassification was a major contributing factor to the unusually large growth of Canadian controlled corporations as compared to the decline shown for foreign controlled corporations in mining. (Statistics Canada 1975, 47)

But surely this “statistical reclassification” was completely in line with evidence of a gradual shift from foreign to Canadian control. The fact

From Levitt to Watkins to You  79

that the shift occurred because of an increase in the number of shares held in Canada, not through a massive buyout, does not change the fact of a shift of control. Quantitative changes over time can become qualitative. If Williams dismissed the issue of the decline of foreign control on the basis of not taking seriously these “statistical reclassifications,” it was incumbent on him to indicate why, since, from the early 1970s on, there was more and more evidence that foreign control was declining, rather than increasing. Further, if one were to take Williams’s argument as valid – that Inco should have been seen in the 1970s as owned primarily by non-residents – then how does one explain the flurry of concern about hollowing out (see, for instance, Olive 2006) when the company was purchased in 2006 by Brazil’s Vale? Gordon Laxer, in his widely read Open for Business, acknowledged that there was a decline in non-resident control over the 1970s and 1980s, but argued that this reversal of foreign control had happened only “to a small degree,” and implied that this movement would be reversed with the late-1980s consummation of the Canada-US Free Trade Agreement (CUFTA): “[Brian] Mulroney’s victory and the ensuing Free Trade Agreement completed his government’s dismantling of most of the mild economic-nationalist policies, begun in the 1960s, that had started to reverse, to a small degree, the overwhelming extent of foreign ownership and control of Canada’s manufacturing and resource sectors. In terms of foreign-ownership legislation, the 1984 and 1988 elections meant a return to Canada’s historical open-door policy” (1989, 3–4). This picks up a line of reasoning from the mid-1980s, when Daniel Drache and Wallace Clement, commenting on the election of the Mulroney Tory majority federal government, argued that, “[g]iven Ottawa’s commitment to free trade, there will be greater Americanization of the economy and culture, not less” (1985a, xvii). The developments since, in the direction opposite to that which Laxer, Drache, and Clement anticipated, have exposed the weaknesses of their shared analysis. All severely underestimated the extent and deep roots of the decline in non-resident ownership over several decades. There is simply no indication that non-resident ownership started to increase significantly with the election of a Tory – outrightly continentalist – government. Facts are stubborn things, and they cannot be reconciled with an argument that sees a Liberal government’s mild nationalism leading to a decrease in foreign control and a Tory government’s extreme continentalism leading to an increase. The decline, in fact, began in 1971 and has continued inexorably, through the governments of Trudeau, Clark, Turner, Mulroney, Campbell, Chrétien, Martin,

80  Escape from the Staple Trap

and Harper. Further, the left-nationalist predecessors of Laxer, Drache, and Clement spent much of their time criticizing “mildly economic ­nationalist” policy vehicles – the Foreign Investment Review Agency (FIRA), in particular – pointing out quite rightly that, in many ways, they were just window-dressing. In 1987 Cy Gonick wrote: “The Science Council of Canada … is very critical of the now-defunct … FIRA. While it was a noble idea, ‘the problems of Canadian industry were already firmly entrenched and too severe for FIRA to effect even the slightest amelioration’” (Britton and Gilmour 1978, 185; cited in Gonick 1987, 198). Mel Hurtig challenged an earlier version of Figure 3.4 – prepared before data from this century were available (Kellogg 2003a) – precisely following the reasoning of the 1980s political economists cited above. Although he acknowledged that US control began to decline in the 1970s, Hurtig, like Watkins, attributed this to the effective policy efforts of Canadian nationalists – in particular, the Trudeau-era implementation of FIRA. Again paralleling Watkins and Laxer, he argued that levels of US ownership began to increase in the 1990s when FIRA was abandoned and after Canada signed on to CUFTA. The decline of US ownership levels in 1998 and 1999 was an aberration, he maintained, and when the figures for 2000 and 2001 were available we would be able to see that US control of the Canadian economy was again “rapidly increasing” (Hurtig 2003). In response I argued that Hurtig was placing “far too much emphasis on the economic impacts of various federal policy initiatives. The changing structure of the Canadian economy is being shaped by forces much more powerful than the Canadian state” (Kellogg 2003b). The data for the first decade of the twenty-first century are now available, and it is clear that Hurtig’s predictions – like those of Laxer, Williams, and Watkins before him – were wrong. There is no “rapidly increasing” US ownership of the Canadian economy. Rather, what we see is an inexorable decrease in US control, whether measured by assets or by revenue. So well established is the long-term, steady decline of US control of the Canadian economy that one can with confidence call it a secular trend. This is not, however, the end of the matter. If the “classic” tradition of Canadian political economy is on weak ground when it comes to nonresident and US control of the economy as a whole, another picture entirely opens up when a narrower focus is adopted. Watkins and Levitt – and many others in the CPE tradition – argued that the key to  understanding the dynamics of non-resident – in particular, US

From Levitt to Watkins to You  81

– control was to focus, not on the economy as a whole, but more narrowly on the critical manufacturing sector. If foreign control dominated here, in the heart of the capitalist economy, then that would set the pace for the entire economy. As Watkins argued, “[o]nce the most dynamic sectors of our economy have been lost, once most of the saving and investment is taking place in the hands of foreign capitalists, then the best prediction is a steady drift towards increasing foreign control of the Canadian economy with the only certain upper limit being 100 percent” (2002, xvii). This prediction was originally published in 1970, and reprinted without comment in the 2002 reissue of Levitt’s work. Do the facts support the argument? An early series for tracking foreign control of the Canadian economy by sector contains information up to 1987, and the trend is similar to the trends of overall US control shown in Figure 3.3. Measured as a percentage of capital employed, US control of Canadian manufacturing rose to a peak in 1969 of 45.4 per cent, remained at or near that level through the early 1970s, then steadily retreated until, in 1987, it stood at 34.9 per cent (Statistics Canada 2000). New statistics are now available for the period from 1999 to 2012. They are not strictly comparable, as they measure assets, operating revenue, and profits, not capital employed, but the trend is the same. US control of manufacturing assets stood at 28.8 per cent in 1999, and by 2012 had declined slightly to 27.1 per cent. Measured in terms of operating revenue, the decline of US control was sharper, from 33.8 per cent in 1999 to 26.1 per cent in 2012. Measured in terms of profits, US control of manufacturing fell from 37.4 per cent in 1999 to 27.9 per cent in 2012 (Statistics Canada 2014c). By every measure, then, US control of the Canadian manufacturing sector has been declining since the 1970s. It is instructive to see these figures in light of developments in the same sector in the United States. At the height of the left-nationalist political economy movement in the 1970s and 1980s, there was indeed a strong contrast between non-resident control of manufacturing in Canada and non-resident control of manufacturing in the United States. In 1977, just 3.5 per cent of all US manufacturing employment was undertaken in firms controlled by non-residents (Graham and Krugman 1995, 14). In the years since, this figure has risen steadily, and by 2009 fully 14 per cent of US manufacturing workers were employed in firms controlled by non-residents (Anderson 2011, 216). This still leaves the level of non-resident ownership of manufacturing considerably lower than in Canada, but the fact that the trend in Canada is a slow drift

82  Escape from the Staple Trap

down in the level of non-resident ownership and that the opposite is the case in the United States is sufficient to challenge a key tenet of CPE orthodoxy. The evidence is clear. There has not been a “steady drift towards ­increasing foreign control of the Canadian economy” as a consequence of high levels of US control in the manufacturing sector. There is certainly no evidence of a slide towards “100 percent” foreign control of the Canadian economy. In fact, a stronger case can be made that there is a long-term secular trend, well entrenched now for more than thirty years, of increasing Canadian capitalist control of the country’s economy. The evidence available in the 1960s was not as clear-cut. There was ambiguity, and it is perhaps understandable how an earlier generation could have used these statistics to portray Canada as oppressed by the United States. But through the 1990s and into the twenty-first century, in terms of overall levels of non-resident ownership, that ambiguity has disappeared. Some might argue that, at least in terms of non-resident control of operating revenue and assets in the manufacturing sector, the situation remains relatively ambiguous. Perhaps, but these are not the only criteria that need to be assessed. The next chapter will examine the “hollowing-out” statistics, which are completely unambiguous: Canadian corporations consistently expand more aggressively abroad than do non-Canadian corporations into Canada. In summary, an empirical examination of the two key categories of deindustrialization and non-resident ownership makes it very hard to sustain the political economy framework that has informed the Canadian left-nationalist dependency school since the 1960s. It also undermines the twenty-first-century semi-periphery school, which rests much of its claims about Canada’s place in the world economy on precisely the question of non-resident ownership and control. This kind of empirical critique – statistical discourse analysis – is not unimportant. A series of empirical facts was primary for Gunder Frank. Latin America was not developing as Rostow and the other anticommunist “trickledown” theorists said it would, but was in fact underdeveloping. This was empirically clear – in the poverty of the barrios, in the mass unemployment in the cities, in the exploitation and oppression on the latifundia. Just how are we to bend and twist this theory to fit the Canadian reality? Where are the barrios? Where are the latifundia? Yes, there are deep pockets of poverty in urban slums and on many First Nations

From Levitt to Watkins to You  83

r­eserves. But in the country as a whole, the lived experiences in the Canadian reality are vastly different from the lived experiences in B­olivia, ­Colombia, Ecuador – and Mexico. It is true that Jean Chrétien made too much of the fact that, year in and year out in the 1990s, Canada placed at the top of the United Nations Human Development Report’s Human Development Index. But the report – which “measures the achievements in a country in three basic dimensions of human development: a long and healthy life, access to knowledge and a decent standard of living” (UNDP 2011, 168) – is a profound confirmation of the fact that Canada sits at the very top of the development hierarchy in the world system. The satellites on the periphery, the large group of countries on the semi-periphery – the really dependent societies – exhibit clear and obvious signs of underdevelopment that place them far below Canada in that index. Earlier this chapter outlined the history of the powerful club called the G7 and Canada’s entrenched role in that club. These seven advanced capitalist countries have within their borders just 10.73 per cent of the world’s population (United States 2011c), yet they control fully 40 per cent of the world’s GDP – where GDP is expressed in terms of “purchasing power parity,” which shifts the statistical picture of the world economy away from the global North and towards the global South (United States 2011a). When GDP is measured in US dollars, these seven countries with just 10 per cent of the world’s population control just under half of the world’s economy. This level of domination has existed for years: measured in US dollars, the G7 countries’ control of world GDP was 58.47 per cent in 1970, 56.75 per cent in 1980, 65.46  per cent in 1990, and 65.64 per cent in 2000. It is only with the spectacular rise of China in the twenty-first century that the G7’s share of world GDP has come back down to the 50 per cent mark (United Nations 2013a). There is only one way for these seven countries to have achieved this status: they all have enormously productive economies. And in most economics textbooks – liberal or historical materialist – productivity is the lynchpin of economic development in a capitalist world. Canada is an entrenched part of this productive core. Now, of course, Canadian political economists have not been able to escape these facts. Throughout the long history of left nationalism’s dominance of Canadian political economy, its adherents have employed various devices to account for the empirical evidence of ­Canadian ­development, some of which we have already seen. Kari

84  Escape from the Staple Trap

Levitt called Canada a “Rich, Industrialized, Underdeveloped Economy” (2002, 127). Daniel Drache described Canada as “having the social relations of advanced capitalism and the economic structures of dependency” (1983, 36). Glen Williams and Leo Panitch, though historical materialist critics of Canadian dependency theory, also accepted this approach, calling Canada either the “wealthiest colony” (Williams 1976) or a “rich dependency” (Panitch 1981). But the whole original point of the dependency school was to explain underdevelopment. If Canada has developed despite its being a dependency – if it is rich and industrialized even though a dependent satellite – what is the utility of retaining any of the dependency framework? Conclusion: Return to Akwesasne This book opened with a few snippets from the rich history of the ­people of Akwesasne. For those of us who grew up in Cornwall in the 1960s, the 1968–69 Cornwall Bridge confrontation seemed a small event. Years later, it became clear that it was of considerable importance for social movement activism in both Canada and the United States. As T.R. Johnson (1996, 141) notes, “[t]he 1968–69 Cornwall Bridge confrontation … brought about the creation of an Indian newspaper called Akwesasne Notes, which … developed into a national Indian newspaper with a circulation of nearly fifty thousand … As a result, Cornwall Bridge became a prominent discussion topic of Indians across the nation.” That activism awoke a generation to the realization that the deep poverty existing in places such as Akwesasne was socially constructed. Its underdevelopment was a product of the community’s constructed dependence on the settler society that had come to surround it. One useful analysis sees this dependency and underdevelopment as the end result of a relentless settler colonialism, which can be “traced to several processes”: participation in the 17th century European fur trade, which contributed to the destruction of the tribe’s traditional economy; coerced adherence to Christianity, which contributed to the loss of traditional Indian value systems; and associated loss of lands and resources due to broken treaties and unjust laws. … Without an economic base, upheld by traditional political and social values, Mohawks have been continually forced onto the path of disruption and dependence.

From Levitt to Watkins to You  85 Such underdevelopment has been undergirded throughout the past three centuries by the military, an ideology of racism, broken and coerced treaty agreements and the dominance of Euro-American law, all of which have favoured white settlement and, in recent years, big business interests. (Goodman-Draper, 1994, 54)

In other words, the framework of dependency/underdevelopment can  be used with effect to understand the relationship of the people of  Akwesasne to the Canadian settler state that pushed them into a tiny corner of their former lands. Perhaps this can be seen as a “chain of  dependency” – the people of Akwesasne dominated by Canada, Canada dominated by the United States. Perhaps, but it feels implausible. If “dependency” is such a big and flexible category that it can contain the very different experiences of Canada, the colonial settler state, and Akwesasne, the tiny corner of land allowed some of Canada’s original peoples, then it has been stretched so far as to have lost all meaning. As with “semi-periphery,” “dependency” – no matter how it is qualified – is either inappropriate when applied to a country such as Canada or so limited by adjectives and other qualifiers as to be simply descriptive and, in a political economy sense, empty of meaning. The “classic” dependency moment of Canadian left nationalism foundered on shoals very similar to those encountered by the twenty-first-century semi-­periphery moment of Canadian left nationalism.

4  Something Rings Hollow11

NON-RESIDENT CORPORATE ACQUISITIONS AND FOREIGN DIRECT INVESTMENT I have found that hollow which even I had relied on for solid. – Henry David Thoreau (1893, 194)

Despite the clear, factual evidence of a decline in both non-resident and US control of the Canadian economy, the issue has returned this century, but in a new form. The Canadian economy is being “hollowed out,” it is argued. Non-Canadians are purchasing leading Canadian corporations and moving their headquarters out of the country – with dangerous consequences for sovereignty and for social and economic development. The hollowing-out approach allows for a return to centre stage of the issue of declining Canadian control of the economy, the most central of all the tenets of both the semi-periphery and the dependency schools of Canadian political economy (CPE). Focusing on high levels of foreign direct investment (FDI) in Canada is a necessary accompaniment to the hollowing-out claim, and high levels of FDI are seen through the prism of an ever-ascendant US economy, both of these key concerns from the classic period of CPE. This chapter will look at these three arguments – hollowing out, FDI, and US ascendancy – in turn. Who’s Hollowin’ Who?12 The hollowing-out argument dominated the headlines in 2007. On 7 May US-based aluminum giant Alcoa said it wanted to take over Alcan, at the

Something Rings Hollow  87

time one of the biggest multinational companies based in Canada – a takeover (more accurately, acquisition) valued at US$33 billion (Wright 2007). In a very short time, discourse in the business press on the threat this posed seemed an awful lot like the writings of 1970s Canadian left nationalism, except that, this time, the arguments were coming, not from the margins, but from the mainstream of Canadian society. On 3 May, before the Alcan takeover news hit, Dominic D’Alessandro, president and chief executive officer of Manulife Financial, said, “I sometimes worry that we may all wake up one day and find that as a nation, we have lost control of our affairs” (Olive 2007a). Gordon Nixon, chief executive of the Royal Bank of Canada, became almost strident: “Are we going to let the country go virtually 100 percent foreignowned, with the exception of small businesses? Do you draw the line in the sand at some point, or do you never draw the line in the sand?” (Marotte 2007). With the Alcan announcement many new voices joined the choir. “I’m just sick about Alcan,” said Dick Haskayne (quoted in  Smith 2007), author of Northern Tigers: Building Ethical Canadian Corporate Champions (Haskayne 2008). “At the current pace,” wrote Ken Smith, managing partner of SECOR Consulting, “the Canadian economy will be effectively hollowed-out in less than a decade” (Smith 2007). Robert Brown, chief executive of CAE Inc., warned that “[a] country must be in charge of its own destiny and can’t have key decisions made outside. That means retaining large head offices and the top-quality jobs they provide” (Stevens 2007). This corporate Canadian nationalism was echoed in the media. The editors of the liberal and nationalist Toronto Star wrote that “what’s at stake here are Canadian jobs, Canadian decision-making and, ultimately, Canada’s standard of living” (Toronto Star 2007). David Olive, business journalist at the Toronto Star, put the case forcefully. “There have been close to 600 foreign takeovers since the start of last year,” he wrote. “Familiar names from Inco Ltd. to John Labatt Ltd.” had been taken over. “Lesser-known but important names on the list of losses include Biochem Pharma Inc., developer of the world’s first widely dispensed AIDS drug; ID Biomedical Corp., a pioneer in vaccines; and ATI Technologies Inc., leading global graphic chips maker … Inco succumbed to … Companhia Vale do Rio Doce (CVRD), and nickel producer Falconbridge … submitted to the blandishments of … Xstrata PLC” (Olive 2007a). On 22 May, however, things did not seem so clear. Alcan rejected Alcoa’s offer, saying that it undervalued the company and was “highly

88  Escape from the Staple Trap

conditional and uncertain,” and began discussions with BHP Billiton Ltd. as an alternative suitor (Sinclair et al. 2007). Finally, on 11 July, Alcan was purchased, not by Alcoa, but by Rio Tinto. Alcan’s fate was to be a subsidiary, known as Rio Tinto Alcan, with headquarters in Montreal (Bream and Simon 2007). For those with a nationalist, let alone left-nationalist, framework, this posed a problem. In the 1970s, the vast majority of “foreign takeovers” were by US corporations. The whole discussion of non-resident ownership, then, was about Canada’s being subservient to US imperialism. Nationalism could take the form of left nationalism, with nationalist politics directed against US imperialism. But both BHP Billiton and Rio Tinto are Australian-British multinationals. CVRD, which purchased Inco, is Brazilian. Xstrata, which bought Falconbridge, is Swiss, and competed unsuccessfully with Norilsk, a Russian company, to buy Lion-Ore. Essar Global, which purchased Algoma, is based in India (Olive 2007c). This is clearly a much more complex picture than that of the 1970s. It is a little hard to argue credibly that Canada is being “oppressed,” not just by US, but also by Swiss, Australian, British, Russian, and Indian “imperialism.” This is only part of the story. In an interview announcing the rejection of the Alcoa takeover, Alcan CEO Dick Evens “refused to rule out any scenario … including one in which Alcan would turn the tables by launching its own bid for Alcoa” (Sinclair et al. 2007). A US takeover of a Canadian Crown corporate jewel was being transformed into a threat to aggressively assert Canadian corporate capitalist interests into the heart of the US economy. That piece of the picture is missing from the nationalist lament for the sale of corporate Canada. Many “foreign” companies are buying Canadian firms, but many more Canadian firms are buying foreign firms. Canadian capitalism is not the weak, declining, dependent beast that is portrayed in the press. If, on 8 May 2007, we heard of the attempted takeover of Alcan – spurring the outcry over the takeover of Canadian corporations – the next day KPMG released an important study that revealed a very ­different picture. “Based on data supplied by Thomson Financial ­Securities Data,” the KPMG study concluded that, although foreign takeovers of Canadian companies increased in 2005 and 2006, there were in fact more takeovers of foreign corporations by Canadian capitalists. In 2005 there were 277 takeovers of Canadian firms by non-­ Canadians, and in 2006 there were 383. But in those same years there were, respectively, 348 and 442 Canadian takeovers of non-Canadian firms. In other words, Canadian corporations were taking over foreign

Something Rings Hollow  89

firms at a rate “20 percent greater” than foreign firms were taking over Canadian ones. It is true that the dollar value of foreign takeovers was greater than that of Canadian takeovers of foreign firms – about $99  billion versus $52 billion. But these comparisons can be affected hugely by “one or two big transactions, and that was the case in 2006 with two significant transactions in Canada’s mining sector involving Falconbridge and Inco. Those two transactions accounted for U.S. $38 billion” (KPMG 2007). Moreover, corporate Canada’s aggressive pushing abroad with takeovers of foreign corporations that outweigh foreign purchases of Canadian corporations is no short-term anomaly. Statistics Canada’s Michael Marth authored an interesting study of cross-border mergers and acquisitions covering the period between 1997 and 2002. His conclusions are clear: “Canadian firms acquired foreign companies at a faster pace than foreign firms were acquiring companies in Canada. Between 1997 and 2002, Canadian firms acquired 447 foreign companies … while foreign companies acquired 345 Canadian companies” (Marth 2004, 1). The most comprehensive source of information on this subject comes from the monthly newsletter and database, Mergers and Acquisitions in Canada, owned since 1993 by the investment banking services firm Crosbie & Company. As of that year, the monthly had “chronicled in detail 5,000 business transactions since 1985” (Toronto Star 1993). What is remarkable about the picture its figures show is the way it completely reverses the hollowing-out picture painted above. Figure 4.1 and the accompanying table show the value of Canadian takeovers of non-­ resident companies and the value of non-resident takeovers of Canadian companies from 1993 to 2013 – the pie chart shows overall percentages in those years, and the table shows year-on-year figures; the table also separates out years in which Canadian acquisitions outstripped those of non-residents, and when acquisitions of non-residents outstripped those of Canadians. In the four years from 2006 until 2009, the value of non-resident acquisitions of Canadian companies did exceed, in each year, the value of Canadian acquisitions of non-resident companies. That perhaps helps explain the angst about hollowing out which emerged in 2007. However, those years are the exception, not the rule. In thirteen of the twenty-one years covered, the value of Canadian acquisitions of non-resident corporations exceeded that of non-resident acquisitions of Canadian corporations. Over the whole period the value of Canadian acquisitions of non-resident companies slightly exceeded the value of non-resident acquisitions of Canadian companies.

90  Escape from the Staple Trap Figure 4.1.  Value of Canadian versus Non-resident Corporate Acquisitions, 1993–2013

Difference between Canadian and Non-resident Acquisitions… Canadian Acquisitions of Non-resident Companies

Non-resident Acquisitions of Canadian Companies

…when Larger for Canadian Companies

…when Larger for Non-resident Companies

(value, in $ billions) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

5.9 9.9 21.0 21.2 25.4 54.2 23.4 56.5 35.6 18.3 41.6 44.5 29.7 73.6 93.6 21.8 33.1 67.6 43.2 46.3 55.8

3.3 6.3 13.6 16.6 11.6 19.0 41.2 101.8 41.2 9.8 11.7 16.2 40.5 101.0 134.5 26.6 28.7 28.5 37.7 53.3 18.8

2.5 3.6 7.4 4.6 13.7 35.2 (17.8) (45.3) (5.6) 8.5 30.0 28.3 (10.8) (27.4) (40.9) (4.8) 4.4 39.1 5.5 (7.0) 37.0

Source: Author’s compilation from data available in Crosbie (2014 and previous issues, annually from 1994).

Something Rings Hollow  91

Figure 4.2 takes the same time period, and counts the number, rather than the value, of transactions. Here, in every year, more Canadian firms acquired non-resident-owned corporations than the reverse. In total, for the twenty-one year period, there were 6,062 acquisitions of non-resident-owned corporations by Canadian firms, more than double the 2,572 non-resident acquisitions of Canadian corporations. Figures 4.1 and 4.2 portray very active cross-border mergers and acquisitions activity over a twenty-one year period. They do not portray “hollowing out.” The value of these transactions is virtually identical in  each direction, and the number of Canadian acquisitions of non-­ resident firms is far greater than the other way around. Even clearer is the picture that emerges from Figures 4.3 and 4.4, where the comparison is restricted to Canadian acquisitions of US corporations versus US acquisitions of Canadian corporations. Given the emphasis in the CPE literature on the issue of US corporate control of the Canadian economy, this picture of the trajectory of US corporate activity relative to Canadian corporate activity is more important than the figures of overall non-resident corporate activity. What is portrayed here is remarkable, and very clear. The overall value of Canadian acquisitions between 1993 and 2013 was considerably greater than the overall value of US acquisitions: $528 billion compared with $385 billion. Moreover, the trend was a solid one: in only six years (1994, 1996, 1999, 2001, 2005, and 2009) did the value of US corporate acquisitions of Canadian corporations exceed the value of Canadian corporate acquisitions of US ­corporations. As with the non-resident comparison, the picture is even more dramatic when the data are reworked to measure the number, rather than the value, of transactions. As Figure 4.4 shows, over the twenty-year period, there were more Canadian acquisitions of US corporations than the reverse in every year except 2009, and there were almost double the number of Canadian acquisitions of US corporations than the reverse. That it is the much smaller number of US acquisitions of Canadian corporations that receives the most press speaks to journalistic one-sidedness, but not to the validity of the “hollowing-out” thesis. The research presented here strongly supports the conclusions drawn by William Carroll and Jerome Klassen. Basing themselves in a “sociological research tradition,” they mount an important and interesting challenge to the hollowing-out thesis through an examination of “interlocking directorates for the largest corporations in Canada and the world” (2010, 1, 4). The picture that emerges is not the “hollowing out” of Canadian capitalism and the erosion of the Canadian ca­ pitalist class, but, rather, its reinforcement: “a corporate community in

92  Escape from the Staple Trap Figure 4.2.  Number of Canadian versus Non-resident Corporate Acquisitions, 1993–2013

Difference between Canadian and Non-resident Acquisitions…

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Canadian Acquisitions of Non-resident Companies

Non-resident Acquisitions of Canadian Companies

…when Larger for Canadian Companies

143 264 212 258 303 309 265 318 232 240 229 248 379 497 505 265 212 333 299 282 269

89 114 126 150 142 152 186 222 136 107 65 86 89 125 186 125 84 119 104 99 66

54 150 86 108 161 157 79 96 96 133 164 162 290 372 319 140 128 214 195 183 203

…when Larger for Non-resident Companies

Source: Author’s compilation from data available in Crosbie (2014 and previous issues, annually from 1994).

Something Rings Hollow  93 Figure 4.3.  Value of Canadian versus US Corporate Acquisitions, 1993–2013

Difference between Canadian and US Acquisitions… Canadian US Acquisitions Acquisitions of US of Canadian Companies Companies

…when Larger for Canadian Companies

…when Larger for US Companies

(value, in $ billions) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

3.4 4.4 14.9 14.0 20.4 33.9 19.6 47.6 26.8 11.0 27.7 32.8 17.7 55.1 50.1 14.4 9.3 31.8 25.3 25.7 42.5

1.8 5.6 8.8 14.3 8.1 16.9 26.6 20.4 37.4 6.8 10.7 12.8 21.4 43.4 48.9 12.8 34.5 10.7 21.2 14.1 7.7

1.6 (1.2) 6.1 (0.3) 12.3 17.0 (7.0) 27.1 (10.6) 4.2 17.0 20.0 (3.6) 11.7 1.1 1.6 (25.2) 21.1 4.2 11.6 34.8

Source: Author’s compilation from data available in Crosbie (2014 and previous issues, annually from 1994).

94  Escape from the Staple Trap Figure 4.4.  Number of Canadian versus US Corporate Acquisitions, 1993–2013

Difference between Canadian and US Acquisitions…

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Canadian Acquisitions of US Companies

US Acquisitions of Canadian Companies

…when Larger for Canadian Companies

87 138 110 138 189 212 187 148 141 141 137 134 241 263 291 148 104 166 160 151 170

65 92 91 122 104 120 142 139 77 77 46 65 57 79 106 71 131 67 57 51 37

22 46 19 16 85 92 45 9 64 64 91 69 184 184 185 77

…when Larger for US Companies

(27) 99 103 100 133

Source: Author’s compilation from data available in Crosbie (2014 and previous issues, annually from 1994).

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which Canadian capitalist interests are all the more dominant. It is not corporate Canada that is being hollowed out, but rather, the strategic decision-making sites for certain foreign-controlled firms” (17). The Uses and Misuses of FDI The hollowing-out thesis is the twenty-first-century reframing of an older CPE line of argument. In the 1970s, the left nationalists who linked non-resident ownership to US imperialist control of the Canadian economy identified foreign direct investment (FDI) as the key mechanism through which this control was exercised. The argument was that Canada received huge inflows of FDI each year – far more than Canadian corporations invested abroad – leading to a long-term decline of Canadian control of the economy. This was perhaps Levitt’s most central claim – and certainly the lynchpin around which left-­ nationalist political economy in Canada built its school. FDI has to be differentiated from portfolio investment. The latter is, in essence, passive. It refers to the sale of bonds, debentures, or noncontrolling equity stock. No transfer of ownership is necessarily implied. FDI, on the other hand, involves the establishment of “subsidiaries and branch plants controlled by externally-based parent corporations.” The distinction between these two forms of investment, Levitt argued, “is crucial. In the former case control remains with the borrower; in the latter it rests unequivocally with the lender” (2002, 58–9). For Levitt, the claims about FDI were large, sweeping, and unequivocal. And when trends in FDI between Canada and the United States are examined, the temptation is strong to draw quite sweeping conclusions. Figure 4.5 traces the direct investment relationship between the two countries from 1945 until 2013, measured in 2014 dollars to adjust for inflation. Direct investment can be measured as flow (the amount that enters a country on an annual basis) or stock (the value accumulated); the figure captures the latter. The lines in the figure trace the annual value for Canadian direct investment in the United States and US direct investment in Canada. The vertical bar represents the “net” figure – the difference between the two lines. When the vertical bar is above zero, more direct investment is accumulating in Canada than Canadian direct investment is accumulating in the United States. As the figure shows, from the end of the Second World War until the early 1970s, US direct investment in Canada far outstripped Canadian direct investment in the United States. By the early 1970s the amount of  US direct investment in Canada came close to $150 billion, while

96  Escape from the Staple Trap Figure 4.5.  Direct Investment and Foreign Direct Investment, Canada and the United States, 1945–2013 (2014 Canadian dollars)

Sources: Author’s compilation from data available in Statistics Canada (2012b, 2014a,g).

Canadian direct investment in the United States was barely above $20 billion, and did not pass the $50 billion mark until 1980. There is a temptation to interpret these amounts as representing the assertion of US domination over the Canadian economy. However – just as with indicators of overall levels of US ownership of the Canadian economy – when we shift our gaze to the period from the early 1970s to the present, the picture changes considerably: the gap steadily closes. There is still a difference – the value of accumulated US direct investment into Canada remains higher than the value of Canadian direct investment in the United States – but the gap has closed considerably. In 2013, for instance, the value of US direct investment in Canada was $352 billion, while the value of Canadian direct investment in the United States was $318 billion. Figure 4.6 takes the same method used in Figure 4.5 and extends it  to Canada’s direct investment relationship to all countries in the world economy. As before, the picture from 1945 until the early 1970s is straightforward: the value of direct investment into Canada from

Something Rings Hollow  97 Figure 4.6.  Canadian Direct Investment Abroad and Foreign Direct Investment in Canada from All Countries, 1945–2013

Sources: Author’s compilation from data available in Statistics Canada (2012b, 2014a,g).

other countries far outweighs the value of Canadian direct investment abroad. The “all country” totals, up until the early 1970s, are also not significantly different from the US totals shown in Figure 4.5. Clearly, until that point, Canada’s direct investment story was primarily its relationship to the United States. Then, as with Figure 4.5, the picture begins to change. First, the overall levels of FDI in Canada and Canadian direct investment abroad are noticeably greater than in the earlier period, and for direct investment in both directions, the United States clearly played a much less dominant role than in the past. Second, and significantly, beginning in 1997 the value of Canadian direct investment abroad exceeded that of FDI in Canada – in 2013 the difference was $93  billion, based on Canadian direct investment of $779 billion and FDI in Canada of $686 billion. The picture is dramatically different from that portrayed in Figure 4.5. Understanding how this direct investment picture has transformed in such a dramatic fashion involves deploying two additional figures – direct investment trends between Canada and the global North, and

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between Canada and the global South. There is no universally accepted method by which to define these terms, but in 2009 the United Nations Human Development Report introduced a helpful approach with “a new category – very high human development.” Countries in that category are “developed,” while “[t]he remaining countries are referred to as ‘developing countries’” (UNDP 2009, 202). Given the extensive use of the G7 economies in this study, the proxy for the global North used in Figure 4.7 is restricted even further, including only those Very High Human Development economies the United Nations ranks equal to or higher than the economies in the G7. Figure 4.7 captures Canada’s ­direct investment relationship with the global North, so defined, from 1987 to 2013, while Figure 4.8 captures Canada’s direct investment relationship with the global South (that is, with all the countries not included in Figure 4.7) over the same period. Figure 4.7 shows, first, that the bulk of Canada’s direct investment in both directions is with the global North: in 2013, 87 per cent of FDI and 68 per cent of Canadian direct investment abroad. Second, the share of this investment has shifted away from the United States and towards other countries of the global North. In 1987 FDI in Canada from other “high-income countries” was just 39 per cent of the US amount, while Canadian direct investment in those countries was just 32 per cent of Canadian direct investment in the United States; by 2013, both of those figures were qualitatively higher, each now representing more than two-thirds the value of US direct investment into Canada. One thing that cannot be accounted for in these figures, however, is the source of the change in “net” direct investment – the transformation, visible in Figure 4.6, that happened in 1997, when the amount of Canadian direct investment abroad began consistently surpassing the amount of FDI in Canada. If one restricts the picture to the global North, the essential relationship of Canadian direct investment abroad to FDI remains similar to that between Canada and the United States: while the gap is narrowing, the former is consistently less than the latter. Figure 4.8, which documents Canada’s direct investment relationship with the global South, completes the picture. As the figure shows, there has been a steady increase in Canada’s direct investment relationship with the global South, although absolute amounts are still considerably less than those in the global North. The key difference, however, is that Canada invests far more in the global South than the global South invests in Canada, and this difference accounts entirely for Canadian direct investment abroad having exceeded FDI in Canada since 1997.

Something Rings Hollow  99 Figure 4.7.  Canadian Direct Investment in the Global North and Foreign Direct Investment in Canada by the Global North, 1987–2013

Sources: Author’s compilation from data available in Statistics Canada (2012b, 2014a,g).

When Levitt and others in the classic CPE moment analysed the i­mpact of FDI on Canadian development, there was an echo of some ­aspects of classical historical materialist political economy as it developed in the early years of the twentieth century. Lenin, Trotsky, Bukharin, and Luxemburg, in particular, understood that the key to imperialism was economics. The world was (and is) divided into a hierarchy of nations, the vast majority impoverished and undeveloped and a small minority hosting the most advanced industries and the richest capitalists. A key feature shared by this handful of rich nations was what Lenin called the “export of capital” ([1917] 1964, 240–5). Because of its competitive, unplanned nature, capitalism involves a constant tendency towards overproduction. Mature capitalist economies, therefore, face the constant problem of having to find new markets for investment. Accordingly, they drive to “export capital” abroad, or, in modern language, to use profits made at home to invest in new productive capacity abroad. Levitt used the more current expression,

100  Escape from the Staple Trap Figure 4.8.  Canadian Direct Investment in the Global South and Foreign Direct Investment in Canada by the Global South, 1987–2013

Sources: Author’s compilation from data available in Statistics Canada (2012b, 2014a,g).

foreign direct investment, but she was referring to the same phenomenon, the “export of capital,” that Lenin identified, and without question it has been a key hallmark of imperialism. In the nineteenth century, Britain, as the world’s dominant imperialist power, exported massive amounts of capital. And in the twentieth century, all the great imperialist powers – the United States, France, Germany, and Britain – expanded their reach abroad through FDI, the export of capital. Lenin argued that the classical profile of imperialism was a rich country spreading its investments to poor “Third World” countries in exchange for cheap labour and raw materials. Levitt clearly illustrated that Canada had always been a net importer of capital, which accelerated through the 1950s and 1960s as massive amounts of mostly US investment flooded into the country and a higher and higher percentage of Canadian industry became controlled by US business. But the similarity between Levitt’s analysis and the earlier historical materialists ends there. The form is the same, but the content is quite different. There was more than simply the export of capital to the

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content of the classical historical materialist analysis of imperialism. It is worth looking in detail at exactly what Lenin said about the export of capital as it fit his understanding of imperialism: “As long as capitalism remains what it is, surplus capital will be utilized not for the purpose of raising the standard of living of the masses in a given country, for this would mean a decline in profits for the capitalists, but for the purpose of increasing profits by exporting capital abroad to the backward countries. In these backward countries profits are usually high, for capital is scarce, the price of land is relatively low, wages are low, raw materials are cheap” ([1917] 1964, 241). Perhaps Canada fit this profile in the seventeenth and eighteenth centuries, in the era of the great “staple” industries Harold Innis analysed. But Canada today does not – and did not in the 1960s, when Levitt wrote her analysis – fit this profile in any way. Canada is not a lowwage economy, as China was in the early twenty-first century (as recently as 2002, much factory labour in China was performed for just 40 cents an hour). Wages in Canada are roughly comparable to those in the United States and Europe – the most advanced sections of the world economy – and have been for some time (Hennock 2002). A recognition of this “high-wage” nature of Canadian capitalism was central to the analyses developed by Glen Williams (1976) and Leo Panitch (1981), cited in the previous chapter. The FDI in Canada that Levitt made central to her analysis was not a sign of imperialist domination, but simply an indicator of Canada’s growing integration with the wider continental and world economy. Even as massive amounts of foreign capital flowed into Canada, Canadian capitalists exported significant amounts of capital abroad. This was absolutely not a characteristic of the global South economies to which Britain exported capital in the nineteenth century or the United States did in the twentieth. For decades now, Canada has been playing the FDI game. The great fear associated with FDI flows is the creation of pockets of non-resident industry whose profits flow out of the country and back to  where the head offices are located. This process, however, is not as straightforward as it might appear. FDI incorporates the impact of mergers and acquisitions, as well as “[o]ther types of financial transactions between related enterprises, such as reinvesting the earnings of the foreign enterprise” (Beckman and Thériault 2008, 2). Indeed, a considerable portion of the direct investment relationship between Canada and the United States has involved precisely this reinvestment of earnings.

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FDI, in fact, has a very different effect on countries in the global North than on countries in the global South. Canada and other advanced capitalist countries engage in a tremendous amount of cross-border investment in one another. In this aspect of the FDI picture, there is still more FDI flowing into Canada than going out. In terms of Canada’s relationship with the global South, however, the picture is unequivocal: there is a vast outpouring of direct investment, the export of capital, from Canada to the poorer countries of the world economy – precisely the relationship of imperialist countries to peripheral countries that Lenin, Hobson, Hilferding, Bukharin, and others documented at the turn of the last century. In 1976 Glen Williams could use the term “scanty” (1976, 28) to describe Canadian investment overseas; we now need to find a different adjective. Critiquing an earlier presentation of this argument, Jim Laxer (2003) recognized the trends but challenged the conclusions. In essence, he argued that the export of capital evident in the late 1990s was the result of capital accumulation in Canada that had been controlled by nonresidents, and thus was a sign of Canadian dependency just as much as the importing of capital in earlier decades had been a sign of Canadian dependency. In other words, Laxer suggested, much of the Canadian direct investment abroad actually should be seen as direct investment by non-resident-controlled branch plants, rather than as the export of capital in the classic sense. Four points can be made in response. First, it is a little disingenuous to take one criterion, the export of capital, and use it in completely opposite ways at different moments of Canadian economic history – that is, high levels of FDI into Canada as a sign of dependency in the 1970s, and high levels of direct investment out of Canada to the rest of the world as a sign of dependency in the twenty-first century. Second, it is true that some of the direct investment abroad is by branch plants, but if the proportion of the Canadian economy under non-resident control has been steadily declining, presumably the proportion of “branchplant” direct investment abroad is also declining. Third, given that Canadian capitalists do have substantial holdings abroad, especially in the United States, the same point would have to be made for direct investment into Canada – that is, that not all of it represents increasing non-resident control, but a portion of it is reinvestment by Canadian capitalists in their home economy. Fourth, and most centrally – Laxer’s argument misses the point about the importance of the export of capital, which, in fact, is a signal that a highly developed capitalist power

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with a surplus of productive capacity in its home market is reaching out to find new opportunities abroad. Given that the principal growth area for Canadian direct investment abroad has been the global South, it seems irrefutable that Canada’s FDI picture resembles nothing except that of a classic, imperialist power. The mistake of Laxer, Levitt, and much of the 1960s Canadian left was to see just one part of the picture. They saw an influx of FDI into Canada and concluded that this put Canada into the category of other countries – in Central America, the Caribbean, Asia, and elsewhere – that were on the receiving end of imperialism. But Canada – unlike the countries of Central America, for instance – was already an advanced capitalist country with a population divided into capitalists and workers, well-established large-scale industry, and a small and dwindling proportion of the workforce engaged in agriculture and raw materials extraction. FDI, then, had a very different impact on Canada than on the poorer countries of the world system. This is a crucial point. Canada’s class relations were such that capitalism was able to develop through what Marx called accumulation and reproduction on an expanded (or extended) scale ([1885] 1997, 84–8). Central to this was the establishment of a home market. Imperialism can slow down or frustrate this process – considered either as preventing accumulation on an expanded scale or slowing down the creation of a home market. Without question this is what happened in what is now Quebec as a result of the British conquest in 1759. The conquest had the effect of “freezing in place” the seigneurial system inherited from New France. But this was politically necessary, since, to maintain control over a population the vast majority of which was francophone, the British had to find allies within that community. Those allies – the Catholic Church and the elite semi-feudal landowning class – were recruited as “compradors,” a term I investigate in more detail later in the book. This strategy would be familiar to anyone who has studied British imperial rule elsewhere in the world. The alliance between a semi-­ feudal elite and the British Crown allowed for a kind of political stability, but ensured economic stagnation. Not until 1854 was the seigneurial system abolished, and even then the agricultural underdevelopment which that system had created, for many decades continued to cast a  long shadow over Quebec’s economic development. The legacy of this  architecture of colonial control was a generations-long period of stagnation (and sometimes outright economic and social decline) in Quebec (Harris and Warkentin 1991, 65–109).

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Many theorists have identified FDI as an expression of modern imperialism that acts as a principal mechanism for blocking capitalist ­development, expressed most sharply in the term “development of underdevelopment.”13 But this has not been a feature of Canadian development as a whole. The succinct and brilliant analysis of H. Clare Pentland – in a too-little-studied book that is of central importance to a  proper conceptualization of Canadian political economy, examined in detail in Chapter 8 – shows that, by 1870, Canada had developed a small but viable home market economy: “Canada of 1870 was a small and rather immature specimen of an industrial country. Nevertheless, Canada’s economic integration; its diminished dependence on a single export, or a single market, and on foreign trade in general; the versatility of a labour force shifting from extensive to intensive forms of production; the bustle and variety of activities of its expanding cities; all these distinguish the 1870 economy from its staple-producing predecessor of a half-century before” (Pentland 1981, 130–1). FDI in Canada in the twentieth century, then, entered a capitalist economy already engaged in the process of accumulation and reproduction on an expanded scale. Glen Williams identified this nearly thirty years ago, arguing that, because of Canada’s “large and integrated internal market, foreign investment has historically produced more positive than negative effects on economic growth as opportunities have existed for the reinvestment of profit in new sectors of the economy” (1986, 4). In themselves, high levels of capital exports do not prove that Canada is definitively in the core of the system – countries can have high levels of capital exports and still remain outside the core, as shown by the example of Brazil. My point has been to show how much weight the classical CPE school placed on high levels of direct investment coming into Canada, and to indicate the way in which direct investment flows have changed dramatically in the years since, and in a way that undermines a core element of the dependency framework. It is helpful to put this in the context of the conclusions drawn by the vast majority of world system theorists who unquestioningly place Canada in the core. The whole debate about dependency in terms of FDI figures is misplaced when it comes to dealing with advanced capitalist economies in the core of the world system. These figures indicate something – certainly, the growing interconnectedness of economies at the top of the world system – and they do reflect relative levels of competitiveness. But they must not be confused with FDI between First World and Third World countries, between the core and the periphery – the export of capital that Lenin argued was the chain of gold which enslaved countries to the imperialist

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heartland. The FDI relationship between Canada and the rest of the world is many things, but it is certainly not that – e­ xcept, of course, to the extent that Canada’s FDI is a chain of gold shackling to its accumulation project countries in the semi-periphery or periphery. The Rise or Decline of the United States In this analysis one is led, inexorably, to a focus on the United States. If non-residents dominate the Canadian economy, then they are principally from south of the border. If the Canadian economy is being hollowed out, it is being hollowed out by the United States. If this is all being driven by FDI, then the chief source of that FDI is also the United States. Lurking just behind the image of oppressed, dependent Canada is the nightmare of the all-powerful United States. Watkins was explicit in predicting an inexorable increase in US control of the Canadian economy. Levitt premised her analysis of a continuing decline in Canada’s economic prospects on the continuing, uninterrupted rise of the economic pre-eminence of the United States on a world scale. It was this “double movement” – the continuing rise of the United States and the continuing decline of Canada – which, these left nationalists argued, would lead to Canada facing a future of dependence on raw materials exports, a truncated manufacturing sector, and, ultimately, declining living standards. About the future of the United States in the world economy, Levitt was unequivocal: “It has been estimated that the overseas expansion of U.S. corporations will result in the American control of 75 percent of the non-communist world’s output by the year 2000, if not sooner” (2002, 37). Or again: “the output of American industry and its foreign affiliates accounted for some 55 percent of total non-communist world production in the mid-sixties. As American multinational corporations are growing roughly at twice the rate of domestic ones, the share of total world production under American control is expected to rise to 64 percent by 1980 and 80 percent by 1990” (92). Her emphasis was on the overwhelming domination of the United States in the world economy, made in such a way as to underline clearly that multinational capitalism was essentially US multinational capitalism: “American business enterprise enjoys an evident advantage in the new commercial and industrial mercantilism which is reflected in the fact that two hundred of the largest multinational corporations in the world operate out of the United States, but only some twenty to thirty out of other countries” (93). But Levitt’s predictions proved to be far removed from what actually happened. As Richard B. Du Boff outlines succinctly, “[i]n 1950 the

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United States supplied half the world’s gross product, against 21 percent at present. Sixty percent of the world’s manufacturing production in 1950 came from the United States, 25 percent at present” (2003, 1). Now, 21 per cent and 25 per cent still represent big chunks of the world economy, but the important point is that they are declining chunks. And depending on how one measures these things, even these percentages could actually exaggerate the weight of US control of world manufacturing. Figure 4.9 shows the US share of world manufacturing from 1970 to 2013 in current US dollars and constant 2005 US dollars. By the latter measure, the US share in the early 1970s was around 27 per cent and by 2013 just 18 per cent. By the former measure, the decline was steeper – from 30 per cent in 1970 to just 17 per cent in 2013. Interestingly, it is in the twenty-first century that the decline becomes extremely pronounced by both measures. What of the claim, advanced by the semi-periphery school, that the United States has a disproportionate share of large corporations headquartered within its borders? Chapter 2 presented some quite strong evidence to refute this claim – indeed, the trajectory has been the opposite of that anticipated by Levitt, and it is not a new and sudden development, but a long-term secular trend. As long ago as 1982 Barry Bluestone and Bennett Harrison clearly documented this decline: “In 1959, according to a study of twelve manufacturing industries and ­international commercial banking, the United States was ‘home’ for 111  out of the world’s 156 largest multinational corporations: a share of 71 percent. By 1976 only 68 out of the largest 156 (43 percent) were American based” (1982, 142). Chapter 2 used the Financial Times 500 as the measure of the size of the world’s corporations. As indicated in that chapter, however, that database is an imperfect source, relying as it does on the volatile market value of corporations. A more useful source is Fortune magazine’s annual list of top 500 corporations based on revenue (Fortune 2014 and previous issues, annually from 1992), which shows that the decline documented by Bluestone and Harrison continued unabated until 1996, when just 27 per cent of the world’s top 200 publicly traded corporations were based in the United States. From 1997 until 2002 this trend apparently reversed, as US control of the top 200 corporations rose to a seemingly remarkable 45 per cent. It thus looked as if the United States, in just a few years, had recouped all the ground it had lost since the 1970s, but this was illusory. In fact, in the 1990s the US economy was the beneficiary of a massive flight of non-resident capital from centres of

Something Rings Hollow  107 Figure 4.9.  US Share of World Manufacturing, 1970–2013

Source: Author’s compilation from data available in United Nations (2014a,b).

turbulence elsewhere. As the “safe haven” of the world economy, the United States saw tens of billions of dollars pour into its stock and currency markets following the collapse of the Japanese stock market in the early 1990s, the sudden depression in Mexico in the mid-1990s, and the crisis of the East Asian “tigers” in the late 1990s. The extraordinary inflation of US stock prices gave US corporations a very real – but very temporary – advantage over their competitors elsewhere. The real story was not renewed US dominance among the world’s top corporations, but the spectacular decline of corporations based in Japan. That country’s share of the top 200 corporations plunged from 32 per cent in 1995 to just 14 per cent in 2004, 11 per cent in 2014. The dot-com recession of the early 2000s changed the picture completely. By 2003 the slide in US control of the top 200 corporations had resumed, reaching 27.5 per cent in 2014. More ominous was the rise of European countries as the home base for more top 200 corporations than the United States (33 per cent in 2014). And by the second decade of this century, it became clear that a new centre of corporate power

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was emerging, with Chinese-based corporations suddenly comprising 16.5 per cent of the top 200 in 2014, rising from zero in 1994. Levitt’s analysis did not account for the possibility of these developments. Transfixed by the power of the US economy, with a focus limited to the momentary expression of that power in terms of its relation with one country, Canada, she argued that the United States would continue its pre-eminence. She did not foresee the emergence of significant competition from Europe, let alone China. There was no doubt, she argued, that “the identity of interest and the single-focus decision-making ­involved in the American corporation was a superior device to its European counterpart, the business arrangement or cartel” (2002, 81). If that were the case, how did European-based multinationals make up such substantial ground on their US counterparts? In contrast to Levitt’s analysis, Bluestone and Harrison summarized the dynamics of the emerging world system very clearly: “The United States emerged from the Second World War with the only major functioning army, with more than half of all the usable productive capacity in the world, and as the banker and creditor to both former allies and former enemies” (1982, 112). But maintaining its military dominance had negative consequences for the United States’ relative international competitive position. As Bluestone and Harrison argued, [i]n the years just after World War II, the major surviving European and Japanese corporations, as well as newly formed ones, were preoccupied with rebuilding their domestic capacities. The Allied proscription against German and Japanese remilitarization after the war contributed significantly to this reconstruction by effectively forcing those two countries to plow back virtually all of their domestic savings into research, development, and new plant and equipment for the production of marketable commodities. For a while, this left a substantially clear field for American firms in the postwar global economy. Not until the 1960s could foreign corporations afford to undertake major, direct overseas investments again. But when they did begin to compete internationally, it was from a modern, tightlymanaged capital base, under conditions of relative domestic political stability and backed by a wide consensus about the desirability of active government indicative planning. (141–2)

This analysis is clear, and is the second half of the theory of the “permanent arms economy.” The first half was developed by theorists such

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as the US-based writer Ed Sard, who wrote under pseudonyms in the 1940s and 1950s (collected in Vance and Oakes 2008). The theory was picked up and developed in the United States by Seymour Melman (1974) and in Britain by writers such as Tony Cliff (1982), Chris Harman (1984), and Michael Kidron (1974). The high levels of arms spending that characterized the post-war period, Kidron argued, had the effect of stabilizing the world economy for a decade. The tendency towards crises of overproduction built in to the capitalist system could be offset if two conditions prevailed: 1) there was pressure to divert investment towards arms production for the state, so that 2) the state – as the purchaser of massive quantities of armaments – could act as the ultimate “consumer of last resort” that overproduction-prone capitalism had ­always needed. But that “stabilization” was only possible as long as the United States remained overwhelmingly dominant. Bluestone and Harrison highlighted the paradox built into the permanent arms economy. The burden of high levels of arms spending was carried unevenly – overwhelmingly concentrated in the two great Cold War rivals, the United States and the Soviet Union. Advanced capitalist countries with relatively lower levels of arms spending had higher rates of growth on the “civilian” side of their economy and, over time – particularly in the case of Japan and Germany, but true also in a more limited extent for Canada – were able to narrow the competitive gap considerably between themselves and the United States. Instead of Levitt’s prediction of steadily increasing US dominance, today the United States has to cope with a world of multiple rivals. It is no longer the economic hegemon it was in the 1940s and 1950s. Levitt was not the only scholar to assume unending US dominance of the world system – the collapse of the Soviet Union produced another generation of scholars who fixated upon a “unipolar,” one superpower, world. With the benefit of hindsight, and from the standpoint of the second decade of the twenty-first century, the relative decline of the United States is only too visible. Just as the related frameworks of dependency and semi-periphery have proven illusory, so has the framework which predicted increasing US dominance of the world economy. The two are intimately connected. The left-nationalist view that Canada was, and would continue to be, oppressed by the United States depended upon the ineluctable expansion of US power. An honest encounter with an unfolding, dynamic, and counterintuitive reality is necessary for a proper understanding of both Canada and the United States.

5  Of Nails and Needles14

THE PROFILE OF CANADA’S EXTERNAL TRADE The preceding chapters strongly suggested that it is impossible to walk through the conceptual doors of non-resident ownership, deindustrialization, hollowing out, and foreign direct investment (FDI) to arrive at either the twentieth-century conclusion of Canadian dependency (rich or otherwise) or the twenty-first-century conclusion that Canada is a semi-peripheral area of the world system. But perhaps this is all beside the point. Perhaps these are not the key conceptual doors. In a globalized world dominated by the rhetoric of free trade, perhaps the key fact is not formal ownership and control of corporate power, but the ubiquitous chains of external trade. In fact, as we saw in Chapter 2, at the end of the day, Canada’s external trade profile is one of three key criteria – along with non-­ resident ownership and the (claimed) relative absence of multinational corporations in Canada – that have been used in this century to claim that Canada is a semi-peripheral, not a core, member of the world system. What, then, of Canada’s external trade profile? The first thing to note is that all developments of the recent past have been trumped by the new fact of the Canadian economy: the location, within Canada’s borders, of the bitumen sands of Alberta and other areas of western Canada, one of the world’s largest deposits of fossil fuels. So central has this resource become that its very name is the object of polarized debate. Newly elected leader of the opposition New Democratic Party, Thomas Mulcair, on a spring 2012 trip to Alberta, while referring to the oil industry in the northern part of that province, “was about to substitute ‘tar’ for ‘oil’ when he hastily corrected

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himself” (Fong 2012). Mulcair was nervous for good reason. It has become politically incorrect in certain circles in Alberta to use the prefix “tar,” as opposed to “oil,” to refer to the mud that contains vast quantities of difficult-to-recover petroleum. In April 2011 Calgary Herald editorial board member Paula Arab argued, “[t]arsands is inaccurate and pejorative. It has become part of the rhetoric of extremists who are antioil and who want to shut down the industry” (Arab 2011). Elsewhere I have suggested “boiling mud” as an alternative – a colloquial expression by which to capture the idea of the steam-assisted gravity drainage and other methods of applying extreme heat and toxic chemicals to separate the heavy oil from the mud (Kellogg 2015). Mulcair’s ­linguistic choice, however, probably will prove more fruitful. “If removing that linguistic impediment can make the conversation easier, I’m not going to keep it in place intentionally,” he said, recovering from his near-tar faux pas. “They’re bitumen sands … because the chemicals are neither oil nor tar” (quoted in Fong 2012). Accordingly, that is the term I will primarily use here – with the same proviso as Mulcair’s: “a linguistic cleanup doesn’t change anything about what we’re talking about in terms of the ecosystems” (Fong 2012). Whatever one calls it, there is an awful lot of this oil-soaked mud ­eligible for steam-assisted gravity drainage. “The Alberta Energy and Utilities Board … estimates that northern Alberta holds approximately 1.7 trillion barrels of crude bitumen.” Of these, “only 174 billion barrels are considered recoverable using today’s technology under current ­economic conditions” (Davidson and Gismondi 2011, 2). But even “only 174 billion barrels” places Canada third on the world’s list of countries ranked by proven oil reserves, trailing only Venezuela and Saudi Arabia, and ahead of Iran, Iraq, Kuwait, the United Arab Emirates, Russia, Libya, and a host of other well-known “petro-­ economies” (United States 2011b). If the Canadian economy, at least until the 2014 collapse in oil prices, has reoriented around the export of oil squeezed out of bitumen sands, is not this a reversion to an earlier, staples-based economic paradigm? Jim Stanford, one of Canada’s most prominent political economists, has no doubt. To kick off 2007 – the same year the hollowing-out debate took centre stage – Stanford modernized an old metaphor. By 1999, he said, due to a steady rise of manufacturing exports, the Canadian economy seemed to have escaped its “hewer of wood and drawer of water” past, long the expected curse of an overreliance on natural resources development. But the reprieve proved short lived. As bitumen sands

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development began to dominate the country’s economic expansion, Canada now became a “hewer of wood and pumper of oil.” Stanford’s clever rewriting of the old proposition was based on one of the most important and most enduring methods of assessing Canadian economic development: measuring “the proportion of Canadian exports that consists of finished goods, rather than unprocessed or partially-­ processed resources.” Stanford’s position was that, with the rapid rise of energy, especially bitumen-sands-based oil exports, Canada is ­experiencing “economic degeneration” because the economy is “heading back to a resource-dependent economic status” (Stanford 2007). Stanford developed these themes at some length in 2008 when he ­labelled Canadian economic trends in the twenty-first century as representing “structural regression,” arguing that “Canada’s economic trajectory has become increasingly dominated by the production and export of unprocessed or barely processed natural resources – especially petroleum and other minerals. Higher-stage export industries … are declining rapidly” (2008, 7). Stanford was capturing an aspect of the reality of Canada’s economy in the twenty-first century. A prolonged period of high commodity prices – a commodity “supercycle” – had created incentives to invest heavily in Alberta’s bitumen sands. The centre of gravity of Canada’s economy began to shift away from the old central Canada manufacturing base towards Alberta and its oil wealth. The problems inherent in such a shift were sharply revealed in 2014 when oil prices collapsed. However, while helpful descriptively, Standford’s “pumper of oil” metaphor can be misleading in ways reminiscent of the descriptions of Canada’s economy emerging from 1970s Canadian political economy. Central to 1970s CPE was the very proposition Stanford advanced: that the structure and composition of foreign trade is an important indicator of the level of a country’s economic development. The classic statement of this thesis is in Glen Williams’s Not for Export, the first edition of which came out in 1983 with the subtitle, Toward a Political Economy of Canada’s Arrested Industrialization, updated and republished three years later, and published in a third edition in 1994 with the interestingly revised subtitle, The International Competitiveness of Canadian Manufacturing. Roughly put, the thesis contends that consistently high levels of exports of agricultural products and crude materials combined with consistently high levels of imports of finished, manufactured end products can be seen as a sign of economic underdevelopment or, in Williams’s term, the “truncation” of the manufacturing sector.

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Although, in certain circumstances, this thesis is a reasonable proposition, it has been consistently misapplied to the Canadian economy. To develop the argument, this chapter first surveys the way in which assumptions about resources trade figure prominently in contemporary assessments of Canada’s level of economic development. Second, it looks behind the prima facie case for linking Canada’s trade structure to the economy’s “underdevelopment.” Third, it examines the post-1999 rise in crude materials exports, the category deployed from 1961 until 2011 and increasingly dominated by oil from the bitumen sands, to see if it really is a sign of “economic degeneration” and a return to a “resources-dependent economic status.” Fourth, the chapter examines in detail the controversy over the role of the auto sector in assessing Canadian trade statistics. Finally, it looks in-depth at the peculiar, and misunderstood, export category of “fabricated materials, inedible,” a category central to the shaping of this discussion for half a century, from 1961 until 2011. Throughout, I argue that fundamental to the confusion surrounding the analysis of Canadian trade is the same mistaken assumption world systems theorists made when they tried to analyse Canada with the same conceptual tools they would use for a country such as Mexico – namely, that categories appropriate to dependent economies of the global South can be used in the Canadian context. Trade and Canadian Political Economy Most political economists of the left see trade as the Achilles heel of the Canadian economy. Canada is unusually dependent on export trade in general, they argue, and on the export of raw materials in particular. One of the great resources for students of Canadian political economy (CPE) is a series of compilations edited by Wallace Clement and others, beginning with A Practical Guide to Canadian Political Economy (Clement and Drache 1978) and continuing into this century with Changing Canada: Political Economy as Transformation (Clement and Vosko 2003). The 1997 edition contains a serious restatement of the political economy approach to Canadian development, in which this view of the importance of Canada’s trade structure is given pride of place: “[T]he Canadian economy has never acquired the authentic attributes of a bona fide national economy. Rather, in this century, and as far back as the initial European colonization, Canada’s economy has been a subordinate adjunct or satellite, of more developed economies. … [T]his view is grounded in three considerations: unmatched levels of FDI and

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foreign control of production; the resource-extraction base of foreign trade; and the branch-plant organization of manufacturing by parent U.S. industries” (Clement and Williams 1997, 60). This statement picks up themes outlined earlier by Levitt, who cited high levels of US control of Canadian manufacturing and predicted that its consequences would be dire. For her, growing FDI meant that “in general the host country acquires a market for its raw materials and becomes a market for the manufactured goods of the investing country … Canada has acquired markets for its industrial raw materials and has become a market for manufactured goods produced by American corporations located both here and in the United States.” Or again: “[t]he share of crudely processed materials in exports has not diminished significantly.” Or again: foreign ownership has skewed Canada’s trade profile towards a “high proportion of primary or crudely processed materials in Canada’s exports and the correspondingly high proportion of finished manufactures in her imports” (2002, 60, 119, 127). Even if the related issues of non-resident ownership and FDI have not evolved as the left-nationalist school predicted, perhaps the damage has already been done. Perhaps the long history of high levels of non-resident ownership of the economy and massive reliance principally on US FDI, taken together, have created the conditions for the construction of a resource-dependent, staple-trapped, manufacturing-deprived economy.

Glen Williams More than anyone else, Glen Williams has given theoretical shape to these related themes – resource-trade dependence and manufacturing underdevelopment – in his widely read and influential Not For Export. Drache and Clement included the 1980s edition as one of thirty-three “staple readings” in Canadian political economy, a key work that has contributed much to the literature (1985b, 227–9). The 1990s edition ­became a staple in its own right in reading lists for courses on CPE. Williams is an important intellectual in the CPE tradition, bridging several of the key moments in its evolution. Within that history, there are two discernible points at which he has modified substantially his approach to CPE. One concerns Canada’s place in the world economy, the other the question of Canada’s industrial profile and the impact of trade on that profile. The two are related, and both shed light on the themes of this chapter. In an important article published in the mid-1970s, Williams, while developing a critique of left-nationalist dependency theory, accepted,

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without comment, the left-nationalist designation of Canada’s “continuing colonial and semi-colonial status” (1976, 30). In the years that followed, the findings of a new generation of historical materialist political economists made it difficult to sustain this halfway position – critiquing left-nationalism, but calling Canada a semi-colony or colony. • In 1977 Steve Moore and Debi Wells (1977) forcefully challenged the central claim of Canadian deindustrialization. • Jorge Niosi (1981), although holding on to the notion of a “comprador bourgeoisie” (a term whose use in the Canadian context is critiqued in Chapter 7), showed clearly that a strong, indigenous bourgeoisie was proving increasingly important at the expense of the comprador section of the capitalist class. • Philip Resnick challenged the assumption that US dominance would increase, arguing that, “since 1965 there has been evidence of a significant weakening in American hegemony over allies and client states” (1983, 344–5). • Leo Panitch (1981) retained the problematic term “rich dependency,” but developed an important critique of the theoretical weaknesses underpinning left-nationalist orthodoxy (elements of which are also examined in Chapter 7). • David McNally challenged the attempt to wed the economics of Harold Innis to a left-nationalist critique of Canadian political economy. He situated the high levels of US control of key sections of the economy as a temporary phenomenon, tied to “an historic phase of capitalist competition” in which the concentration and centralization of capital ended up with a conjunctural concentration of ownership in US hands (1981, 55). • By far the most influential challenge to left-nationalist orthodoxy came from William Carroll, who, first in an article and then in the book Corporate Power and Canadian Capitalism (1986), marshalled evidence to show that CPE needed to “break decisively with the problematic of dependency, and situate Canadian capitalism and its bourgeoisie on the basis of an alternative conceptualization of the world capitalist system” (1985, 31). • A key venue where these issues were developed was the political economy section at the annual conference of the Canadian Political Science Association (CPSA). At a well-attended panel during the 1987 CPSA meetings, I presented a paper incorporating all of the above analysts and suggested that Canada should be seen, not as a dependency, but as a “principal economy.” Building on McNally’s

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analysis, the paper argued that the shift to US “ownership and control,” which clearly did happen in the early and mid-twentieth century, “did not leave a permanently underdeveloped Canadian economy, but simply created a temporary situation of relatively slow manufacturing development, and a temporary situation of relatively high” US control, but there was “no evidence of permanent, structural, industrial underdevelopment in Canada” (Kellogg 1987, 28–30). The effect of more than a decade of critique from within CPE was to make the use of terms such as “colony” and “semi-colony” increasingly untenable. Williams framed an important 1988 article in much the same way as his “Wealthiest Colony” piece of twelve years earlier, rejecting both the classical dependency framework and the “advanced imperialist” school represented in particular by McNally and Carroll. But he now abandoned all talk of Canada as a colony or a semi-colony. What he offered as an alternative was less clear. Canada, he argued, stands “both inside and outside empire”; it is a “lesser region within the centre” (1988, 109). His analysis was coloured by the context of the recent signing of the Canada-US Free Trade Agreement: “The Canadian economy may now usefully be conceptualized as a geographically large zone within the U.S. economy.” But, with the signing of the free trade deal, “our political and economic élites are deeply divided over whether it will retain for the Canadian state system sufficient sovereign ­capacity to represent effectively a distinct regional position for the Canadian socio-economic formation” (133–4). Seeing Canada as situated within the centre of the world’s hierarchy of nations was an important step away from the colony and semi-colony approach of 1976, but this 1988 analysis clearly retained many of the key assumptions of leftnationalist orthodoxy – most centrally, the notion of an implicit threat to Canadian sovereignty from domination by the United States. The second shift in Williams’s thought relates the concept of “region within the centre” to his perspective on Canadian economic development. Chapter 3 showed how, in its original formulation, dependency theory emerged as the “dependency of underdevelopment.” Williams and Leo Panitch conceptually separated the two terms, using the “rich dependency” designation for Canada. The ubiquitous poverty associated with dependency was absent in Canada, which had developed as a “high-wage” dependency. But the underdevelopment concept returned through the back door in Not For Export via Williams’s notion of

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the “truncation” of Canadian manufacturing, which he saw as embedded in Canada’s relationship with the United States. This was underscored in the confidently assertive subtitle of the 1986 edition, Towards a Political Economy of Canada’s Arrested Industrialization. Here there was no ambiguity. The problem to be explained was serious and was presented as a simple, indisputable fact: that of Canada’s “arrested” or “truncated” manufacturing sector. Truncation of manufacturing is a big step towards reattaching underdevelopment to the concept of Canadian dependency. The 1994 edition offered a much more tentative presentation of this thesis. The subtitle was less assertive, having been changed to The International Competitiveness of Canadian Manufacturing, and its more tentative tone was reflected in editorial changes to the text. In the 1986 edition, Williams had said that, “it could be debated whether Canada more properly belongs among the semi-industrials” (8–9). That statement disappeared from the 1994 edition, replaced with something much more nuanced: “[Political economist Alfred] Maizels … debated the appropriate category in which to place Canada. Important to his choice were the relatively high value of Canada’s per capita production and also the relatively high proportion of our semi-processed but nonetheless manufactured exports … In the end … Maizels decided to place Canada among the industrials” (21). This evolution in Williams’s thinking is important, and the points he  tentatively highlighted here will loom large in the discussion that follows. The Prima Facie Empirical Case Let us take Williams’s method at face value and see what conclusions can be drawn through its application. In both the 1986 and 1994 editions of Not for Export, he cited an economic proposition that “high exports of finished manufactures indicate high levels of industrialization,” and showed that, even in 1980, Canada’s relatively low levels of manufactured exports raised questions about the country’s degree of industrial development. In 1955, by his figures, Canada’s finished manufactured export share was just 11 per cent. This put Canada last – and by a considerable margin – in a grouping of eight industrial countries – the G7 plus Sweden. Of these eight economies, only two others – Sweden and France – had finished manufactured export shares below 50 per cent, and both of them were still far ahead of Canada, with more

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than one-third of their exports being comprised of finished manufactured goods. By 1980, the Canadian figure was up to 32 per cent, but now the share for all the other seven countries had risen above 50 per cent, while that of manifestly underdeveloped India was at 23 per cent and Brazil’s was at 22 per cent, not far off the Canadian figure (Williams 1986, 8–9). But by the time of the 1994 edition of his work, the Canadian share had grown again to 43 per cent (Williams 1994, 19–20). Clearly, then, developments towards the end of the twentieth century were undermining the empirical basis of Williams’s arguments, a key reason for his more tentative approach in the 1994 edition. Working through the empirical evidence, however, is not straightforward. From 1961 until 2011, Statistics Canada (until 1971 known as the Dominion Bureau of Statistics) separated out fully finished end products as a defined category, differentiating it from agricultural exports, crude material exports, and semi-manufactured exports. Prior to 1961, no such categorization is provided.15 Nonetheless, there are ways to get a rough statistical profile of Canadian trade in this period. When E.J. Hobsbawm set out to investigate the origins of industrialism in Britain, several key industries caught his eye. In the first instance, there was the role of textiles: “No other industry could compare in importance with cotton in this first phase of British industrialization” (1969, 68). At a certain point, its importance waned, but “[t]he age of crisis for textile industrialism was the age of breakthrough for coal and iron, the age of railway construction” (109). At a later stage, from the mid-1920s until 1957, old industries declined, while “the new rose” among them was “chemicals,” which “quadrupled in output” (254). This is not the totality of Hobsbawm’s argument, and the history of the development of industrialism in Canada is quite different from that of Britain. But it does provide a justification for using three of the Dominion Bureau of Statistics’ categories – textiles, iron and steel, and chemicals – to create a window into the trajectory of the pre-1961 Canadian economy. With Canada’s Ontario manufacturing heartland in mind, the category “iron and its products” can represent the developing steel mills in Hamilton and the developing car plants in Oshawa and Windsor; the category “chemicals and allied products” can represent “Chemical Alley” along the St Clair River near Sarnia; and the category “fibres, textiles and textile products” can represent the needle trades around Spadina Avenue in Toronto. Figure 5.1, for the period from the end of the Second World War to the early 1960s, contrasts the export of agricultural products with the

Of Nails and Needles  119 Figure 5.1.  The Composition of Canada’s Export Trade, 1943–62

Sources: Author’s compilation from data available in Dominion Bureau of Statistics (1944, 1947a,b, 1960 and previous issues annually from December 1948, 1962).

export of a grouping of three sectors used as a proxy for the export of manufactured products – textiles, iron and its products, and chemicals. By far the biggest of the three “industrial” categories is the one entitled “iron and its products.” The resulting figure confirms Williams’s initial point – in the 1950s a very small proportion of Canada’s export share came from manufacturing industries – less than 15 per cent for much of the decade. Interestingly, however, under the spur of war, in 1943 that share had been considerably higher, exceeding 25 per cent. Finally, once the post-war economy stabilized, from 1950 there was a noticeable fall in agricultural exports as a percentage of all exports and a slow but steady rise in the export of textiles, iron, and chemicals. From 1961 until 2011, as noted, we have access to a database in which end product exports are specifically distinguished from all other categories. Panel A of Figure 5.2 takes these categories and paints a picture of their changing proportions from 1961 to 2011. The picture is not nearly as straightforward as implied in the analyses of either Levitt or

120  Escape from the Staple Trap Figure 5.2.  The Composition of Canada’s Export Trade, 1961–2014 A. Old series, 1961–2011

B. New series, 1988–2014

Sources: Author’s compilation from data available in Dominion Bureau of Statistics (1963, 1965, 1966, 1967, 1968, 1969b, 1970b, 1971); Statistics Canada (2012c, 2015).

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Williams, and it becomes even clearer why the 1994 edition of Not For Export had to be much less assertive than the 1986 edition. By these statistics, at the beginning of the 1960s, less than 10 per cent of Canada’s exports consisted of finished manufactures or end products. The picture, however, changes dramatically in the following decades. By the 1980s end products were 30 per cent of all exports, and by the end of the 1990s the figure rises above 50 per cent. This is, by Williams’s own criteria, the trade profile of a fully industrialized country (1994, 19–20). Meanwhile, over the period, the share going to agriculture and crude materials fell from above 40 per cent to below 20 per cent. Canada, in other words, was not developing as a hinterland economy, reliant on imports for its manufactured goods in exchange for raw materials. There is a very visible seeming reversal of these trends evident beginning in the first decade of the twenty-first century. There has been a noticeable increase in the share of crude materials exports and a corresponding decline in the share of manufactured goods, evidence that Stanford cites to document a slide back into underdevelopment. But, as Stanford acknowledges, this, in the main, reflects the dramatic developments in Alberta’s bitumen sands. Crucially, this kind of extremely capital-intensive “primary” production is qualitatively different from the “fur, fish, and feathers” imagery usually associated with primary industries in Canada, a point to which we will return. A similar pattern emerges when we look at the other half of the trade proposition – the question of a reliance on high levels of imported finished manufactured goods. This was very much part of Levitt’s framework, and Williams also made a good deal of this point, basing his paradigm, again, on Alfred Maizels: “As a corollary of his proposition that high exports of finished manufactures indicate high levels of industrialization, Maizels suggested that the larger industrial countries were less dependent on imports of manufactures than the smaller industrials, semi-industrials, and non-industrials” (1994, 19–20). A useful device for highlighting this proposition is to express end product exports as a percentage of end product imports: the lower the ratio, the greater the gap between end product exports and end product imports, and the greater the “dependency” of the economy on end products manufactured abroad. In 1961 in Canada, end product exports represented less than 20 per cent of end product imports. This is an extraordinary figure. It paints a picture of an economy in which masses of finished manufacturing goods were pouring in, well in excess of the amount of manufacturing goods exported, giving plausibility to  Williams’s thesis. But in the decades that follow, the picture

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substantially reverses. By the 1970s end product exports were between 50 and 60 per cent of end product imports, and through the 1990s the figure rose above 70 per cent. By 2000 it was 93 per cent. In other words, Canada’s capacity to export end products grew more quickly than its need to import end products. There was still a gap between the two – Canada still imports more end products than it exports – but presumably all this is relevant only if it is a sign of ­ongoing structural underdevelopment of Canadian manufacturing. In the first years of the twenty-first century, there was a change. By 2011, finished end product exports were just 61 per cent the value of finished end product imports. However, before too much weight is put upon such a trend, all of this has to be put into developmental context. The impact of a negative balance in the trade of finished manufactures is quite different in an advanced capitalist country such as Canada than in an underdeveloped economy in Latin America or Africa. In the latter, such “technological dependence” could well be a barrier to economic development, but in an advanced capitalist country – particularly in one with a relatively small population, such as Canada – the existence of high levels of imports of machinery is not unusual. Maizels makes precisely this point: Unlike the effect on exports, the effect of industrialization on the proportion of imports consisting of manufactures varies considerably from country to country and from one period to another. This is because the import pattern of an industrializing country is heavily dependent on its resourceendowment, as well as on its developing pattern of demand. … [D]ifferent tendencies among the industrial countries reflect the fact that the smaller countries inevitably tend to specialize, while the larger ones produce virtually the whole range of manufactured goods. Thus, the smaller industrial countries depend heavily on the larger ones for increases in their requirement of manufactures, so that as their economies expand the proportion of manufactures in their total imports tends to rise. (1963, 66–7)

To summarize, in the early 1960s there might have been a prima facie case for the “truncation” of Canada’s manufacturing sector. This prima facie case is steadily eroded in the decades that follow. This is reminiscent of what we saw in Chapter 1, where the evidence showed a prima facie case for left-nationalist and new political economy assumptions about the effects of non-resident ownership, and what we saw in Chapter 4, where the FDI evidence also showed such a prima facie case

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(although the period in question was somewhat different). But in the decades since, if one looks at Canada’s trade profile, non-resident ownership of the economy, and trends in direct investment, there has been a systematic erosion of the prima facie case. In terms of FDI, there is no ambivalence: the statistical trends do not support the old CPE claims. In terms of non-resident ownership, there was some ambivalence, some evidence of a reversal to an older picture in the mid- to late 1990s. But in the twenty-first century levels of non-resident ownership resumed their decline. In the case of end product exports, we also see an apparent partial reversal – this time in the first years of the twenty-first century. This partial reversal in Canada’s trade profile is the factual basis for Stanford’s claim that Canada is reverting to a “hewer of wood and pumper of oil,” seeing in them confirmation of the underdevelopment implicit in Canada’s dependent economic structure.

The bitumen sands effect After 2011, Statistics Canada abandoned the categories developed in 1961, introducing quite different, more detailed (and more helpful) descriptions of the products exported by Canada. Panel B of Figure 5.2 presents export figures for 1988 until 2014 using this new series, grouped into categories closely comparable to those used in panel A of the figure, using labels appropriate to the descriptors given for the new series. The category “end products” from the old series is roughly equivalent to “industrial machinery, electronics, motor vehicles, aircraft and consumer goods”; “fabricated materials, inedible” to “chemicals, plastic, rubber and forestry”; “crude materials inedible” to “energy and mining products”; “farm, fishing, animals and food” to “farm, fishing, animals.” These are rough equivalents. Electricity, formerly classified as part of “fabricated materials, inedible” is now part of “energy and mining products.” Rapeseed, included in the old series with crude oil in the “crude materials, inedible” category, is now (under the name “canola”) more sensibly included in “farm, fishing and intermediate food products.” The various categories of processed foods have been reclassified as consumer goods. These changes notwithstanding, the overall figure has the same shape. The “top” category of what used to be labelled “end products” increased its share steadily through the last years of the twentieth century, and then saw that share decline in the first years of the twenty-first century. What used to be called “fabricated materials, inedible,” now labelled “chemicals, plastic, rubber and

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forestry,” remains a dominant category, if with a somewhat smaller share in 2014 than in 1988. The category formerly labelled “crude materials, inedible,” now labelled “energy and mining products,” expanded considerably in the early years of the twenty-first century. The categorization of the new series is quite helpful. In the old series, “crude materials, inedible” was expanding significantly in the first years of this century. Like its cousin, “fabricated materials, inedible,” examined later in the chapter, “crude materials, inedible” was an extremely heterogeneous category that lumped together rapeseed, crude vegetable products, and crude petroleum. Thus, when there is an increase in the export share of “crude materials, inedible,” it clearly matters which products in the category are experiencing the growth. If Canada were exporting more rapeseed and crude vegetable products, that would tell us something different than if it were exporting more petroleum. The new series is more precise, and more helpful, as it focuses clearly on energy and mining products. A detailed examination of the two categories shows that, in fact, crude oil and bitumen are almost entirely responsible for the increase in the share of what used to be called “crude materials, inedible” in Canada’s export profile. Figure  5.3 shows crude oil and bitumen as a percentage of the combined category of “energy and mining products” over the period from 1988 to 2014. In 1988 crude oil and bitumen exports were just one-­ quarter of the category; by 2014 they had risen to two-thirds. Stanford’s suggestion of Canada’s move from “drawer of water” to “pumper of oil” evokes images of economic underdevelopment, which is quite misleading. The centre of this boom in crude oil and bitumen production is the exploitation of northern Alberta’s bitumen sands. Important policy issues are associated with this exploitation: a commitment to extractivism, as suggested in the introduction, is extraordinarily wasteful as well as ecologically destructive. But such issues need to be separated conceptually from the extractivist problems encountered in the poor countries of the global South. The capacity to exploit bitumen in Alberta (compared, for instance, to the deep problems encountered in Venezuela – see Nolen 2014; Kellogg 2015) is a sign of Canada’s dominant place in the world economy – of its capitalist development, not underdevelopment. Bitumen sands production is industrial production on a vast scale. Alfred J. Cavallo (2005, 17) makes this point clearly: “Tar sands are of a completely different character than conventional oil deposits; making tar sands usable is a capital-intensive venture that requires special procedures such as heating to separate the tar

Of Nails and Needles  125 Figure 5.3.  Crude Petroleum Exports as a percentage of Energy and Mining Products Exports, Canada, 1988–2014

Source: Author’s compilation from data available in Statistics Canada (2015).

from the sand, mixing the tar with a diluting agent for pipeline transport, and constructing specially equipped refineries for processing.” Readers will have confronted this issue before, in the discussion of the attempt by certain world system theorists to categorize Canada as a semi-peripheral country. Chase-Dunn’s argument, cited in that context, is absolutely relevant to the discussion here. For Chase-Dunn, export categories such as manufacturing and crude materials are in themselves not all that revealing as windows into the nature of the underlying economic formation. The key issues are capital and labour intensity. Are the commodities produced for export subject to massive amounts of labour with very little technological intervention? In that case, their export is a marker of a peripheral or semi-peripheral country, whether or not the commodities exported are categorized as manufactured goods or crude materials. By contrast, are the commodities produced for export subject to massive amounts of intervention by expensive technology, machinery, and science? In that case, their export is a marker of a

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core country, whether or not the commodities exported are categorized as manufactured goods or crude materials. As Chase-Dunn argues, “[a] core area is an area in which relatively capital intensive production is concentrated. Capital intensive production is often in the manufacturing or industrial sector of a national economy, but it may also be in the service sector, the agricultural sector or other sectors. The definition of core production is not restricted to ‘industry’ even though this is often the most capital-intensive sector. Agriculture in core areas is usually also capital intensive relative to agriculture in other zones of the worldsystem, and the same is true of services” (1998, 207). It is simply not credible to treat the output of the great bitumen sands boom as being in the same category as the fur, fish, and feathers analysed by Harold Innis, or the rapeseed and crude vegetable products until 2011 lumped in with bitumen exports. Canada has become a world leader in the appalling science of boiling mud to extract oil. This is incredibly environmentally destructive. It is also incredibly capital intensive. It is a sign of industrial development, not industrial decline. In the desperate search for new sources of oil, bitumen sands’ oil is being joined by its country cousin, oil extracted from shale: “Extracting oil from the 3 trillion barrels of oil shale … presents its own challenges. The term ‘oil shale’ is also quite misleading, since there is no oil in this mineral, but rather an organic material called kerogen, which is a precursor of petroleum. To extract oil, the shale (typically between 5 and 25  percent kerogen) must first be mined, then transported to a plant where it is crushed, then heated to 500 degrees Celsius, which pyrolyzes, or decomposes, the kerogen to form oil” (Cavallo 2005, 17). So, as capitalism advances, we will move from wasting the world’s water to boil mud to produce oil to fuel our SUVs – to crushing rock and wasting water to boil those bits to produce an oil-like substance to fuel our SUVs. This might be a sign of cultural decline, environmental destruction, and short-sighted energy policies. But it is not a sign of economic underdevelopment as that is understood in a capitalist world: “Oil shale deposits are located throughout the world, but the richest known deposits are concentrated in the United States” (Johnson, Crawford, and Bunger 2004, 13).16 In the twenty-first century, production from these deposits came on-stream and transformed the position of the United States in the world’s oil economy. We would be well advised to understand these statistics as representing manufacturing and industrial power, not manufacturing and industrial decline.

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The Auto Pact effect If bitumen sands have been the focus in the twenty-first century, in the classic era of CPE the focus was on the auto industry. The empirical case for Canada’s industrial underdevelopment was eroding rapidly through the 1970s, 1980s, and 1990s, reflected in the rising share in Canada’s exports of end products or finished manufactures. It was becoming increasingly difficult to make the case that Canada had a “truncated” or “undeveloped” manufacturing sector based on these statistics. However, a big part of Canada’s industrial development in those years centred on the auto industry. Many political economists decided to c­ onceptually exclude the auto sector from their understanding of the Canadian economy, something labelled here as the “Auto Pact effect,” referencing the managed trade agreement in automobiles and parts between Canada and the United States that was in place from 1965 until 2001. Seeing automobile trade as exceptional, and excluding it from the picture of Canada’s export trade profile, acquired the character of common sense in much of the CPE literature. Glen Williams was the first to use this methodology. In 1976 he argued that it was justifiable to remove these manufacturing trade statistics because, as it concerned trade between Canada and the United States, this trade was covered by the Auto Pact: “[t]he ratio of fully manufactured exports to total exports only has meaning because it is a rough indicator of a nation’s ability to compete industrially within the world capitalist economy. The Auto Pact tells us nothing positive about Canada’s position as an industrial exporter as it simply provides for intra-firm transfers of goods which incidentally pass over an international frontier – blue Vegas made by G.M. Canada for green Vegas made by its U.S. parent company” (1976, 28). With the exclusion of trade covered by the Auto Pact, Canada’s share of manufactured exports dropped to 22 per cent in 1980, which, as Williams argued, “leaves us squarely in the company of Brazil and India” (1986, 10). Daniel Drache claimed it was right to argue that Canada had unusually low levels of manufactured goods in its export profile because “the Auto Pact, which is a negotiated trade agreement … cannot be considered as part of Canada’s international export capability” (1977, 18). Wallace Clement argued that Canada’s economy had an essentially “resource-character” “outside the industrial corridor from Montreal through Toronto to Windsor” (1989, 36), and he provided a list of Canada’s top

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exporters in the 1980s to show that they were not, by and large, exporters of finished manufactured products, an empirical demonstration of the distortion of Canada’s industrial structure caused by dependency. The list looks impressive until one reads a footnote wherein Clement said that the “table excludes the big three U.S. automobile companies” (45). That is, he dealt with the fact of Canada’s steadily growing manufacturing exports by conceptually excluding an entire category: automobile, truck, vehicle, and parts production. In the context of a 2003 controversy (examined in the next chapter), the editors of Canadian Dimension argued that Canada’s manufacturing statistics are distorted by an enormous overreliance on the auto industry: “Aside from the auto sector, Canadian manufacturing is also mainly resource-based” (Canadian Dimension 2003, 34). Leave aside for the moment whether such a method is justifiable. Let us examine what happens when the “Auto Pact effect” is used to adjust the profile of Canada’s external trade. Working with the old series from Statistics Canada, in the early 1970s – at the peak of the influence of the first moment of left-nationalist Canadian political economy – excluding automobile and related exports would lead to Canada’s fully manufactured exports comprising barely more than 20 per cent of total exports. Agricultural and crude materials exports combined would range between 40 and 50 per cent of total exports for much of that period, vying with semi-manufactured products as the dominant component of Canada’s export trade. In the 1970s, then, the “Auto Pact effect” would lead to a trade profile closer to the “hewer of wood and drawer of ­water” imagery of the left nationalists. But even with the exclusion of automobile and truck exports, through the 1980s and the 1990s, fully manufactured goods increase noticeably as a proportion of overall trade – doubling in less than twenty years from around 20 per cent to around 40 per cent of overall exports – while, for the most part, the share of agricultural and crude materials exports decreased. The most that can be asserted is that, through the 1950s, Canada’s share of exports of finished manufactures was considerably lower than the norm for other advanced capitalist countries. But from 1961 to the beginning of this century, there was a steady rise in finished manufacturing exports as a percentage of all exports, even with the “Auto Pact effect” outlined by Williams and others. Without that effect, Canada’s exports of finished manufactures reached a level almost comparable to that of other advanced capitalist economies by the end of the twentieth century; with the effect, the rate of growth was the same, even if the

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overall percentage growth was somewhat lower. Perhaps one could argue that Canada’s somewhat weaker position was based on somewhat lower rates of exports of finished manufactures, but such an argument would be much less definitive than that maintained in the new political economy literature. Even if one accepts the “Auto Pact effect” argument, the statistics simply do not bear out the extreme claims of truncated manufacturing and industrial weakness. Two “anomalies” have been addressed here: the twenty-first-century surge in bitumen exports and the large portion of Canadian manufacturing exports centred on the auto industry. What happens to our profile of Canada’s exports when both “anomalies” are removed from the picture? Figure 5.4 does this, retracing Canada’s export profile from 1988 to 2014, but excluding “motor vehicle and parts” exports (from what had been the old “end products” category) and “crude oil and bitumen” exports (from what had been the old “crude materials, inedible” category). What we see is a small increase in the export share of “farm, fishing and animals” and a small increase in the export share of “energy and mining products,” but, without question, the two dominant categories are the old “end products” category (now “industrial machinery, electronics, aircraft, consumer goods”) and the old “fabricated materials, inedible” category (now “chemicals, plastic, rubber and forestry”) together representing around 80 per cent of the export share for the entire period. Interestingly, in 1988, what was the old “end products” category had a 30 per cent share and the old “fabricated materials” category had a 50 per cent share; by 2014 their shares were virtually identical. Williams claimed that the exclusion of trade under the Auto Pact was not “a convenient form of statistical magic” (1976, 28). But that is really what this methodology amounts to: a sleight of hand that obscures more than it reveals. Williams and Clement found a way to put Canada’s trade profile “in the company of Brazil and India,” by assuming that the economic activity in the auto sector simply was not taking place. If their argument was that the branch-plant nature of this production made it impermanent, that impermanence is now two or three generations old. If their argument was that excluding trade under the Auto Pact was necessary to get an accurate picture of the structure of the Canadian economy, this had the peculiar effect of deleting places such as Alliston, Cambridge, Oshawa, Windsor, and Woodstock from the picture of Canada’s economy. If their argument was that the branch-plant nature of this production under US dominance made it

130  Escape from the Staple Trap Figure 5.4.  The Composition of Exports (excluding Crude Oil and Bitumen, and Motor Vehicles and Parts), Canada, 1988–2014

Source: Author’s compilation from data available in Statistics Canada (2015).

unlikely that the auto sector would sink roots in Canada, it cannot explain the steady expansion of Toyota, Nissan, and other non-US auto producers, or the emergence and growth of Canadian-based car parts manufacturers. Reflect for a minute on the latter – the millions of tons of automobile, truck, and related parts produced for export in southern Ontario and Quebec. In 2009 the Canadian auto parts sector had shipments of $19 billion and employed 61,000 workers in more than a thousand ­establishments (Canada 2011). Leading all in this sector was Frank Stronach’s very Canadian Magna Corporation, an extremely ironic fact since fear of dependency on US corporations in the 1960s had led many on the left to advocate the creation of an all-Canadian car. As Jim Laxer suggested, “[a] publicly owned, all-Canadian car would be a crucial part of a new industrial strategy aimed at gaining control of the Canadian economy for the Canadian people” (1975, 10). Laxer’s position was

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predicated on the widely held assumption that Canadian capitalists were too weak to assert themselves in such a manner in the manufacturing sector. But as Stronach’s company moves closer to being a full assembler, we might be on the verge of getting just such a creature, only without the public-ownership aspect. It is not clear what we would celebrate, however, given that Magna is one of the more union-averse companies operating in Canada. Further, if the argument is that the auto and parts trade should not be counted because they take the form of intra-firm transfers, much of the world’s trade, in fact, is in that form – a sub-species of a more general phenomenon, “intra-industry trade,” consisting of bilateral exchanges within the same product group. As the Royal Commission on the Economic Union and Development Prospects for Canada noted, “increasingly, international trade occurs between related parties especially international firms and their affiliates” (Canada 1985, 242). Nigel Harris – an internationally renowned expert in development studies – reported that, by 1967, this type of bilateral exchange “already accounted for 63 percent of the trade of the O.E.C.D. group” (1983, 61), and saw it not as an unnatural phenomenon that distorts export and import statistics, but as a feature of the “globalization” of international production: The growing integration of the more industrialized zones of the world system in terms of trade was a growing integration in terms of production. This was particularly true for the most dynamic sectors of world trade, those in engineering goods and chemicals. Within engineering, the character of trade was increasingly not between industries, but within industries – “intra-industry trade,” an exchange of “intermediate goods” (i.e., “manufacturing inputs into manufacturing, excluding machinery and equipment that is produced as final demand as investment goods”). The exchanges indicated increased specialization by country, and decreased capacity to cover the entire range of output of a particular industry. (60)

In short, to so exclude a significant section of manufacturing exports profoundly distorts the picture of the Canadian economy. Trade figures provide one of many windows through which one can get a picture of what happens inside an economy. Like all windows, the trade figures window is sometimes more or less obscure, but to suggest that the ­window on auto trade says nothing about the Canadian economy is to pretend that it simply does not exist. In the real world, its existence is

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palpable. The existence of autos to export (even as “intra-firm transfers”) implies the existence of an auto industry – indeed, Canada is one of the largest per capita auto-producing economies in the world, and in 2005 Ontario surpassed Michigan as the biggest centre in North America for vehicle production (Hoffman 2005). The Great Recession hit Ontario hard, leading to major job losses in Oshawa and elsewhere, but it hit the United States even harder, and Ontario retained its lead on Michigan into 2009 and 2010 (Mayne 2009; WardsAuto 2012); only in 2013 did Michigan push Ontario back into second place (Keenan 2014), In 2006, before the Great Recession, 51,012 workers were employed in automobile and truck assembly plants in Canada, and another 97,282 in parts plants, for a total of 148,294. That was a higher employment ratio per capita than in the United States, where 1,137,700 were employed in the two industries that year. Interestingly, the biggest difference was in the highest-quality jobs, those in the assembly plants, where 249,700 workers were employed in the United States. To reach the same per capita employment rate in those plants as in Canada, the US figure would have to have been more than half a million (Canada 2007, 5). After the Great Recession, 109,111 workers were still employed directly in the auto sector in Canada, and fully 17 per cent of North American auto production happened within Canada’s borders in 2009 even though the Canadian market represented just 12 per cent of the North American total (Canada 2011). The point here is that trade figures are indicators of economic activity. To single out Canadian auto trade as the only chunk of world manufacturing trade to be written out of a statistical comparison with other actors in the world economy – which all have small and large chunks of trade in the form of intra-firm transfers – is not tenable. Presumably, an argument about the resource-biased nature of trade is important because it indicates that the type of work done inside the economy is resource-oriented: labour-intensive activities such as picking coffee beans, working on a banana plantation, or farming a rice paddy. But automobile trade with the United States, even in the form of intra-firm transfers, is precisely this type of important indicator. It points to the fact that a large proportion of work in Canada is producing cars, and that Canada’s industrial structure differs in important ways from real resource-based, “staple-trapped” economies such as Ethiopia, Guatemala, or the Sudan, which cannot produce two million cars, whether in the form of intra-firm transfers or not.

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Mel Watkins followed a related line of reasoning in an interesting and important rejoinder to an earlier version of the perspective of this chapter, arguing that [t]he Autopact, the Free Trade Agreement …, and the North American Free Trade Agreement … have greatly increased crossborder trade in manufactures, both exports and imports, between Canada and the United States, and have created trade statistics that can be interpreted as showing manufactures to be a rising share of exports … But this is mostly an illusion that needs to be corrected by using figures for value-added exports that remove import content, rather than gross exports … Kellogg … erroneously persists in using gross figures for exports and imports in calculating the weight of different sectors, and draws conclusions that do not hold up to proper scrutiny. (Watkins 2007, 216)

Watkins is correct: the analysis here is based on gross export figures. He suggests that, were the analysis based on value-added exports, it would reveal that much less value is added in Canada and much more is added in the United States. Canada, by this argument, is really just an assembly point, not embedded in the dense network of complex manufacturing activities in the way auto production is in the United States. This argument can be tested. If the figures on trade in automobile and related products exaggerate the value added in their production, they would be out of sync with production figures. The automobile industry in Canada, in other words, would look much less significant when the value of its production is expressed as a percentage of gross domestic product (GDP). Figure 5.5 compares US and Canadian figures for ­motor vehicle and parts production, measured as a percentage of GDP, from 1997 to 2014. The picture painted is the opposite to that claimed by Watkins. Far from being less important than in the United States, motor vehicle and parts production has consistently been a more important component of GDP in Canada than in the United States. In both countries, there was a very sharp contraction during the Great Recession, but production has since recovered in both – and that recovery has been much more pronounced in Canada than in the United States. By 2011 motor vehicle and parts production in Canada was 50 per cent greater, as a percentage of GDP, than in the United States. Again this evidence raises the

134  Escape from the Staple Trap Figure 5.5. Motor Vehicle and Parts Production as a percentage of GDP, Canada and the United States, 1997–2014

Sources: Author’s compilation from data available in Statistics Canada (2014f); United States (2014).

question why motor vehicle and related industries should be excluded from an understanding of the Canadian economy – why Alliston, Cambridge, Oshawa, Windsor, and Woodstock should not form an integral part of the complete picture of the Canadian economy. One additional point needs to be made. Canada is one of the world’s leaders in the total volume of its trade, so for Canada a small percentage of manufacturing trade conceals a quite high total volume of manufacturing trade given that Canada imports and exports at a much higher per capita rate does the United States. For instance, in 2011 Canada’s exports were worth just under C$500 billion, while US exports were worth almost US$1.5 trillion – just three times as much for a country with ten times Canada’s population (Statistics Canada 2012c; United States 2012c). A key theme of this book is that statistics can be counterintuitive. At first glance, a declining share of exports consisting of end products

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could be construed as evidence in favour of the dependency argument. But a more detailed examination shows that these statistics do not conform to the picture of Canada as a semi-industrial, semi-peripheral economy, let alone an underdeveloped one. They do fit very well with the picture of Canada as an advanced, core capitalist economy, where the self-expansion of value is resulting in an expanding capacity to export fully manufactured goods abroad. Fabricated Materials, Inedible If the difficulty with the “Auto Pact effect” argument is that it obliterates the manufacturing activity of places such as Windsor, Brampton, and Alliston from a conceptual picture of Canada’s industrial structure, it is necessary to highlight the fact that the categories deployed by Statistics Canada from 1961 until 2011 had already eliminated the story of Hamilton and its decades of massive steel mills, as well as much of Cornwall, Sudbury, Sarnia, and the entire province of British Columbia from that same picture. The category called “end products, inedible” grew steadily as a proportion of total Canadian exports, especially from 1961 on, peaking at the end of the twentieth century at around 45 per cent before retreating somewhat in the years since. But the other 55 to 65 per cent of Canada’s exports does not consist of the raw materials and primary products that much of the new political economy literature implies. Until 1968 the biggest single category of exports was “fabricated materials, inedible,” which represents close to 30 per cent of all exports in most years. This category is an extremely heterogeneous one, grouping together products as diverse as yarn and railway tracks. This heterogeneity is no small matter. One of its biggest sub-­ categories is chemicals, which includes such capital-intensive manufacturing activities as synthetic rubber and plastic materials (and, interestingly, also one of the key categories, cited earlier by Hobsbawm as a marker of industrialization in the mid-twentieth century). Iron and steel is another big sub-category, and includes bars and rods, steel sheets and steel plates, and railway tracks. The biggest sub-category, though, is wood and paper, which incorporates products from all of Canada’s sawmills and pulp and paper plants – and modern pulp and paper production is “the most capital intensive of the manufacturing industries” (Gilbreath et al. 1995, 3). The point is that much of what is included in the “fabricated materials” shown in panel A of Figure 5.2 is

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capital-intensive manufacturing even if the result is not, strictly speaking, an “end product.” As early as 1961, when the proportion of Canada’s exports accounted for by finished manufactures was quite low, a majority of its exports was comprised of products that in some way were subject to manufacturing processes. Perhaps Canada was a hewer of wood, but with the assistance of giant tractors and large factories; perhaps it was a drawer of water, but through an intricate system of dams and hydraulic lift systems. Again, this is not a picture of an economy caught in a staple trap, unable to break a reliance on raw materials and resources exports, and unable to develop its manufacturing potential. In 1986 Williams said: “Industrialization is said to be associated with economic development because it leads to increases in both labour productivity and real incomes. In turn, relative levels of industrialization and worldwide industrial competitive power can be measured through manufactured exports because industrial growth enhances trade potential. This accounts for the ‘remarkably close relationship over the past 60 years in the relative growth rates of the main industrial countries and their shares of the world export market in manufactures’” (1986, 7). Here again Williams is quoting Alfred Maizels (1963, 17), but it is interesting to note that, as it concerns Canada, Maizels did not draw the same conclusions as Williams did in 1986. Maizels did note that, in the 1950s, a low share of Canada’s exports could be classified as finished manufactures. But Maizels had other crucially important criteria for categorizing the place of economies in the world system. One was the productivity of manufacturing employment – the dollar value of production manufactures per employed manufacturing worker – by which measure, in 1955, Canada, at $4,380, was second only to the United States ($5,730), while Sweden was a distant third ($3,050) (Maizels 1963, 31). Maizels paid careful attention to the Canadian case when categorizing the world into industrial countries and semi-industrials. He documented that Canada’s share of finished manufacturing exports was incredibly low compared with those of the United States and western Europe, and argued, on that basis, that Canada fell between those industrially advanced countries and a second group (including Australia) whose exports of finished manufactures accounted for less than 15 per cent of total exports. At the same time, he argued that, in export structure Canada is, in fact, much more like Norway, Sweden and Holland than she is like Australia. One-half of Canada’s exports are

Of Nails and Needles  137 industrial products (even though most are intermediates) … Further the degree of industrialization in the Canadian economy is significantly greater than in Australia, while Canadian productivity in manufacturing is ­second only to that in the United States. A final consideration is the very close inter-relation that has developed, particularly during and since the last war, between the Canadian economy and that of the United States. In many respects, the two countries can effectively be regarded as a single economic system, and they are likely to grow closer together in the future as their economies expand. For this reason, as much as for the others, it was decided to classify Canada in the same broad grouping as the United States. (60–2)

If Maizels could draw this conclusion in 1963 on the basis of a very low share of manufacturing exports, there is no question what conclusion should be drawn in the twenty-first century.

The Dominion Bureau of Statistics: Fabricated statistics, ­incredible Let us interrogate the category “fabricated materials, inedible” a little further. It is clear from reading through the relevant background papers that the civil servants at the Dominion Bureau of Statistics (DBS) who settled on the name of the category were not thinking about aiding political economists in the task of classifying Canada’s place in the world system. Had they had done so, they might have named their effort “fabricated statistics, incredible.” They did not divide export products solely on the basis of the extent of the manufacturing these products contained – indeed, sometimes it is unclear what they had in mind. When the new classification came into effect in 1961, it was certainly an advance on the categories in use until then. But if the bureaucrats moved two steps forward by separating out manufacturing exports from the gross statistics on export trade, they took one step backward by creating an extremely confusing middle category. The background paper to the new classification presented the case this way: “Section IV, Fabricated Materials, Inedible, contains all commodities which have passed the preliminary stages of processing but which are still used chiefly as materials in some later industrial process.” So far, so good: read this way, it would be safe to designate all products in this category as “semi-manufactured” goods, and to conclude that a heavy concentration on their export was evidence of the underdevelopment of key sectors of Canadian finished manufacturing. However, the document went on to say that “[s]ome commodities in this Section are highly

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processed and the chief part of their value may be derived from ­manufacturing” (Dominion Bureau of Statistics 1961, 2). Now things are as clear as mud. The chief merit of investigating shares of export trade by the percentage of manufactured, semi-manufactured, and non-­manufactured is to provide a window on the extent of development (understood as the extent of capital-intensive industrialization) of a particular economy. But if the single biggest category of these statistics is so all-inclusive that it lumps together some products that are virtually raw materials and others that are “highly processed” – “the chief part of their value” being derived from manufacturing – then there is a problem. This large statistical category conceals within itself much of the manufacturing life of what is really a highly developed industrial economy. Consider the range of goods that are lumped ­together: “Examples of the commodities included in this Section are dressed furs, vegetable oils, rubber belting, lumber, plywood, millwork, pulp and paper, textile yarns and piece goods, chemicals, fertilizers, plastics and synthetic rubber, metal ingots, sheets, pipe, wire and hardware.” There is a world of difference between an economy based on the production of dressed furs and one based on the production of synthetic rubber and metal sheets. The DBS’s further attempts at elaborating its definition are even more unhelpful: The distinction between fabricated materials and end products is perhaps the greatest innovation embodied in this classification, but the principles underlying this distinction can be illustrated by considering the difference between a nail and a needle. The nail is of no use by itself; it becomes useful only in connection with other materials and then it has lost its identity as a nail by being incorporated with those other materials into something quite different from any of them. The needle, on the other hand, is used with other materials but emerges from that use still a needle which is useful again for the same purpose. In this sense the nail is a fabricated material and the needle an end product. (Dominion Bureau of Statistics 1961, 2)

This is nothing short of bizarre. An economy based on factories producing needles would show up as a highly industrialized First World economy. An economy based on factories producing nails would show up as, at best, a semi-industrial nation, and perhaps even a Third World one. Scholars working with the results of these laboured efforts thus have to take the resulting statistics with a very large grain of salt. The new categories on which Figure 5.2b are based, are a significant

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improvement, offering a much clearer window into the contours of the Canadian economy. Conclusion We could accept the 1961–2011 categories offered by the DBS and later  Statistics Canada and remove Hamilton, Sudbury, Cornwall, and Sarnia from our picture of Canadian industrial capitalism. We could accept the “Auto Pact effect” and similarly exclude Oshawa, Windsor, St Catharines, Drummondville, Alliston, and Brampton. We could look at one of the most capital-intensive industries in the world – the extraction of oil from the bitumen sands of western Canada – and insist that it be placed in the same category as fur, fish, and feathers. But what would be the point? It would amount to a series of intellectual contrivances to try to force a square-peg reality into a round-hole theoretical framework. Canada’s economy is an advanced capitalist one, and possesses all the key features of a member of the core of the world system. This is the necessary foundation and starting point for any meaningful Canadian political economy. Chapters 7 and 8 make the case that Canada has had a more or less developed home market economy since the latter half of the nineteenth century. That is not to say that Canada can survive solely on the basis of its home market – as one of the most trade-dependent economies in the world, Canada clearly needs access to markets far beyond its borders. What it does mean, though, is that Canada has been the beneficiary of a process, referred to earlier, that Marx called the accumulation and reproduction of capital on an extended scale ([1885] 1997, 84–8). This term is developed in the second volume of Capital, the least read but perhaps the most important of Marx’s three-volume anatomy of the capitalist system. There are two ways to read this text. One way is to focus on the important argument about the “self-expansion of value”; the other is to use this notion in the context of the world economy and to query the direction of this self-expansion. The very economic basis of imperialism is to ensure that the self-expansion of capital flows in the direction of the imperial centre, frustrating the development of the periphery. Nominal political sovereignty can be compatible with the continuation of an imperialist system unless it is accompanied by a parallel assertion of economic sovereignty, redirecting the self-expansion of value away from the centre and towards the periphery. (For evidence of this conflict unfolding in the current reality, a study of the confrontation

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between Bolivia, Venezuela, and Ecuador and the foreign energy multinationals that operate on their soil would be a good starting point.) This is a fundamentally important point. It is the reason an oil substate such as Alberta has a fantastically different economic profile from an oil state such as Venezuela. The former is part of an advanced capitalist economy with a well-established home market economy; the development of such an economy in the latter has been frustrated by generations of imperialist economic domination. It is why debates over Canada’s place in the world economy matter. Whether Canada’s economy is part of the world system that benefits from the domination of other economies or one that suffers from domination is, in a real sense, the first question any political economist looking at Canada has to answer. This chapter has shown that evidence from Canada’s external trade profile cannot be used to place the country anywhere other than in the core of the world system.

6  Canada as a Principal Economy17

THE FREE TRADE MOMENT OF LEFT NATIONALISM The first five chapters have presented considerable evidence with which to critically investigate the key frameworks of the mainstream of Canadian political economy (CPE) – both in its classic 1970s and 1980s moment and in its twenty-first-century semi-periphery recapitulation. Between these two moments was another one: a left-nationalist moment associated with opposition to trade deals involving Canada and the United States – the Canada-US Free Trade Agreement (CUFTA) in the 1980s, the North American Free Trade Agreement (NAFTA) in the 1990s, and the Free Trade Area of the Americas (FTAA) in the early twenty-first century. To a large degree, the CPE frameworks developed in and around these trade deals were continuations of the frameworks developed in the first, classic moment of left-nationalist CPE. This chapter critically examines aspects of the evidence and claims associated with this free trade moment of left nationalism that might further illuminate the book’s analysis. From NAFTA to the FTAA In 1999 a magnificent coalition of young antiglobalization activists and veterans of the trade union movement disrupted the annual meetings of the World Trade Organization (WTO) held that year in Seattle, ­Washington (see Bakan 2000a,b). Ralph Nader called this Seattle moment a “fork in the road” (1999), the beginning of a new wave of struggle against corporate globalization. And, indeed, in the years that followed, hundreds of thousands in Genoa, Prague, Quebec City, and

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elsewhere challenged the symbols of corporate capitalism. In April 2001 tens of thousands marched in Quebec City against another of the institutions of globalization: the now-defunct FTAA. In July the Italian city of Genoa would be paralyzed by hundreds of thousands protesting the globalizing policies of the G8 (the G7 plus Russia) – protests marred by the tragic death of Carlo Giuliani. Many, including an influential centre of the Canadian left – the Canadian Dimension Editorial Collective – saw the 1999 Seattle protests as marking “the coming out party” of a “worldwide protest movement” against neoliberalism and imperialism (2002, 12). In 2002, in the context of this mass antiglobalization movement and deep concerns about the approaching FTAA, the collective explicitly advocated a return to the left-nationalist paradigm of the 1970s, calling for the creation of a “strong nationalist resistance movement” (Canadian Dimension Editorial Collective 2002, 16). Chapter  2 outlined the manner in which a very similar concept took shape in the semi-periphery school associated pre-eminently with ­Gordon Laxer. However, the Canadian Dimension Editorial Collective’s call for “nationalist resistance” made little or no reference to that unfolding school but developed its own points of reference. A survey of the origins of the Seattle moment shows why this approach found little hearing. In the global North, Seattle might have been the movement’s coming-out party, but it was actually a reflection of mass movements that had been going on for years in the global South – in particular, in Latin America and the Caribbean. Throughout the 1990s a series of social movements began to develop in that region, social movements that positioned themselves against what they saw as the damaging impact of globalization, usually referred to with negative connotations such as “neoliberal globalization.” Indeed, the 1990s were marked by a rebirth of civil society throughout Latin America. The previous decades had been scarred by the deep repression of military dictatorships (in Chile, Argentina, and Brazil, for example) and civil war (in Nicaragua, El Salvador, Guatemala, and elsewhere). As tentative democracies replaced dictatorships and fragile peace accords began to replace armed conflict, a space opened up for civil-society-based social movements, a  space that in most Latin American countries had been closed for a generation or more. At the centre of many of these movements were long-ignored demands by indigenous communities for recognition and redress. In 1992 – to mark the 500th anniversary of the arrival of Europeans in what they wrongly called the “New World” – a regional

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meeting of indigena movements was convened in Guatemala (Biekart 2005, 88). That meeting was a prelude to the explosive events – directly linked to globalization – that were to happen in 1994 in the Mexican state of Chiapas, just across the border from Guatemala. 1 January 1994 was the first day of the implementation of NAFTA, a key institutional expression of globalization. The same day, indigenous Mayan peasants in the jungles of Chiapas began a rebellion against what they saw as the negative implications of NAFTA for their lives and livelihoods. This rebellion set in motion a series of initiatives that were to result in the now massive World Social Forum movement. In August 1994 the leaders of the rebellion, the Zapatistas, attempted to break their isolation by organizing a “National Democratic Convention” in the Lacandon Forest, a place with deep significance in Mexico as the site of the 1915 gathering that established the Revolutionary Convention, part of the Mexican Revolution (1910–20). This geographic bridge between Guatemala and Mexico (the Lacandon Forest stretches from Chiapas into Guatemala) became the symbol of the political bridge uniting resistance in both countries. This initial attempt at a convention met with limited success (Castells 2004, 85), but the second attempt was remarkable. In the summer of 1996 – in response to another call from the Zapatistas – some four thousand people made the difficult trek into the jungles of Chiapas to participate in an “intercontinental meeting ‘for humanity and against neo-liberalism.’” A similar number took part in a second of these encuentros (“encounters”) in Madrid in 1997 (De Angelis 1998, 138–9). Finally, in 1999, the encuentro moved to Belém, Brazil, “which eventually provided a basis for organising the first World Social Forum” (Biekart 2005, 88). Seattle was, in other words, one moment in a much wider movement, internationalist in its origins, with a profound sympathy for the oppression experienced in the global South, inspired at its core by indigenous demands for self-determination, deeply suspicious of corporate power in all its varieties, and relatively indifferent to the nationality of the corporations that are the beneficiaries and agents of neoliberalism. To the ears of those listening to the claims for sovereignty emerging from the jungles of Chiapas, one of the poorest sections of the Americas, the themes emphasized by the Canadian Dimension collective in 2002 and 2003 would have sounded odd – coming, as they did, from one of the richest. “Canada has never known a fully sovereign existence.” Through the nineteenth century, “Canada never ceased being an economic, cultural and military colony of the British.” In the twentieth and

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twenty-first centuries, “Canada has always been in danger of becoming a U.S. cultural colony” (Canadian Dimension Editorial Collective 2002, 14). “Canada is a dependency of the U.S.,” it argued in a subsequent contribution to the debate, amplifying this claim by asserting that “the degree of Canada’s dependency is unparalleled” (Canadian Dimension 2003, 34). In this, it was echoing the left nationalists of the 1960s and 1970s who attempted to wed radical dependency theory to Canadian political economy. The evidence the Collective produced was identical to that offered a generation earlier: “Aside from the auto sector, Canadian manufacturing is also mainly resource-based … [Canada is largely a] resource-based, dependent economy” (34, 35). What one would have expected, in the context of this argument, is the claim that the Canadian economy is therefore largely resource based. What the Collective claimed, however, was much less – that Canadian manufacturing is largely resource based. This was an interesting step to take in the analysis. It meant that, if it can be documented (as has been done in this book) that Canada’s manufacturing profile is more or less typical of advanced capitalist economies, Canada could still be called a “resourcebased economy” because the manufacturing that does exist is resource based. Here the Collective was building on work by Michael Howlett and M. Ramesh, who argued that “[m]uch of Canada’s manufacturing base consists of processing resource-based commodities such as lumber, pulp and paper, and various mineral and oil-based products,” which they called “resource-based manufacturing” (Howlett and Ramesh 1992, 118–19). It is not clear, however, how valid it is to use this observation as a framework for assessing the overall contours of the Canadian economy. Manufacturing, by definition, is resource based in that it involves the working up of raw materials into finished products. If resource-based manufacturing brings with it the science, technology, and industrial organization characteristic of advanced manufacturing – and this is the case in both the pulp and paper and oil industries – then the significance of this kind of characterization is not clear. As Chase-Dunn has argued forcefully, the key issue in determining a country’s position in the world system is the capital intensity of its work process, not the particular commodities that work produces. There is little else to say about this brief attempt to wed 1970s dependency theory to the antiglobalization movement of the early 2000s. For political economists from a G7 nation such as Canada to invoke a term such as “nationalist resistance” – in the context of a movement against globalization whose roots were in the 1994 Zapatista uprising in Mexico

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against NAFTA, a movement that was increasingly suspicious of corporate-driven capitalism, whether US- or Canadian-based – not surprisingly felt anachronistic and quickly receded from view. That it disappeared so quickly is closely related to the fact that it offered no new insights into Canadian political economy, but simply repeated themes from an early era. These themes were dealt with substantially in earlier chapters, and they need not be repeated here. The key political economy tenets of the left-nationalist paradigm were laid down in its “classic” period – the late 1960s and early 1970s. This period – based on work by Levitt, Watkins, the Laxers, Teeple, Drache, and others – was like a boulder thrown into the CPE pond: big enough to create ripples that have rolled back and forth from decade to decade, but diminishing with each generation, reflecting the paradigm’s inability to renew itself. The Other Macdonald Report By contrast, seventeen years earlier, in the context of that era’s debate over free trade between Canada and the United States, a more substantial echo of the earlier period emerged that proved quite influential and became associated with visible social movements and organizations such as the “Pro-Canada Network,” later renamed the “Action Canada Network” (Council of Canadians 2010). This reprise of the themes of left nationalism was ably synthesized in The Other Macdonald Report (Drache and Cameron 1985b), written as part of the movement to oppose “free trade” with the United States and the controversial ­ CUFTA, signed in 1988. This trade deal was pre-eminently identified with the Progressive Conservative government of Prime Minister Brian Mulroney, but its roots were actually multiparty. CUFTA was the policy conclusion of a discussion opened under the Liberal government of Pierre Trudeau in the form of the Royal Commission on the Economic Union and Development Prospects for Canada, chaired by leading Liberal politician Donald S. Macdonald. (This has more than a little relevance for the discussion of the relationship of left nationalism to the Liberal Party, opened in Chapter 2 and that will be returned to in Chapter 7.) Because the Royal Commission’s report – universally known as the Macdonald Report (Canada 1985) – was published during the Mulroney government’s time in office, it came to be associated with Mulroney’s attack on Canadian social services. The report, however, represented a developing consensus inside the entire Canadian ruling class, both Liberal and Progressive Conservative.

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The debate was framed around trade, but it was clear from both the scope of the Macdonald Report and a cursory look at the facts that what was at issue was not exclusively, or even primarily, about trade. Canada and the United States were at the conclusion of what Glen Williams called “a long process of tariff liberalization which has already created something very close to a free trade area between the two countries” (1985, 667).18 J.L. Granatstein noted that tariff cuts negotiated in the 1960s had led to something that “was not quite free trade, but to a ­substantial extent tariffs were now becoming almost inconsequential” (1985, 45–6). Canada was a signatory to the General Agreement on Tariffs and Trade (GATT), and through GATT freer trade with the United States had been the orientation of successive Canadian governments, Liberal and Tory, for decades. As Williams explained, “[t]he cumulative effect of the Kennedy Round GATT negotiations in the 1960s and the Tokyo Round negotiations in the 1970s had been to move Canada toward continental free trade. By 1987, when the staged reductions of the Tokyo GATT were fully implemented, 80 percent of current Canadian exports to the U.S. entered duty free and up to 95 percent were subject to tariffs of 5 percent or less. On the other side, 65 percent of U.S. industrial exports entered Canada duty free and 91 percent with rates of 5 percent or less” (1985, 662–3). With only 5 per cent of Canadian exports to and 9 per cent of industrial imports from the United States standing to be affected significantly by the further lowering of tariff barriers, it was hard not to conclude that, as far as it concerned trade, much ado was being made about a fait accompli. The considerable resources thrown into the Macdonald Report represented a sustained assault on the assumptions underlying the post-war “welfare state.” Not so much in its individual background studies, but in the three volumes that introduced and summarized the findings of the Royal Commission, the report developed an argument that the economic problems bedevilling Canadian and world capitalism had at their root state intervention, state control, and state regulation. The market, left to itself, would generate wealth. If constricted by taxes, regulation, and other forms of state interference, the economy would stagnate and decline. It was Canada’s introduction to what we now call “neoliberalism,” and represented a sharp reversal of a generation of economic orthodoxy. The Great Depression of the 1930s had revealed the problems of the unfettered market. It had become common sense to assert that the market had to be regulated, that there had to be taxation sufficient to

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sustain a certain degree of welfare. In the 1930s it was the absence of state intervention and welfare that led to such a huge collapse in demand that recession became a thorough-going depression. All of this was now under assault. Big government, high taxes, and big unions were now identified as the problem. The Macdonald Report was the first large ideological missile launched in Canada in the war on the welfare state, and provided the intellectual background for the negotiations that culminated in CUFTA. The editors of The Other Macdonald Report challenged this neoliberal consensus, offering what they called a “popular sector consensus” (Drache and Cameron 1985b, xxx–xxxix) as an open challenge to the forces pushing for the free trade deal. Drache and Cameron argued that their project was not so much about trade, but about building the outlines of a consensus on Canada’s future based on “‘the popular sector’: churches, trade unions, women’s groups, social agencies and organizations representing Native People, farmers and the disadvantaged … Canada’s counter-institutions,” and they drew “on a counter-discourse of political economy” (ix). It was an attempt to challenge the privatization, pro-market neoliberalism that dominated the Macdonald Report. The basic thrust of the “counter-discourse of political economy” was identical to the left nationalism and new political economy of the classic period. The Canadian economy had “structural weaknesses” (Drache and Cameron, 1985b, xxxv; Muszynski 1985, 10, 21; UAW/ TUA Canada 1986, 4). The indicators of these structural weaknesses were Canada’s declining relative position (relative to other western capitalist economies) in gross domestic product (GDP) per capita, productivity, competitive position, and unemployment (Muszynski 1985, 5, 11, 12, 13). This was clearly a modified version of the left nationalism of the 1970s, and a summary of assumptions and claims that are close to hegemonic in the new political economy literature. Offered as evidence of both the cause and effect of this relatively weak and declining economy was Canada’s overreliance on the export of raw materials. Canada’s manufacturing sector had been neglected as a consequence, leading to what some called “deindustrialization.” The overall problem was Canada’s domination by a foreign economic power – the United States. This domination or, rather, Canada’s dependence on this economic giant, skewed Canadian capitalist development towards being a raw materials supply depot for US manufacturing, allowing the United States to develop its industry at the expense of Canada’s. Most industries here, in this view, were US branch

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plants with no interest in developing the Canadian economy (Drache and Cameron 1985b, xxxiii; Phillips and Watson 1984, 38; Quebec Teachers Federation 1985, 121; Rotstein 1985, 133; UAW/TUA Canada 1986, 4). To correct these structural weaknesses, an étatist nationalism was advocated. With a state-directed industrial policy – usually involving extensive nationalization – Canadian development could be biased towards Canada’s economic needs, towards secondary manufacturing and away from reliance on primary resources extraction (Drache and Cameron 1985b, xxxi; Phillips and Watson 1984, 23; Quebec Teachers Federation 1985, 121, 127; UAW/TUA Canada 1986, 12). Over time, Canada would become less reliant on the United States, develop closer ties with Europe and Japan, and become an equitable, well-planned industrial society. Some called this goal socialism, some Canadian national development, but label or not the broad thrust of this political economy was shared by most of the “popular sector” whose consensus Drache and Cameron announced. The core assumption was that Canada was a declining, enfeebled economy. Given the history of neoliberalism since the 1980s, it is to the credit of Drache and Cameron that they challenged its basic assumptions from the very beginning. In the context of the failure of the market exhibited in the Great Recession of 2008, a call for greater reliance on the public sector and less on the private sector seems compelling. What is less compelling is the frame within which that challenge was developed – a frame that assumed as correct the key tenets of the left-nationalist, dependency political economy developed in the 1960s and 1970s. A representative and synthetic version of this framework was articulated in a key section of The Other Macdonald Report, which argued that, in the decades prior to the free trade debate, “Canada’s performance has been worse than [that of] most OECD [Organisation for Economic Co-operation and Development] countries” (Muszynski 1985, 21). The question is, of course, by what criteria? Drache and Cameron cited four: unemployment, output per capita, productivity and the related issue of Canada’s international competitive position, and the relative size of Canada’s manufacturing workforce. The last of these was examined in the earlier discussion of deindustrialization. What of the other three?

Unemployment One of the contributors to The Other Macdonald Report asserted that “Canadian workers are at considerably greater risk of joblessness than

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their counterparts in other … OECD countries … In a twenty-four country comparison of all OECD member nations, Canada ranked twentieth in its rate of unemployment for 1982” (Muszynski 1985, 5). Canada’s supposedly structurally weak relative employment performance is an important part of the analytical arsenal of the new political economy, advanced over and over again as proof of some aspect or other of Canada’s “dependence.” Melissa Clark-Jones, for example, argued that “Canada has not fared well. Between 1950 and 1981 … Canada had the highest structural unemployment of all OECD countries” (1987, 223), while John Warnock made the case this way: “Historically, Canada has placed heavy emphasis on the development of natural resources for export. Resources commonly leave Canada in an unprocessed or semi-processed form. The manufacturing end of the production process provides the greatest value added and number of jobs. Resource extraction is highly capital intensive, requires extensive investment in supporting infrastructure, and provides relatively few jobs” (1988, 124–5). Glen Williams repeated a similar argument in his version of Canada’s industrially weak economy, writing that, “historically Canada has sacrificed many potential jobs by emphasizing resource extraction rather than trade in industrial products. As a result, the country stubbornly maintains an unemployment rate near the top of the highly developed OECD countries” (1986, 11). This is a central theme of the new political economy. As in all research, it is important to be careful about making sweeping claims from a small selection of statistics. The research in The Other Macdonald Report did document quite well Canada’s economic problems, and it did attempt to substantiate its claims about Canada’s relatively poor employment record with facts, but these were drawn from an OECD chart that the OECD itself said should not be used for “cross country comparisons.” In the chart the OECD did use for cross-country comparisons, nine of the twenty-four members – Denmark, Greece, Iceland, Ireland, Luxembourg, New Zealand, Portugal, Switzerland, and Turkey – were excluded. All of these are tiny and/or undeveloped industrial economies whose inclusion in a comparison with the major western industrial powers would only have distorted the picture. Among the remaining fifteen, Canada ranked twelfth in 1982 – not a very good performance. But if The Other Macdonald Report had chosen 1981 instead, it would have shown Canada as ranking eighth out of the fifteen and fourth out of the top seven OECD powers, better than Italy and the United Kingdom, tied with the United States, and only 0.2 of a

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percentage point behind France (OECD 1983a, 45; 1983b, 169). Surely it is this comparison with the other six big western capitalist powers that is of the most interest. Since the era of The Other Macdonald Report, the problems with its quite sweeping conclusions have become even clearer. Using subsequent issues of the OECD publication from which the authors of The Other Macdonald Report took their facts, and using the table that puts Canada in a less favourable light than the one designed for cross-­ country comparisons, it turns out that 1982 and 1983 were the worst years of unemployment for Canada relative to other OECD countries. In 1982 Canada’s unemployment rate was the second highest of the top seven OECD economies. By 1985, however, the unemployment rate in Canada was almost identical to that in France, the United Kingdom, and Italy, and by 1986 all three had slipped behind Canada (OECD 1986, 27). In 1988, Canada’s rate was 7.8 per cent, behind that of Japan (2.5 per cent) and the United States (5.5 per cent), roughly equal to Germany’s (7.9 per cent), and ahead of France’s (10.1 per cent), Italy’s (11.0 per cent), and the United Kingdom’s (8.2 per cent) (OECD 1989c, 124). Move the perspective ahead a generation, and still there is no evidence of Canadian weakness relative to the other G7 economies. In the second quarter of 2007, before the Great Recession, Canada’s unemployment rate was 6.0 per cent, behind that in Japan (3.8 per cent), the United States (4.4 per cent), and the United Kingdom (5.3 per cent), virtually the same as Italy’s (5.7 per cent), and ahead of Germany’s (8.6 per cent) and France’s (7.8 per cent). At the end of 2011, after the recession, Canada’s rate stood at 7.5 per cent, trailing only Japan’s (4.8 per cent) and Germany’s (6.0 per cent), but better than that of the United States (9.1 per cent), France (9.3 per cent), Italy (8.5 per cent), and the United Kingdom (8.0 per cent) (OECD 2012). In an attempt to make “estimates of unemployment rates that are more internationally comparable than estimates based on national definitions of unemployment,” the OECD now produces statistics for a Harmonised unemployment rate. In the third quarter of 2014, Canada’s 6.9 per cent rate was noticeably worse than the 3.6 per cent rate in Japan and the 5 per cent rate in Germany, slightly worse than the 6 per cent rates in the United Kingdom and the United States, slightly better than the 7.3 per cent for the OECD as a whole, and considerably better than the double-digit unemployment rates in Italy and France (OECD 2014). The point of this is not to claim that Canada always has had or always will have a better record on unemployment than the other big capitalist economies – there

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are, and will continue to be, periods when Canada’s unemployment rate is higher than that in the United Kingdom, France, and other comparable economies. But there is no evidence in the raw statistics of a structurally different and qualitatively worse unemployment problem in Canada than in the other G7 or OECD countries. Further, if the OECD is to be taken as authoritative on unemployment matters (as The Other Macdonald Report and others do), then presumably its analysis of these data deserves some attention. The OECD cautions against cross-country comparison of unemployment rates, without reference to the specific labour market conditions in each country. Sweden, for example, had remarkably low unemployment rates throughout the 1970s and 1980s, but “labour hoarding and manpower policies” (OECD 1985b, 28) accounted for much of this “better performance.” In other words, a public policy approach biased towards requiring “the public sector to absorb the … labour force” released by the private sector, and an underutilization of employed labour can effectively hide unemployment (OECD 1985c, 25–29). This arguably does represent good social democratic public policy – what the OECD refers to as “labour hoarding” is certainly preferable to having laid-off workers standing in an unemployment line during an economic slowdown – but it does not necessarily indicate that Sweden’s economy was stronger than Canada’s. Rather, what is indicated in both cases is the inability of an economy to employ its workforce fully. Switzerland, too, has had very low unemployment rates going back decades (just 3.7 per cent in 2007, leading up to the Great Recession, and 3.4 per cent in 2011 in the recession’s wake), but this is not in itself a clear sign of economic health. Unemployment rates in Switzerland are kept statistically low through acts of government policy. An important OECD study of Swiss unemployment in the 1980s indicated that “there are two easily identifiable aspects of the Swiss labour market which help to keep the official unemployment rate down.” The first was similar to Sweden’s public policy approach: an “extensive use of short time work during periods of cyclical demand slack” (OECD 1985a, 37). Beginning in 1984, Swiss employers could get government assistance if, rather than laying off workers, they imposed shorter hours – in effect, making a certain percentage of Swiss unemployment disappear. As in Sweden’s case, this particular policy is one that other governments might want to emulate. The second reason for low Swiss unemployment statistics, however, is not based on progressive social democratic governance practices, but

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on narrow, regressive chauvinism. The Swiss economy relies heavily on migrant labour and “foreign workers.” As the OECD study noted, “already in 1960 foreigners represented almost 20 percent of the Swiss labour force.” These foreign workers are “the most affected by cyclical fluctuations in employment. When filling a vacancy, employers are obliged to give preference to job seekers who are residents.” For “foreign workers” who lack permanent status, this means their disappearance from official statistics: “The return of seasonal workers to their home countries after their contracts have terminated prevents the unavoidable increase in unemployment which seasonal activities create in countries without recourse to seasonal guest workers” (OECD 1985a, 37). Swiss unemployment is masked by a reserve army of “foreign” labourers. They do not show up in Swiss statistics because their experience of job loss is not only a layoff, but also a return home, outside the borders of the country, leading to a “sharp fall in the labour force” (28). In short, Switzerland has been one of the world’s leading exporters of unemployment statistics, through the “exporting” of its non-citizen unemployed. Looked at from this angle, the Swiss example is, to say the least, less inviting as a model for Canada to emulate. Comparisons with US levels of unemployment also pose interesting difficulties. Chapter 1 noted the mainstream press’s astonishment that Canada weathered the Great Recession in much better shape than the United States and that unemployment was a much smaller problem in Canada than in the United States. Had they looked carefully at the statistics, however, the media need not have been astonished. The weakness in the US labour market has been there for years. Whole swathes of the US unemployed are invisible to the statisticians. The Monthly Review highlighted one way this happens: In January 2003, official unemployment … was 6.5 percent (non-­seasonally adjusted). However, when those who have recently dropped out of the labor force, as officially defined, and those who are working part-time but desire a full-time job, are added to the number of officially unemployed, the level of unemployment can begin to be seen in its true proportions. By this measure there was a (non-seasonally adjusted) real unemployment rate of 11 percent in January 2003, compared with 10.5 percent a year earlier … This means that there are over 6 million people that have no jobs and want full-time work even though they are not officially considered to be unemployed. (Foster and McChesney 2003, 3–4)

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The United States has a notoriously undeveloped welfare state – indeed, the least developed in the advanced capitalist world. But that does not mean that the US government does not intervene in the economy. For instance, the United States sustains a far higher level of military expenditure than any other country. In 2001 36.5 per cent of the world’s military spending took place in the United States. By 2008, at the end of the Bush era, this had grown to 42.5 per cent. By 2010, two years into the Obama era, it had grown to 44.3 per cent (Stockholm International Peace Research Institute 2010). The US government does intervene into the economy, but it does so in order to create a warfare state rather than a welfare state. Young men and women have less access to social assistance in the United States than they do in Canada or Britain, but they have more access to the military. By the end of the Reagan era and the Cold War, the US war machine employed 2.6 million civilian and military personnel. By 2000 this total had slowly declined to 1.8 million, but with the “war on terror” in the twenty-first century, the totals climbed to just under 2 million (United States 2012a). This large standing army is, in fact, a kind of disguised unemployment. Those of us watching US television in 2004, 2005, and 2006 saw again and again families grieving at the news that their children had died in Iraq. In the Obama era, the images were the same, but the bodies were coming back primarily from Afghanistan. In both cases, those grieving typically were poor, mostly black or Hispanic, working-class families whose sons and daughters had been conscripted by poverty into the army of empire. Unemployment is also hidden in the crowded, appalling gulag that is the US prison system. On 27 October 1994 the US Department of Justice announced that the US “prison population exceeds 1 million for the first time in history” (Beck and Bonczar 1994). In 2002, for the first time, the total surpassed the two million mark (Harrison and Karberg 2003). By June 2006 the total had risen to 2,245,189 (Harrison, Minton, and Sabol 2008). These incarcerated millions have a real impact on unemployment statistics. As Bruce Western and Katherine Beckett argue, the U.S. state made a large and coercive intervention into the labor market through the expansion of the penal system. The impact of incarceration on unemployment has two conflicting dynamics. In the short run, U.S. incarceration lowers conventional unemployment measures by removing ablebodied, working-age men from labor force counts. In the long run, social

154  Escape from the Staple Trap survey data show that incarceration raises unemployment by reducing the job prospects of ex-convicts. Strong U.S. employment performance in the 1980s and 1990s has thus depended in part on a high and increasing incarceration rate. (1999, 1030).

The United States imprisons people at a far greater rate than any other industrialized society – almost five times the rate as Canada, which itself has the second-highest incarceration rate in the western world. Were the United States to imprison people at Canada’s rate, at least one and a half million people who today are prisoners would be added to those hunting for jobs. Hundreds of thousands of prison employees would also find themselves out of work and on the streets, since employment in the “justice system” has risen in lockstep with the number of prisoners. In 1982 there were just over 1.2 million employees in the justice system. By 1999 the figure was just shy of the 2.2 million mark (United States 2001), and by 2007 “a total of 2.5 million persons were employed in the nation’s justice system, an increase of 93% from 1982” (Kyckelhahn 2011, 3). The prison system has the effect of reducing the US unemployment rate by at least two percentage points and possibly more. With this in mind, as Western and Beckett note, real “unemployment in the economically buoyant period of the mid-1990s was about 8% – higher than any conventional U.S. unemployment rate since the recession of the early 1980s” (1999, 1041). Combined with the impact of disguised unemployment in the army, it is probably the case that, even in the booming 1990s, the real US rate of unemployment was similar to Canada’s – in the range of nine per cent. It was a young Friedrich Engels who, in 1844, provided the outline of a historical materialist understanding of the labour market under capitalism. The key was to think of the effect of the unemployed or underemployed – the existence of a reserve army of labour – in helping to regulate the employed: English manufacture must have, at all times save the brief periods of highest prosperity, an unemployed reserve army of workers, in order to be able to produce the masses of goods required by the market in the liveliest months … [I]f at the moment of highest activity of the market the agricultural districts and the branches least affected by the general prosperity temporarily supply to manufacture a number of workers, these are a mere minority, and these too belong to the reserve army, with the single difference that the prosperity of the moment was required to reveal their

Canada as a Principal Economy  155 connection with it … This reserve army, which embraces an immense multitude during the crisis and a large number during the period which may be regarded as the average between the highest prosperity and the crisis, is the “surplus population” of England, which keeps body and soul together by begging, stealing, street-sweeping, collecting manure, pushing hand-carts, driving donkeys, peddling, or performing occasional small jobs. In every great town a multitude of such people may be found. (1975, 384)

In the United States, a large part of this reserve army of labour is partially hidden – the enormous unofficial labour market of undocumented workers from Mexico and elsewhere in Latin America. They are hidden from the statistician, but nonetheless form part of the reserve army of the underemployed and unemployed that helps to regulate the labour market as a whole. The very nature of this category makes it hard to quantify. In 2006 a study by the Pew Hispanic Center estimated that there were anywhere from “11.5 to 12 million unauthorized migrants living in the United States,” amounting to something like an astounding 4.9 per cent of the US workforce (Passell 2006, i–ii). Canada, like Switzerland, has a migrant labour force and, like the United States, an undocumented, illegal, statistically invisible, underground labour market, but the scale in Canada is qualitatively different than in the other two countries. The point is that, whereas in some countries unemployment rates are seriously skewed through deliberate policy decisions or the existence of an invisible economy, in Canada what you see statistically is more or less what you get. In fact, Canadian statistics for the era examined here are among the most reliable in the world. In the neoliberal era, beginning in the 1980s, government budget cuts led to a considerable deterioration in the quality of the statistics gathered by the state in several advanced capitalist countries. In Britain, for example, [the] national accounts … are so riddled with holes and revisions that the true state of its economy is anybody’s guess … Britain is not alone in this predicament. America, too, has become prone to revision after revision of its official numbers. There are two common causes. First, the changing structure of economies makes them more difficult to track … The second blight has been deregulation, which has blocked off sources of data … It may be no coincidence that America and Britain, two of the speediest deregulators, have the loudest complaints about numbers … How might

156  Escape from the Staple Trap Britain’s record be improved? Look at the world’s best official statisticians: Canada, followed closely by Australia, Sweden and Holland. These countries’ systems are centralised with most numbers collected by a single body whose independence is guaranteed by law … Britain’s Royal Statistical Society [is making] … recommendations that draw upon the Canadian model. (Economist 1990b)

We might be at the end of the moment, however, when Canadian statistics can be held up as superior to those collected in other countries. In 2012 the Harper government introduced drastic cuts to Statistics Canada that “compromise the tools used to understand the state” (Bednar and Stabile 2012), but this is an issue for the future, and does not affect the current argument. Twenty years ago the OECD argued that, “with growth rates expected to become more convergent, employment trends in the major OECD regions are expected to become less disparate” (OECD 1985b, 28). There are ways in which these expectations have not played out. In the wake of the Great Recession, several OECD member countries (notably Portugal, Italy, Greece, and Spain) are suffering under extremely high levels of unemployment. But what hasn’t happened is a relative worsening of the situation in Canada. It is not reasonable now, and it was not reasonable in the 1980s, to rest an argument about Canada’s dependent economy upon a supposedly higher rate of unemployment in Canada than in other similar economies. Those are the defensive arguments to buttress the case against the claim that Canada is a jobless wilderness compared with its capitalist neighbours. But the case need not be put in such a defensive manner. It is possible, in fact, to make the case that Canada’s record is the opposite of that claimed by the popular consensus theoreticians: “Canada, exceptional among industrial economies, generated over 1 million jobs from the late 1970s through the mid-1980s … Canadian employment growth … along with the U.S., has led other G7 countries by a wide margin” (Britton 1996, 3). Table 6.1 shows average annual employment growth rates for the G7 countries over the periods 1960–87 and 1988– 2013. As the table shows, between 1960 and 1987 – contemporaneous with the analyses presented in The Other Macdonald Report – Canada and the United States created far more jobs every year, on average, than did the other G7 countries, with Canada’s 2.5 per cent average slightly ahead of that of the United States’ 2.0 per cent. From 1988 to 2013, although the rate of employment creation slowed in both countries, they

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still led the G7, and again, Canada’s average of 1.4 per cent came out ahead of the United States’ 1.0 per cent. Clearly, there is no exceptional job-creation weakness in Canada. Going back to 1960 – a very long time in the history of modern economies – Canada has created more jobs every year, on average, than any other G7 country. One further aspect to this discussion bears examination. The entry of women into the workforce remains an extremely significant factor in assessing relative labour market conditions, and much of the growth in Canada’s civilian employment is due to the rising labour market participation rates of women. This is true now, and was also true in the era of The Other Macdonald Report. From 1960 to 1987, the number of women in the Canadian labour force grew at an annual rate of 4.5 per cent, almost twice the rate of growth of total employment (OECD 1989a, 26). As Figure 6.1 shows, in 1985 the United States, with its share of women in the workforce 79 per cent that of men, led all G7 countries. Canada was in second place, at 74 per cent, France third at 71 per cent. By 2013 France was in first place, with women’s employment rising to 92 per cent of men’s, but Canada, at 91 per cent, was not far behind. The United States was now third, at 89 per cent. Italy and Japan, however, show a markedly different picture. In Italy in 1985, for every two men in the workforce, there was just one woman; by 2013 the percentage had risen, but to just 71 per cent. In Japan women’s employment as a percentage of men’s grew very slowly, from 66 per cent to 75 per cent. If the female labour force participation rates in Italy and Japan were on the scale of that in Canada, the United States, and France, the unemployment rate in those two countries would increase massively. Another way of putting this is that, in Japan and Italy, a very large reserve army of labour still exists in private households; in Canada, the United States, and France, those reserves have been largely called in. Clearly, for women, Canada is a better place to look for work than Italy or Japan. Canada has done a better job of providing alternatives to unpaid domestic labour for women than either of those countries. The entry of women into the labour force at a faster rate in Canada than in those two countries can, of course, result in a higher statistical unemployment rate, but it is not a sign of economic weakness. Rather, it is Italy and Japan, where women have entered the labour force at a much slower rate, that show signs of relative economic underdevelopment. None of this says anything about the kinds of jobs that have been created. A 1980s Statistics Canada report argued that “[o]ne-third of all new jobs created between 1981 and 1986 paid $5.24 an hour or less …

158  Escape from the Staple Trap Table 6.1.  Average Annual Employment Growth, G7 Countries, 1960–2013 1960–87

1988–2013 (percentage change)

Canada United States France United Kingdom Germany* Italy Japan

2.40 1.90 0.40 0.40 0.30 0.10 1.10

1.46 0.93 0.71 0.59 0.41 0.20 –0.04

* West Germany until 1990; excludes 1991 to eliminate one-year distortion arising from reunification of East and West Germany. Sources: Author’s compilation from data available in ILO (2014a); OECD (1989a, 30).

Many were in the service sector, but the pattern affected all industrial and occupational groups the study found. The rise in poverty-wage jobs among the young occurred even though the proportion of young people holding full-time jobs declined over the period from 23 percent to 18 percent” (Myles and Wannell 1988, quoted in Globe and Mail 1988b). Further, through the 1980s, there was a dramatic increase in the proportion of all employment that was part time, rather than full time (OECD 1985e, B.9). In 1976 Canada’s unemployment rate stood at 7.1 per cent, with just over 10 per cent working part time. By 1984 the unemployment rate had risen to 11.3 per cent, but the number of parttime workers had jumped to 15.4 per cent, while another 1.0 per cent were on “short time,” leaving more than 25 per cent of Canadians who were willing to work either unemployed or in less than full-time employment (Webber 1985). This trend was equally true for other OECD countries, however, and the argument in this book is a comparative one. Much of the job creation in all the advanced capitalist countries has been, in part, a feature of the services sector “McJobs” boom. This might be evidence of a profound weakness in modern capitalism, but it cannot be advanced as evidence of a particularly Canadian weakness. Chapter 3 illustrated the steady growth in service sector employment in  both Canada and the United States, the trend essentially identical in  both countries over quite a long period of time. A portion of the “McJobs” in both countries can be found in the “hotel and restaurant” category of occupations. In 2008 workers in that category accounted for

Canada as a Principal Economy  159 Figure 6.1.  Women in the Workforce as a percentage of Men, G7 Countries, 1985–2013

Source: ILO 2014a.

6.27 per cent of the Canadian workforce and 6.74 per cent in the United States (ILO 2014b) – that is, there was no qualitative difference between the two countries.

Output per capita What about the arguments built by The Other Macdonald Report and others around the question of output per capita? Drache and Cameron wrote that, “[c]ompared to other major OECD countries, Canada has slipped from one of the highest in per capita output to one of the lowest. In 1960 Canada’s gross domestic product per capita ranked second only to the U.S. By 1975 Canada ranked fourth and by 1979 it had fallen to twelfth” (1985b, 11). The Other Macdonald Report’s figures end at 1979, and it is true that, in that year, Canada ranked twelfth of fifteen – the lowest before or since – but it still led Italy, the United Kingdom, and Japan among the top seven OECD countries. By 1981, however, Canada was back to sixth place out of all twenty-four OECD countries, trailing

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only the United States in the top seven. By 1983 Canada was fourth, once again trailing only the United States in the top seven (OECD 1984, 60–1; 1985e 73–4; 1988, 116–17). These GDP per capita figures are based on “current prices and current exchange rates.” Chapter 2 outlined the way international comparisons can be seriously distorted when based upon exchange rates, which, in the modern era, constantly fluctuate. The apparent volatility of Canada’s ranking in terms of GDP per capita, outlined above, is accounted for entirely by the use of current exchange rates as the basis of comparison. From the mid-1980s on, the OECD began offering GDP per capita comparisons based on purchasing power parities (PPPs). The 1987–88 edition of OECD Economic Surveys: Canada displayed both, and the one chosen as a standard of international comparison made quite a difference: using GDP per capita based on current prices and current exchange rates, Canada ranked eighth; using GDP per capita “at current prices using current PPPs,” Canada ranked second, trailing only the United States (OECD 1988, 116–17). Figure 6.2 shows GDP per capita figures, based on PPPs, in 1993 and 2013 for the G7, the world, and a World Bank category called “high-­ income: OECD” (World Bank 2014a). The OECD has become a quite heterogeneous body over the years, including core countries such as  Canada, the United States, and Germany, but also extending its ­membership to countries very much outside the core of the world system, such as Mexico, Turkey, Poland, Hungary, and Chile. Measuring Canada – one of the richest countries in the world – against any of these (as we saw earlier in comparisons with Mexico) exposes vast differences between the comparators but little else. The World Bank’s “highincome: OECD” category thus is useful as it allows for a comparison of “like with like” – Canada with other rich, industrialized economies. At the core of the left-nationalist framework, as applied to Canada, is a deep belief that the Canadian economy has structural weaknesses that over time will lead it to perform less well than the other advanced capitalist countries. Figure 6.1 shows no such evidence of relative underperformance. GDP per capita in Canada, the other G7 countries, and “high-income: OECD” countries is far above the average of the world as a whole. Among these rich countries, in both 1993 and 2013, the United States had the highest GDP per capita, with Germany second and Canada third. Canada’s GDP in both years was higher than the other four members of the G7, and higher than the average for all “high-income: OECD” countries. What is striking about these statistics

Canada as a Principal Economy  161 Figure 6.2.  GDP per capita, G7 Countries, “High-income: OECD,” and World, 1993 and 2013 (purchasing power parity, in constant 2011 international $)

Note: “An international dollar would buy in the cited country a comparable amount of goods and services a U.S. dollar would buy in the United States. This term is often used in conjunction with Purchasing Power Parity … data” (World Bank, n.d.). Source: Author’s compilation from data available in World Bank (2014b).

with respect to Canada is not weakness, but its impressive show of continuing strength relative to both the G7 and “high- income: OECD” economies. In other words, when measured in terms of GDP per capita, there is no evidence of structural weakness in the Canadian economy compared with that of the other major developed countries of the western world.

Productivity and international competitiveness The third set of arguments has to do with Canada’s productivity growth and what researchers for the United Auto Workers (UAW, since that writing becoming first the Canadian Auto Workers, now part of

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UNIFOR) and others associated with The Other Macdonald Report pointed out was the related question of Canada’s international competitive position. For them, it was commonplace to claim that Canada’s performance was poor in both these related areas: “Low productivity growth has been a problem in most OECD countries since the early 1970s, but Canada’s performance has been especially poor. Between 1973 and 1980 output per employed person actually declined by 0.2 percent, while the U.S., the U.K., West Germany, France, Italy, and Japan all increased their level of output per employee” (Muszynski 1985, 12). The claim of “low productivity growth” was based on information culled from a chart in the OECD Economic Outlook for December 1982 (OECD 1982, 39). What the OECD was measuring here was real value added per person employed in industry – and, indeed, by that measure, Canada’s was the only negative growth figure among the top seven OECD countries that year. But figures in an OECD historical survey published in 1984 tell a completely different story. The Canadian figure was negative for the period from 1973 to 1980 because of a 1.7 per cent decline in 1980, but from 1973 to 1979 Canada’s performance was not worst, but second best, tied with that of France and trailing only that of Japan among the top seven (OECD 1982, 39; OECD 1985d, 45). The key measure of productivity is not, however, in the quite general category of industry, but in the more specific category of manufacturing. The OECD definitions for these two categories are based on the International Standard Industrial Classification (ISIC) categorization of economic activity. Industry is a broad category that adds mining and quarrying and electricity, gas, and water to the more specific category of manufacturing proper. The manufacturing category excludes mining, quarrying, electricity, gas, and water. It groups together fabricated metals, machinery, and equipment industries; basic metals industries; non-metallic minerals industries; chemicals, petroleum, coal, rubber, and plastics industries; paper, paper products, printing, and publishing industries; wood, wood products, and furniture industries; textiles, wearing apparel, and leather industries; food, beverages, and tobacco industries; and a small selection of miscellaneous industries (OECD 1989b, 114–17). The new political economy agrees that Canada is industrialized, but argues that this industrialization is weaker the closer one gets to the “heart” of manufacturing. Canada is strong in semiprocessed goods, weak in finished manufactures; strong in fabricated materials, but weak in end products. By this paradigm of the new political economy, one would expect to find a poor performance in the

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more specific category of “manufacturing,” after mining and quarrying, electricity, gas, and water are excluded. We earlier cited the research of Maizels showing that, in the 1950s, Canada and the United States led the world by quite a substantial margin in the absolute productivity of their manufacturing sectors. From 1970 until 1997 Canada actually led the United States and all other G7 economies in manufacturing productivity – measured as value added in manufacturing per person employed using US dollars at constant 2005 prices. In the years since, that has changed. By 2013, at $120,000 per person employed, the United States was back to leading the G7 by a substantial margin. Japan was second, at just over $90,000, while Canada, France, Germany, and the United Kingdom were all roughly the same, at between $83,000 and $85,000. Italy was last, at just over $62,000 (ILO 2014b; United Nations 2014a). As we will see in Chapter 8, however, although manufacturing employment has declined slightly in Canada, it has been slashed by millions in the United States. The higher productivity figure in the United States, then, represents not so much manufacturing progress as neoliberal ruthlessness: the systematic elimination of millions of less productive manufacturing jobs. Productivity can be measured in terms of production per person employed, or in terms of the productivity of the manufacturing sector as a whole: the rate of change in value added (inflation adjusted) for overall manufacturing production. As Table 6.2 shows, over the entire period from 1971 to 2013, Japan led the G7 with an annual average increase of 2.96 per cent, followed by the United States – and then Canada. In the 1970s Canada’s 3.66 annual average growth rate was more than double that of the United States. In the 1980s Canada’s rate trailed the United States’ by a small amount, and in the 1990s it led by a small amount. The first decade of the twenty-first century was very hard on Canadian manufacturing, and is the one decade in which Canada’s rate of growth of value added in manufacturing trailed all the other G7 countries. In the years since, however, Canada’s recovery has trailed only that of Germany. Conclusion: An Empirical idée fixe The weight of the evidence is quite overwhelming, yet there is a ­powerful empirical idée fixe at the heart of the new political economy that insists that Canada’s economy is characterized by a truncated manufacturing sector, arrested industrialization, and its status as

164  Escape from the Staple Trap Table 6.2.  Change in Value Added in Manufacturing, Top 7 OECD Countries, 1971–2013 Japan

United States

Canada

4.57 4.85 0.97 2.30 0.19 2.96

1.82 2.58 4.11 1.37 0.81 2.35

3.66 2.50 4.23 –1.73 2.16 2.17

Italy

France

Germany United Kingdom

(average annual % change) 1971–80 1981–90 1991–2000 2001–10 2011–13 1971–2013

6.29 2.23 1.37 –0.49 –1.59 2.08

3.21 1.44 2.52 0.58 1.21 1.89

1.85 1.70 0.63 1.55 2.92 1.54

1.36 1.96 0.86 –0.75 0.18 0.81

Source: Author’s compilation from data available in United Nations (2013b).

hewer of wood (or pumper of oil) for the US empire. In the late 1960s and early 1970s, the key concept that left nationalists used was “dependency”; in the 1970s and 1980s this was replaced by “sub-­imperial,” “semi-industrial,” and “rich dependency”; in the twenty-first century the term of choice has been “semi-periphery,” and in some quarters “resource colony.” We are told that social movements in Canada need a “nationalist resistance movement” to campaign for the nation’s sovereignty against a US takeover – even though US control of the economy is declining. We are told that the Canadian economy is being “hollowed out” – even though Canadian corporations purchase more abroad than non-resident corporations purchase in Canada. The entirety of the CPE tradition is enmeshed in an impossible ­hybridity. None of its practitioners could pretend that it was possible to apply a Third World framework holus-bolus to the Canadian reality. The Third World was very poor – one could see, taste, and smell the horrors of life in the slums of São Paulo, Mexico City, Lima, Manila, or  Istanbul. Canada, however, was very rich. So the left-nationalist ­dependency theorists, the neo-Marxist critics who accepted the “weak Canada” starting point, and the semi-periphery analysts of the twentyfirst century have had to improvise to make the analysis fit, with terms such as “wealthiest colony,” “rich dependency,” and, most recently, a forced and flawed application of the semi-periphery category. But why? Surely the reason they identified dependency as an issue of concern was precisely because of underdevelopment. If underdevelopment did not exist, what would be the point of retaining the “dependency” label in any sense? Does its use in the Canadian context not

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gut the concept of any meaning? This is even more true of the “neocolony,” “semi-colony,” “wealthiest colony,” “rich dependency,” “semiperiphery,” and “resource colony” labels that have emerged over the decades. Surely the assertion of sovereignty was an urgent question for the deeply oppressed colonies of European and North American imperialism because of the very deep ways this imperialism prevented their development. It is precisely because imperialism and colonialism crushed and distorted development throughout Africa, Asia, and Latin America that the twentieth century witnessed massive upheavals in those oppressed areas of the world. Surely awareness of the very simple, well-known fact that Canada is extremely developed is a “trout in the milk”: strong evidence that Canada does not fit, in any way, into any of these categories of national subordination. Canada’s wealth, in fact, suggests precisely the opposite. Europe and the United States became rich, in large part, through colonialism and imperialism. This is at the heart of the world systems theories ­surveyed in Chapter 2. Do not the similarities – in class structure, wealth, and levels of development – visible in any comparison of Canada, the United States, and the other G7 countries – suggest that Canada’s wealth and power might have a similar source? It is not the only source – this book has suggested that Canada’s avoidance of a permanent arms economy is also a key factor. But surely another critical factor is “internal colonialism.” Drive from southern Ontario, up over the Great Lakes, and into northern Ontario, and you feel yourself travelling from a central core into a partially settled and conquered periphery. Canada is indeed a hybrid, but not in the way much of Canadian political economy suggests. It is a hybrid of a national state and a conquered and settled near-abroad, if one can so characterize the largely indigenous lands of Canada’s North – a “near abroad” of enormous wealth and strategic importance that, for historical reasons, is under Canada’s political control. Canada, then, is both nation and empire – an empire that, in its scale and breadth, would have made the Romans blush. What if we look at Canada from the perspective, not of its presumed subjugation by others, but of its own subjugation and settlement of the land of its original peoples? Some have made this conceptual move. “Aboriginal critics … have strategically turned to postcolonial theory as a way of expressing the continued legacy of colonialism for Native peoples in Canada” (Sugars 2004, xiv). Perhaps the next step for those

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of us in the CPE discipline is to take this post-colonial literature seriously, and begin to see the Canada constructed by the “settler-invader.” In any case, at the very least we should recognize, once and for all, that Canada is a well-established member of the core of the world system and that, in such a principal economy, it is time to move away from calls for things such as “nationalist resistance movements.” Progressive resistance to neoliberalism and globalization will take many forms in the states that provide the frameworks in which principal economies develop. Nationalism – whether German, French, or Canadian – will not be one of those forms.

7  A Very Canadian Bourgeoisie

THE CANADIAN CAPITALIST CLASS AND “SUBCONTRACTED” SOVEREIGNTY A crucial aspect in much of Canadian political economy (CPE), in both its classic and contemporary moments, has been a tendency to downplay the existence of elite-driven, independent capital accumulation in the Canadian economy. There is a muted version of this in Levitt (1970, 2002), who suggested that inadequate entrepreneurship was the root of Canadian underdevelopment, a strong version that applied the term “comprador” to categorize the Canadian economic elite, and a related assertion that Canada did not possess an independent capitalist class. None of these is convincing. An independent Canadian elite has existed for a considerable period, and in fact was central to the “subcontracted” sovereignty by which the Canadian state was established in the nineteenth century. Entrepreneurship The second chapter of Kari Levitt’s key book from the classic period (1970) is misleadingly entitled “The Old Mercantilism and the New.” Its central idea has little to do with mercantilism, but with the author’s view of the source of economic growth and development. She approvingly paraphrased Joseph Schumpeter’s argument that “development” should be “defined exclusively in terms of endogenous entrepreneurial initiative and innovation” (Levitt 2002, 25). The chapter, then, unfolds as a hymn of praise to the economic virtues of innovation. In a “dependent” relationship, Levitt argues, innovation inevitably is stunted in the dependent society and becomes centred almost ex-

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clusively in the metropolis. “When the emphasis is placed on endogenous entrepreneurial initiative, metropolitan economies are seen as sources of development (active); hinterland economies as places of production (passive)” (26). In Canada’s case, the “Canadian entrepreneurs of ­yesterday” became transformed into “the coupon clippers and hired vice-presidents of branch plants today” (39–40). Interwoven into this analysis is a very particular view of the source of profit. “Profit,” according to Levitt, “is the result of innovation and the origin of the accumulation of wealth” (28). So, without entrepreneurs, there will be a tendency towards economic decline. But when Levitt tried to apply this analysis, the confusions multiplied. Based on her view that development is bound up with entrepreneurship and that entrepreneurship migrates towards the centres of ownership and control (that is, towards the United States and away from Canada), Levitt argued that “[p]resent-day Canada may be described as the world’s richest underdeveloped country” (25, emphasis added). Levitt was a scholar who studied the Caribbean. She knew very well that there had to be some empirical manifestation of underdevelopment. In the Caribbean, the argument about dependency/underdevelopment was bound up with an explanation of that region’s gross economic inequalities and terrible poverty. The reality in Canada, of course, was (and is) very different. And if there was no economic consequence – in the sense of poverty and a low standard of living – to the “underdevelopment” of Canada, it would have severely weakened her case. So she reduced the definition of underdevelopment specifically to the underdevelopment of entrepreneurship, rooted in “the branchplant nature of Canada’s economy,” which was “likely in the not-solong run to involve a serious loss in the material quality of living” (33). Canada was not poor – yet. But the underdevelopment of Canadian entrepreneurship would lead to poverty in the future. The trouble is that, half a century on, this “serious loss in the material quality of living” has yet to happen. That is not to say that there have not been moments when living standards have declined. A wages offensive opened up in the mid-1970s and saw wage levels steadily decline into the 1990s. An attack on the social wage through the 1980s and 1990s severely affected the living standards of working Canadians. But they shared this experience with workers in the United States, Europe, and elsewhere in the advanced capitalist universe. Living standards declined, not because of dependency, but because of capitalist crisis and neoliberalism. The decline still left living standards in Canada, the

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United States, western Europe, and Japan far above those in the real centres of underdevelopment in that section of the planet commonly called the Third World or the global South. Chapter 4 documented Levitt’s (mistaken) claim that the United States was on a trajectory to massively expand its hegemonic position in the world economy. Here, too, a large part of her error is linked to her analysis of the role of entrepreneurship. “[W]hat gives the United States the capacity to compete in world markets despite its high wages is its ability to produce a steady flow of new products” (28). This ability, she argued, was rooted in its decisive lead in “entrepreneurship.” Yet, the United States’ decline relative to its rivals – now clearly visible in the 21st century – has been inexorable. At the high point of US dominance, was its lead really because of its marvellously innovative entrepreneurship? What of the vast literature on the development of monopoly capitalism and its overt and covert suppression of innovation? We are a car-dependent society, not because the automobile is an inherently superior form of transportation, but because big car companies made it their business to buy up and mothball streetcar companies in the key decades when car dependence was an open question. We use oil as our principle energy source because, as Anthony Sampson has shown, the oil industry has operated as a cartel for a century to suppress competition and innovation (Sampson 1991). We have massive nuclear facilities in place throughout North America and Europe as a spinoff from the military-driven development of the nuclear bomb. Microsoft and Apple dominate the world’s computer systems because Bill Gates and Steve Jobs found ways to borrow other people’s innovations, and used their marketing and monopoly power to enforce their computer products on the entire world. The reality of modern capitalism is of big, bureaucratic monopolistic firms and states using market domination, brute force, bribery, and intimidation to expand their influence and protect their profits. This has been the reality of capitalism for a very long time. Levitt’s argument, putting Canada in the category of the “underdeveloped” world solely on the basis of a notional underdeveloped entrepreneurial class, is quite unconvincing. A Comprador Elite? Levitt’s specific theory of underdeveloped entrepreneurship applied frameworks suitable to the global South to Canada’s global North reality. This is a recurring weakness in CPE, as we saw in the hollowing-out

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debate reviewed in Chapter 4. It is also quite visible in the manner in which the terms “Washington Consensus” and “comprador” have been deployed in current CPE discourse. Both have meaning when used to analyse certain countries in the global South, but are misleading when it comes to Canada. In the important CPE collection, Whose Canada? (Grinspun and ­Shamsie 2007), both Duncan Cameron (2007, 66) and Murray Dobbin (2007, 501) use “Washington Consensus” to describe the imposition of neoliberal policies in Canada. This poses difficulties. The term was not developed to analyse advanced capitalist economies such as Canada’s, but the debt-ridden, dependent economies of Latin America (­ Williamson 1990). The institutions that applied the “Washington Consensus” to restructure Latin American economies were principally the International Monetary Fund (IMF) and the World Bank. But Canada, unlike the countries of Latin America, plays an important role in shaping policy in both bodies. This parallels the story told earlier about Canada’s elite role in the G7 and the World Trade Organization. In 2011 only 9 of the 187 members of the IMF had more votes in shaping policy than did Canada (IMF 2011). Some of the countries with less clout than Canada had far bigger populations, including the Russian Federation, India, Brazil, Spain, Indonesia, Nigeria, Iran, Turkey, Pakistan, the Philippines, and Bangladesh. In 2015, out of the 188 members of the International Bank for Reconstruction and Development, part of the World Bank, again only 9 members had more votes than Canada (World Bank 2015). Two of those nine – China and India – are the most populous countries in the world, and as recently as 2010 Canada had the same number of votes as they (World Bank 2010). Canada is not a victim of the “Washington Consensus.” It is among the very small group of countries at the top of the hierarchy that shapes and implements the policies of the “Washington Consensus.” Consistent with this misuse of “Washington Consensus” is Dobbin’s description, in particular, of Canada’s ruling elites as “a comprador class – both economic and political – that has always had limited loyalty to the idea of the Canadian nation, grudgingly accepting nationbuilding policies only when it suited its narrow economic interests” (2007, 501). Properly used, “comprador” can be used to real effect in analysing the massively oppressed countries of the global South, and its use does have a long pedigree in CPE – Wallace Clement (1975) used it as an embedded part of his taxonomy of the Canadian capitalist class.

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But long pedigree or not, using such a term in the Canadian context is completely misleading. As Dobbin points out, comprador “has its origins in China.” He gives it a very simple definition, arguing that “comprador class” “refers to any national economic elite that enriches substantially itself through selling out its own country’s assets and wealth to foreigners” (2007, 526). When applied to the oppressed countries of the global South, however, it connotes much more than this. In an analysis of Egypt, Patrick Clawson summarized what he called neo-Marxist understandings of the comprador bourgeoisie as “the large bourgeoisie based on trade and landownership … said to be tied to foreign capital, and totally reactionary.” They exist in sharp contradistinction to “the ‘national bourgeoisie’ – smaller capitalists who are developing industry and whose interests are antagonistic to imperialism” (1978, 21). Compare this with the China to which Dobbin refers, where “comprador” first emerged in left-wing analysis through the writings of Mao Zedong. In 1926, describing China’s emergence from the devastation of European imperialism, Mao argued that the country was “economically backward and semi-colonial.” In this situation, the “landlord class and the comprador class are wholly appendages of the international bourgeoisie.” These classes “hinder the development of her productive forces.” They “always side with imperialism and constitute an extreme counterrevolutionary group” (Mao Tse-tung 1965). How is this to be applied to Canada in the twentieth century, let alone the twenty-first? Does Canada have a comprador class that is “hindering the development of … productive forces?” For Mao in the 1920s, the term was part of a passionate call to arms in the world’s largest nation and one of its oldest and proudest civilizations, reduced to penury through its encounter with European imperialism. In contrast, Canada’s forces of production have developed to the extent that it is among the richest places on earth. Likewise, the landlord class in China, Egypt, and Latin America was a remnant of proto-feudalism, profoundly resistant to urbanization, industrialization, and the development of a nationstate, and a barrier to economic development. Every anticolonial movement of the past two centuries has had to address multiple problems, including foreign domination and the reactionary power of the landlord class. But the only equivalent in Canadian history would be the seigneurial class in Quebec, preserved by the British after the Conquest, but whose power was basically broken by the

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time of Confederation. What of the rest? Does Canada possess a deeply reactionary pro-imperialist comprador class, aligned with (US) imperialism, and a small, but progressive, “national” bourgeoisie? In Canada is there a group of small capitalists that is having a hard time moving forward and “whose interests are antagonistic to imperialism”? Of course that makes no sense. Are we to choose Magna over General Motors, Blackberry over Microsoft? All this has a very odd, quite exotic ring to it. How did a discourse centred on “comprador” emerge into Canadian political economy? A clue to the puzzle comes from one of the first major applications of the term in the public CPE literature. In 1974 Wallace Clement wrote a little essay with an intriguing title: “The Canadian Bourgeoisie – Merely Comprador?” (published as Clement 1977). Intriguing, because it implied the existence of an interlocutor, of someone who was making the extreme case that the Canadian bourgeoisie should be understood as merely comprador. Clement constructed a careful argument to demonstrate that there were sections of the Canadian capitalist class for whom the term “comprador” was inappropriate, while clearly accepting the term as nonetheless useful for certain other sections of the Canadian capitalist class. It is an interesting article, and avoids many of the problematic formulations of the classical dependency school. But we never actually learn the identity of the interlocutor, of the person or school of thought promulgating the extreme argument about Canada’s comprador elite. A little knowledge of the political context gives a clue to the identity. The 1970s CPE school did not emerge simply in the context of dependency theory and Liberal Party nationalism, the two sources emphasized at the beginning of this book. The 1960s saw an explosive radicalization in Canada and throughout the capitalist West. One big thread of that in Canada’s case was a new left, deeply influenced by events in what was known as “communist” China. When China moved into ­opposition to the Soviet Union in the early 1960s, many thousands of  people on the left began to identify with China and the brand of Marxism associated with Mao Zedong. This Mao-influenced Marxism, when it entered Canadian politics, brought the term comprador with it. In all probability, this is the missing interlocutor in Clement’s piece. All the political organizations associated with this radicalization have long departed, but their theoretical orientation has proved more durable than their organizational structures.

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The “first wave” of what was called “antirevisionism” emerged in a split in 1964 from the Communist Party of Canada. A key component of this wave was “Canadian nationalism … The relationship of Canada to its southern neighbour was that of a ‘hinterland’ to a ‘metropolis.’ Canada was, in effect, a neo-colony of the United States.” There would need to be “an anti-imperialist struggle that would unite a broad ­stratum of Canadian society, including non-comprador elements of the  capitalist class, against U.S. imperialism” (Encyclopedia of AntiRevisionism n.d.). One wing of this movement, with which Jim Laxer had some association, argued that “the upsurge of Canadian nationalism attendant upon the Centennial Year (1967) could be extended and connected with resentment against the cultural and economic dominance of Canada by the U.S., and with the liberation struggles of colonial peoples” (Barker 1984). It is in the literature of this period that “comprador,” and all its conceptual implications, is thoroughly integrated into Canadian political economy: [W]hen did an independent national bourgeoisie seize control of the country from the comprador bourgeoisie and their imperialist masters? The answer is, never. We have not exchanged a comprador bourgeoisie for an independent national bourgeoisie as our ruling class – our comprador ruling class has merely exchanged foreign masters … Canada has always been a colony … We do not have and never did have an independent national bourgeoisie as our ruling class. The dominant Canadian bourgeoisie has always been the comprador bourgeoisie, a bourgeoisie closely tied to and in the service of foreign interests. (Progressive Workers Movement 1970)

Citing this literature is a little strange. Its language is almost otherworldly. Interestingly, though, its key conceptions have retained a powerful hold on sections of the CPE mainstream. Those associated with this strong, very linear, and exotic assertion of the role of a “comprador” bourgeoisie in Canada, are likely the missing interlocutors for Clement’s 1974 essay. A serious theorist, he did then – and, of course, in his several subsequent books – move beyond this kind of one-sided analysis, but not completely. In retaining “comprador” for even a section of the Canadian elite, he again does the undo-able, collapsing the experience of a global North, G7 power into that of an oppressed colonial or neo-colonial state. This move cannot be made for Canada any more than for Germany.

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Comprador elites have frustrated the modernization and development of dozens of global South countries. Arguably, for instance, a comprador elite – oriented towards shifting resources out of the country and to the global North – was behind both the attempted coup d’état against Hugo Chávez in Venezuela in 2002 and the subsequent capital strike. It would not be illegitimate in 2002 to identify, for example, the upper-management personnel of Venezuela’s big oil company, PDVSA, as comprising a “comprador” section of the Venezuelan elite, misusing its power to direct huge swathes of surplus out of the country. Breaking the hold of such comprador elites has been a continuing challenge in Venezuela, Bolivia, and much of the global South. Chávez broke the back of the capital strike in 2002–2003 by firing 18,000 employees of PDVSA, including most importantly, many senior executives who had ordered the strike (Canada 2004; Kellogg 2015). But can we really find any meaningful parallel in the Canadian experience? To ask the question is to acquire the answer. It is impossible to make an analogy between Venezuela’s Bolivarianism – up against global-North-oriented comprador elites – and Canadian nationalism up against some version of that in Canada. Gordon Laxer has made the attempt, arguing in 2008 that nationalisms have developed in waves – some progressive, some reactionary – and linking the progressive Canadian nationalism of the 1960s to the anticolonial upsurge of that era. He acknowledges that this wave receded and that problematic features of Canadian nationalism emerged, but in the twenty-first century, with the revival of economic nationalism in Bolivia, Venezuela, and Ecuador, this has meant that “progressive versions” of Canadian nationalism “are once again predominant.” Laxer is understandably hesitant to stretch the analogy between twenty-first-century Canadian nationalism and Venezuelan Bolivarianism too far: “[A] Bolivarian revolution is not on the agenda in Canada” (2008, 113–14). His hesitation is well placed – the analogy does not make any sense. From the standpoint of Venezuela and Bolivia, Canadian elites are very much those of the global North with which the comprador classes of those two countries are allied. Canada’s elites, whether working in Canadianowned or US-owned corporations, are the very opposite of a comprador elite. They are the instruments of oppression in the global South, transmitting the fruits of that exploitation to the global North, to both the United States and Canada. The use of “comprador” is part of the continuing theoretical move in CPE that transposes the Canadian reality from the global North to the

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global South. The theme of this book is that it is impossible to maintain that Canada is either economically backward or semi-colonial. Canada is one of the richest countries on the planet and, in many ­regions, is seen, not as imperialized, but as the imperialist (Gordon 2010). Terms useful to the analysis of the global South – such as “Washington Consensus” and “comprador” – lead to confusion when applied to the Canadian context, just as they would if anyone took the odd step of applying them to France, Germany, or the United States. Trying to fit the Canadian reality into the framework of national oppression means a constant and recurring misunderstanding of the motives and trajectory of the Canadian capitalist class, which is not a victim of neoliberal restructuring but one of its chief architects on an international scale. An Independent Canadian Capitalist Class Along with “comprador,” another surviving artefact from the 1960s is the related and widely accepted argument that Canada does not have an independent national bourgeoisie. The importance of this viewpoint is shown by its ubiquity, not simply where it would be expected (among left nationalists), but where it would be least expected. Leo Panitch is one of the most prominent historical materialist critics of left nationalism, but on this question he hews closely to the orthodox CPE position: [A]ll the attempts by previous governments to address our dependency – from the Gray Report, to the establishments of the Foreign Investment Review Agency, to tax breaks for investing in Canadian films, to the National Energy Program – failed to achieve their main purpose of encouraging the development of a national bourgeoisie in this country. A national bourgeoisie is one that takes as its goal the accumulation of capital with a distinctive Canadian polity, economy and culture as its base. … Without such a national bourgeoisie, no capitalist society or political regime can escape dependency. (Panitch 1988, 14)

The empirical evidence offered in this book clearly shows the weakness of this argument. The hollowing-out discussion in Chapter 4 should be enough to dispel it. The high levels of Canadian corporate activity abroad – buying up and starting enterprises outside Canada – more than make up for the non-resident investment taking place in Canada.

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Canada’s foreign direct investment (FDI) profile is precisely the opposite of that predicted by the mainstream CPE tradition, and of what one would expect of the strange economy of the CPE imagination: an advanced capitalist economy without its own national bourgeoisie. Political economy for the twenty-first century needs to take place within a framework that takes these facts seriously. A perspective that understands Canada’s full membership in the advanced capitalist world of the global North is critical. In the global South, FDI is often a tool with which to establish imperialist control. In an advanced capitalist country, it is simply a mechanism by which capitalists acquire money, which they invest to increase their wealth and power. There is foreign investment in the Canadian economy, but there is also a tremendous amount of Canadian capitalist investment. The Canadian capitalist class is not selling out the economy at the behest of the US imperialist power, but behaving as capitalist classes do all over the advanced capitalist world: buying and selling to maximize corporate profits and class power. Canada has its own capitalist class, with its own interests, its own projects, its own pursuit of profit. The fixation on non-resident ownership – on the part of a nationalistoriented media, leaders of Canadian industry, or left-nationalist political economists – greatly distorts the image of Canadian capitalism in the world economy. Often this involves ideologically driven choices as to what to emphasize in media coverage of these issues. In summer 2007 the mainstream press highlighted again and again concerns about the hollowing out of the Canadian economy. But in the same pages, with less emphasis, one could read a very different story. That year Talisman had just discovered 400 million barrels of oil in Alaska (Ebner 2007), Onex was trying to buy a stake in Australia’s Qantas Airways (McLeod 2007a), the Ontario Teachers’ Pension Plan was investing $1 billion in Chile’s water and sewage industry and participating in a bid to buy a big stake in Birmingham International Airport (McLeod 2007b,c). And often a “foreign” takeover is not as foreign as it seems. Before Canadian icon BCE Inc. (Bell Canada) was purchased by a consortium that included the Ontario Teachers’ Pension Plan, US-based Cerberus Capital Management was arranging financing to lead an acquisition bid for BCE. Would this not qualify as a “hollowing out” of corporate Canada? Before one can draw such a conclusion, one needs to examine the details of the bid. To assist its acquisition, Cerberus lined up a few partners – CanWest Global Communications, the Hospitals of Ontario Pension Plan, and OPTrust, which manages pension money

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for the Ontario Public Service Employees Union (Willis et al. 2007) – all pre-eminent representatives of Canadian capitalism. During the peak of the controversy surrounding the pending sale of Alcan, documented in Chapter 4, the front page of the business section of the Toronto Star (8 May 2007) provided an extraordinary example of this ideologically driven media coverage. The lead story said, in a big headline, “Alcan buyout must be good for Canada, Harper vows” (Whittington 2007). But another story equally could have been chosen as the lead: the proposal by Canada’s Thomson Corp. to buy Reuters for the huge sum of $17 billion, “a move one observer described as a ‘monumental transaction’” (Sorensen 2007). In fact a third story could have been highlighted. That same day news broke about a proposal by a Canadian firm, Frank Stronach’s Magna Corporation, to take over Chrysler (Van Alphen 2007). In the end the takeover did not happen. Despite teaming up with Gerry Schwartz’s Onex Corp, Stronach lost out first to Cerberus Capital Management, then to Fiat. But it is worth saying a few words about both Magna and Onex in this context. Stronach’s corporation is a huge player on the world stage. In 2007, at the time of the hollowing-out debate, Magna had 235 manufacturing facilities and 62 product-­ ­ development and engineering facilities around the world – with plans to build 300 plants in Russia in the next ten years (Keenan 2007). Stronach’s Canadian credentials do not make him any less a corporate capitalist than his US counterparts. He is well known as a skilful employer who usually is able to keep unions out of his workplaces. And in the run-up to the Chrysler bid, he brought on board a very interesting partner, Oleg Deripaska, who purchased a stake in Magna for US$1.54 billion (Humber 2007). Deripaska was of the generation of Russian billionaires who became fabulously wealthy through the fire sale of state enterprises after the collapse of the Soviet Union in 1991. This wealth – gained at the expense of the misery of Russia’s workers, whose life expectancy dropped spectacularly in the 1990s – was now being used to expand Stronach’s corporate empire. Canada-based Onex is no minor player in Canadian capitalism: in 2010 it was Canada’s tenth-largest corporation by revenue ($25 billion). It posted a slight loss that year, but in 2009 brought in $4.6 billion in profits (Financial Post 2011). Specializing in private equity buyouts, this Canadian-based company has the same anatomy as any such company based in the United States. One reason some were hoping for a Magna/ Onex acquisition of Chrysler is that the alternative was likely to be a

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US-based “asset stripper.” Alex Taylor, a US auto industry observer, wrote in his blog: “Does anyone really expect Blackstone Group, Centerbridge Capital Partners or Cerberus Capital Management to rebuild Chrysler and run it for the long term? … Not when they can sell it and reap 20 percent of the profits for themselves” (quoted in Olive 2007b). But this is the logic of all companies that specialize in private equity buyouts, whether they are based in the United States or Canada. There is no particular reason to expect that an Onex buyout would have been any different, in terms of its effects on the workforce, than one engineered by Blackstone Group, Centerbridge Capital, or Cerberus Capital Management. Asset stripping is at the core of how all of these investment companies work. “The private equity buyout business is geared towards extremely high rates of return, averaging 20 to 25 per cent, with the biggest funds promising a staggering 40 per cent return to investors. As the bitter experience of our members has shown, these astronomical returns can only be achieved by a short-term drive to extract huge sums of cash from the acquired companies” (IUF 2007, 5). This harsh judgment on private equity buyout firms was written by Ron Oswald, then general secretary of the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations. Oswald did not specify a difference between US and Canadian private equity firms, including Onex among the top fifty private equity buyout funds, on a list that included two of the three firms mentioned above, Blackstone Group and Cerberus Capital Management, the latter just trailing Onex in size in 2007 (34–5). Think of the relationship between Canadian private equity firms and what is almost universally seen as an example of hollowing out: the purchase of Stelco by US Steel. Key players here were the Canadian firms Brookfield Asset Management Inc. and West Face Capital. Stelco filed for bankruptcy protection on 29 January 2004. In 2005 the bankrupt company turned to several investment funds for financial help in restructuring. Brookfield and West Face were two of the three large institutional investors involved. Brookfield (through Tricap Management Ltd.) invested C$55 million in Stelco, West Face (through Sunrise Partners) about half that. Between them they controlled 54.4 per cent of the corporation. When in August 2007 Stelco was purchased by US Steel, Brookfield’s $55 million investment was recouped along with $375 million in profits! Greg Boland of West Face was also pleased – his $27.3 million investment was now worth $194 million. So, yes, a US corporation did take over a Canadian corporation, but the money the

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US firm paid for it did not just disappear – the largest portion of it went to these two very Canadian investment funds, which, once the restructuring was complete, had more than half a billion dollars between them to invest somewhere else. Is the sale of Stelco to a US corporation an example of the hollowing out of the Canadian economy? Or is it an example of clever Canadian capitalists investing very little in a corporation and running off with some very big profits. Here is what Rolf Gerstenberger, president of United Steelworkers Local 1005, which represents workers at Stelco’s Hamilton plant, had to say: “All during that [bankruptcy] process we kept saying it was legalized theft … It’s quite a coup – it’s like a 600 percent return on investment. We kept saying the [bankruptcy protection process] was legalized theft, and now they’re making a killing” (quoted in McFarland 2007). With this picture in mind, the interesting contemporary emergence of nationalist musings by Canadian corporate leaders can be better understood. First, there is a portrayal of Canadian corporate weakness. Peter Munk, chairman of Barrick Gold, for instance, offered his opinion as to the failings of the members of his class: “[Making international acquisitions] requires balls, it requires guts, it requires vision, and those are not qualities that come to [Canadian] senior corporate managers.” A weak corporate sector might just need a helping hand. Laurent Beaudoin, chairman of Bombardier Inc., openly advocates ­government action: “In the context of foreign acquisitions of Canadian companies, it is crucial that the consequences be analysed carefully by all players to gauge the long-term impact of the loss of identity of our Canadian jewels … If, in the end, government intervention is needed, then it will have to because we can’t continue to leave things as they are now, without somehow protecting Canadian interests.” It was left to Gerry Schwartz, CEO of Onex Corp., to specify exactly what type of government action would be appropriate: “We should have incentives that help Canadian businesses grow, expand their worldwide leadership, keep the best and most creative young Canadians here and give Canadian companies a set of tax and other laws that don’t put them at a disadvantage to foreign competitors” (Marotte 2007). So a weak and declining capitalist class should be protected by state action by getting even more tax breaks than they already have? The nationalism of these corporate executives is clearly self-serving, as well as being – as the analysis in Chapter 4 demonstrated – completely counterfactual. Corporate Canada is more than holding its own in the world of mergers and acquisitions.

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The corporate executives quoted above have their own private interest in becoming Canadian nationalists. There are others without a clear private interest in a Canadian nationalist stance whose bread and butter is tracking developments in Canadian and world capitalism. For them, the facts presented here offer no surprises. In 2006, Jack Mintz, president of the C.D. Howe Institute outlined a very different view than that of Munk, Schwartz, et al.: [F]oreign ownership is becoming less important in the largest companies operating in Canada. For example, 56 percent of the top 50 companies in Canada were owned by foreigners in 1997 (using the typical threshold of a minimum of 10 percent ownership), falling remarkably to 32 percent by 2003. Of the top 500 companies, 50 percent were owned by foreigners in 1997 and 37 percent in 2003. No matter how you slice the data, little evidence supports a significant hollowing-out of Canadian business … The real story of the past 10 years is that Canada is hollowing out businesses in other countries … Canadian businesses have acquired 43 investments, of at least $1-billion in transaction value, in foreign jurisdictions from 1995 to 2004 totalling $129.4 billion. On the other hand, only 38 large foreign purchases (with at least $1-billion involved) totaling $146.5 billion occurred here in the same period … Since the mid-1990s, Canada has become a net exporter of capital, with the stock of foreign acquisitions of Canadian companies now over 6 percent of GDP, which is more than the stock of foreignowned capital in Canada of about 5.5 percent of GDP. (Mintz 2006)

This evidence can be quantified. In so doing, one can clearly demonstrate both the existence of a Canadian capitalist class and the inefficacy of the use of the term “comprador” in the Canadian context. Earlier this book surveyed the statistics showing the gradual decline of non-resident ownership in the Canadian economy as a whole. Statistics Canada has broken down these figures by size of enterprise for the period from 1999 to 2012. To do this, it divides the corporate universe in the Canadian economy into small (firms with annual operating revenue of less than $25 million), medium (annual operating revenue between $25 million and $75 million), and large enterprises (annual operating revenue greater than $75 million) (Statistics Canada 2010). When all enterprises are considered together, there is really no issue: the 1.3 million enterprises in Canada vastly outnumber the 8,691 non-resident enterprises operating in Canada. But this, of course, is a little misleading. Only those enterprises that consciously “cross the border” to set up shop

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here are counted among the non-resident enterprises, and the entire universe of Canadian enterprises includes the vast numbers of nonmobile, very small enterprises (dentists, barbers, and so on), which, by definition, have to be Canadian. The most relevant comparisons occur in a universe reduced to large and medium-sized corporations. Figure 7.1 shows a slow but steady decline in non-resident ownership, from 28 per cent of medium and large enterprises in 1999 to 23 per cent in 2012. Figure 7.2 makes the picture clearer. For medium-sized corporations, there is, first, a higher level of Canadian control, and, second, an even more noticeable steady increase of Canadian control compared to non-resident control, moving from 79 per cent in 1999 to 85 per cent in 2012. Of course there is a national bourgeoisie in Canada – this is a snapshot of its existence in the private sector. Almost 12,000 enterprises with annual revenues greater than $25 million exist in Canada, 9,000 of them Canadian. And of course the term “comprador” makes no sense in the Canadian context. One key role of the actually existing comprador elites in the massively oppressed colonies and neo-colonies of the nineteenth and twentieth centuries was their role in orienting capital accumulation towards the imperial centre, draining surplus out of their own country, and frustrating the ability of local small capitalists to grow in size and power. No such “frustration” is happening in Canada. Capital accumulation, under the direction of Canadian enterprises, is alive and well, with no evidence of its progress being blocked by a comprador elite. In fact, the feeling among twenty-first-century Canadian capitalists is not one of frustration, but of something approaching triumphalism. Brian Lee Crowley, Jason Clemens, and Niels Veldhuis – riffing on Wilfrid Laurier’s famous call to make the twentieth century Canada’s century – published a provocative book entitled The Canadian Century: Moving Out of America’s Shadow (Crowley, Clemens, and Veldhuis 2011). The book originated in part from an op-ed piece published in the Washington Post (Edwards, Clemens, and Veldhuis 2009) that “compared various aspects of Canadian and American economic performance over the last two decades.” When their study showed that Canada has in many ways been outperforming the United States, the authors encountered “the disbelief of readers on both sides of the border.” There is, they argue, a “perennial quality of popular prejudices; they endure long after the reality that gave rise to them has been reshaped by events” (Crowley, Clemens, and Veldhuis 2011, preface).

182  Escape from the Staple Trap Figure 7.1.  Distribution of Control, Canadian and Non-resident Large and Medium-sized Enterprises, 1999–2012

Source: Author’s compilation from data available in Statistics Canada (2014b).

They are not the only authors to be channelling this kind of hubris. In a speech to the Canadian Club in Chicago on 13 October 2004, Jack Mintz argued that policy-makers in Canada had to see their role as promoting the “building of a North American regional economic bloc to compete with other emerging blocs around the world,” and suggested that such policies could “unleash a North American tiger” (Mintz 2004). After the Great Recession, with Canada clearly outperforming the United States by every measure, the hubris was even more pronounced. The eighth annual Bennett Jones Lake Louise World Cup Business Forum, held on 26 November 2010, adopted the brash title: “Canada Rising: Our Future as a Global Economic Leader” (Bennett Jones LLP 2010). Perhaps this is just temporary intoxication resulting from having done less badly than the United States in the Great Recession. Perhaps it is part of a complex construction of bourgeois ideology. Or perhaps it is a reflection, at the level of (capitalist) class consciousness, of deep processes, under way for several decades, that are allowing capital in

A Very Canadian Bourgeoisie  183 Figure 7.2.  Distribution of Control, Canadian and Non-resident Medium-sized Enterprises, 1999–2012

Source: Author’s compilation from data available in Statistics Canada (2014b).

Canada to outperform capital in the United States. Whatever it is, it is not evidence of the absence of a national bourgeoisie in Canada. One of the issues Panitch raised has yet to be considered: his argument that Canada lacks a national bourgeoisie that “takes as its goal the accumulation of capital with a distinctive Canadian polity, economy and culture as its base” (Panitch 1988). The next chapter will suggest that this distinct national project was clearly evident in the nineteenth century. Further, reflect on the discussion on military parasitism opened up in Chapter 1. A very independent Canadian capitalist class is revealed by the following facts: Canada did not develop an arms economy through the 1960s, 1970s, and 1980s despite massive pressure from the United States to do so; Canada did not go to war in Vietnam; Canada developed a welfare state on a much bigger scale than did the United States; and Canada did not go to war in Iraq in 2003. All this is evidence of a distinctive Canadian polity. Something is going on in Canada that is not purely derivative of events in the United States.

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There is a Canadian capitalist class, one whose actions cannot be reduced to acting at the behest, first, of Britain, and then, of the United States. This should not be reassuring. Recall the 1935 words of the League for Social Reconstruction: “That foreigners control this or that particular industry will trouble none but those earnest patriots who, in defiance of all the evidence, persist in believing that the Canadian capitalist is a different kind of being from the foreign, that the one is a philanthropist, the other a robber and cheat” (quoted in Park and Park 1973, xi). This is as true in the twenty-first century as it was in the early twentieth. The actions of the capitalist class in Canada and elsewhere are taking us into a cul-de-sac of ecologically unsustainable growth ­patterns and an oscillation towards militarism with all of its attendant dangers. Remember that, for Mintz, a central component of a “North American tiger” would require “Canada to step up to the plate and greatly strengthen its military contribution to North American security” (2004), something that we are seeing in spades, first under Chrétien and now under Harper. One very large conceptual issue remains to be addressed: the importance of conceiving of capital as “collective capital.” We are long past the era of the robber barons, when a reasonable proxy for the capitalist class was the cigar-chomping, top-hat-wearing industrialist. The largest investors are now not individuals but pension funds, companies are run not by individuals but by boards of directors, and ownership is not individual but shared through share ownership. Most crucially, central to this development of collective capitalism has been the role of state capital. The story of the late nineteenth and early twentieth centuries was the story of the growing centrality of the state in the capital accumulation process. Japanese capitalism cannot be understood without understanding the politics of the Meiji Restoration. German capitalism cannot be understood without acknowledging the role of Bismarck. South Korean capitalism cannot be understood without the role of the chaebols. Contemporary US capitalism cannot be understood without including the role of the Pentagon. The state is, and has been for some decades, an embedded participant in the capital accumulation project. To this point in the volume, the analysis has been restricted to the private sector, which captures only a portion of the universe of the modern capitalist economy. When one adds the collective capitalist to the picture – when, in other words, the state is conceived not simply as a “watchperson” but as an active participant in capital accumulation – the conclusions one must draw are crystal clear.

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Subcontracted Sovereignty Bringing the state into focus as a central player in capital accumulation and in class formation greatly assists the process of correctly conceptualizing the Canadian reality. Throughout this book has asserted that Canada’s manifest development cannot but be a reflection of the existence of the real sovereignty of the Canadian elite, exercised by the Canadian state, over the territory now called Canada. This, in part, flows from the acceptance of a basic tenet of class analysis in the historical materialist tradition: that national accumulation strategies have always been accompanied by national state-building projects. An extremely interesting and rarely cited document from the 1970s debates on CPE makes this point clearly: “Never to this day has a national bourgeoisie lost or given up control of its nation state except where defeated through war or revolution … [A]ll evidence points to the bourgeoisie’s continuing reliance on the national state – capitalism is unable to jump out of its national skin, even to form continental unions, let alone fuse on a world scale” (LSA/LSO 1972). But it is legitimate to query: from where did this sovereignty come? Canada’s revolution in 1837–38 was crushed. Confederation in 1867 did not devolve all responsibilities to the new Dominion, evidenced by the way in which Canada entered the First World War automatically upon the entry of Britain. For decades, decisions of the Supreme Court of Canada could be – and were – overridden by the Judicial Committee of the Privy Council in Britain. Until the 1960s Canada’s flag was the Union Jack. In what sense were these the marks of a sovereign nation-state? The sovereignty that made Canada’s imperialist and colonial project possible was acquired in a particular manner. The uprising that in principle could have asserted sovereignty from below was crushed in 1837 and 1838. But in the years that followed, the British Empire made a tactical decision to grant sovereignty from above, in effect subcontracting its rule in British North America to an elite that it presumed (correctly) would stay loyal. Ian McKay calls this “a top-down imperial restructuring,” part of Canada’s passive revolution (McKay 2010, 362). This subcontracting of sovereignty – a move also taken in several other “white settler states” – allowed Britain to focus on the prizes of colonialism in the Indian subcontinent, forcing open so-called free trade with China and later mobilizing huge resources to engage in the late nineteenth-century scramble for Africa.

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This subcontracted sovereignty might have reserved for Britain the flag and war making, but capital accumulation within the territory that is today Canada was left in the hands of the Canadian elite. This – not flags and foreign policy – is what is central to sovereignty in a capitalist world. It allowed Canada’s elites – through heavy state intervention in the economy – to carve out a national territory for capital accumulation far earlier than was possible for the elites in countries that remained under colonial domination into the twentieth century, many of which achieved political sovereignty only in the great decolonization wave after the Second World War. Some that had acquired formal sovereignty much earlier (particularly in Latin America and the Caribbean) would require, in the latter part of the twentieth century – as a necessary precondition for the assertion of effective sovereignty – massive social movements to push aside corrupt landed elites and global North–oriented comprador urban elites. The establishment of effective political sovereignty in Canada long before the oppressed countries of Africa, Asia, and the rest of the global South meant, for instance, that the dynamics of non-resident ownership were markedly different in Canada than in the oppressed nations of the global South. This is the context in which to place an eary reflection by William Carroll, working with a framework developed by Bill Warren, concerning the impact of foreign direct investment on the receiving country. Carroll wrote that, [a]lthough direct investment implies a form of multinational control and a flow of repatriated profit, if the investment is to be maintained, a share of the profit must be kept in the country. In the final analysis, the rate of reproduction of this capital “depends on conditions of accumulation in the receiving country relative to the return on capital that might be obtained by redeployment” (Friedman 1978, 143). Warren has pursued the larger implications of this basic fact of modern capitalist accumulation: “To the extent that political independence is real, private foreign investment must normally be regarded not as a cause of dependence but rather as a means of fortification and diversification of the economies of the host countries. It thereby reduces ‘dependence’ in the long run” ([Warren] 1988, 176). Warren’s point is especially well taken vis-à-vis the Canadian case, where the capacity has existed not simply to transpose foreign investment into indigenous circuits of accumulation, but more recently, to reclaim much of the foreign-controlled capital that contributed to Canada’s economic growth during the post-war boom. (Carroll 1985, 37)

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For the many oppressed nations of the global South whose sovereignty was suppressed through much of the twentieth century, this analysis is neither persuasive nor applicable. Without effective sovereignty – which, in many cases, could be established only through revolutionary upsurges – industrialization takes very distorted forms. Some pockets of industrialism are created, but the combination of subservient comprador elites and the strong intervention of international financial institutions makes these economies deeply subordinate to the global North. The Latin American debt crisis of the 1980s was one tragic historical moment showing the effects of this distorted development. But when the point Carroll and Warren make is applied to the effect of foreign investment in an advanced capitalist economy such as Canada’s, it seems quite accurate. This is the sense in which Carroll used it, and here it is quite relevant. The key phrase is “where political independence is real.” For Canada – with a sovereign elite functioning from the second quarter of the nineteenth century on – political independence was real, the sovereign national state could use its resources to create the conditions for the establishment of a home market, and therefore foreign direct investment could stimulate local capital accumulation. In part this “reassertion of the political” takes us in the same direction as an extremely important 1970s CPE essay, Glen Williams’s “The Case of the Wealthiest Colony” (1976). Leo Panitch was quite right to identify this “outstanding short article” as a “highly original and critically important essay” (1981, 32). In the essay Williams argued that, in studying the trajectory of the colonies created by European-based imperialism, it was crucial to distinguish between “colonies of settlement” and “colonies of conquest.” For the latter, the bitter reality was impoverishment and underdevelopment: “[C]onquest, plunder, and subsequent de-industrialization … greatly stimulated the industrialization of  Britain while impoverishing those parts of the world under direct British military control or the control of compliant local ruling classes.” Williams drew a sharp contrast between this experience and that of “Canada and the other white Dominions,” which “stood in sharp contrast to the colonies of conquest and impoverishment,” an observation that is even truer today than when Williams wrote in 1976. “Canada’s economy is far less fragile” than the mainstream of CPE analysis suggests. The country’s economy is “more of an integrated whole than that of many underdeveloped countries.” This part of the analysis might leave the reader expecting the logical conclusion that Canada developed because it moved from colonial

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status to independence. But Williams did not take that step. Canada developed, he argued, “in spite of her colonial and semi-colonial status.” All he would allow for is that “the colonies of settlement were developed as overseas extensions, miniature replicas, of British society, complete with a large measure of local political autonomy.” Williams was at pains to distance himself from CPE theorists who identify an independent Canadian capitalist class. He saw them as operating “in a splendid mist of dogma,” and through the “crudely mechanical device of documenting the scanty Canadian investment overseas, they set out  to prove that Canada was itself an imperialist, or at least a ‘sub-­ imperialist’ power” (Williams 1976, 29–30). What Williams did not accept was that the development Canada and the other “colonies of settlement” experienced demanded not merely “a large measure of local political autonomy” but the subcontracting of real, effective political sovereignty from Britain to local elites. Canada’s overseas investments were far from scanty and, in fact, capitalists operating within the Canadian state carved out a quite independent terrain of action. Canada required an independent capitalist class to supervise the accumulation project and the creation of a home market. Without this, capitalist development of a sustained variety would not have been possible. Williams’s article represented a half-step away from the staple-trap orthodoxy of CPE. Moving forward will require going further.

8  Escape from the Staple Trap19

THE HOME-MARKET ORIGINS OF CANADIAN CAPITALISM The first six chapters worked through and investigated some of the key empirical and theoretical evidence used to justify a left-nationalist ­approach to Canadian political economy (CPE). Chapter 7 headlined some of the theoretical issues that CPE will have to confront to remake itself for the twenty-first century. The final point in that chapter was to assert that Britain “subcontracted” effective sovereignty to a white-­ settler elite in the 1840s, setting the stage for endogenous capitalist development within the Canadian state. This chapter suggests that this development provides a framework within which to assimilate properly the ubiquitous staple theories associated with Harold Innis. It is necessary not to confront these theories formalistically – noticing that Canada exports staples and thus subsuming the Canadian economy in the category of “underdeveloped” or “semi-peripheral” – but to confront them substantively and to notice that the impact of staple export is very different in a sovereign state such as Canada than in a real neocolony such as Guatemala in the 1960s or a real semi-peripheral state such as Mexico today. Harold Innis and the Staple Approach Any discussion of the origins of Canadian capitalism necessarily invokes the figure of Harold Innis and his analysis of Canadian staples. There is some danger in making overly sweeping generalizations as to what exactly constitutes this “staple approach,” an approach taken over and developed in Canadian political economy by both the classic

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dependency framework of the 1970s and the contemporary semi-­ periphery framework of the twenty-first century. Mel Watkins said that, “methodologically, Innis’ staple approach was more technological ­history writ large than a theory of economic growth in the conventional sense” (1969, 50). Political economists such as Watkins and Daniel Drache appropriated much of the work of Innis, however, and out of it constructed a theory that incorporated Innis into the radical theories of underdevelopment current at the time. This “staple approach” to analysing the origins and development of Canadian capitalism has been hegemonic in the analyses of left-nationalist CPE. Trade between a developed industrial metropolis and an underdeveloped and non-industrialized hinterland is at the heart of the staple approach. G.W. Bertram defined export staple industries as those “based on agricultural and extractive resources, not requiring elaborate processing and finding a large portion of their market in international trade” (1969, 75). The staple approach is appropriate to the “‘new country’ … overrun by the white man [sic]” (Watkins 1969, 53). In such a new country, according to Innis, “the migrant is not in a position immediately to supply all his needs and to maintain the same standard of living as that to which he has been accustomed” (Innis 1962, 385–6). Instead, he obtains the goods needed to improve this standard of living by direct transportation from the homeland, the most important transportation device being trade: “Goods were produced as rapidly as possible to be sold at the most advantageous price in the home market in order to purchase other goods essential to the maintenance and improvement of the current standard of living” (384). This sets the pattern for economic development. In at least the early years, “staple exports are the leading sector, setting the pace for economic growth and leaving their peculiar imprint on economy and society; the importation of scarce factors of production is essential; and growth, if it is to be sustained, requires an ability to shift resources that may be hindered by excessive reliance on exports in general, and, in particular, on a small number of staple exports” (Watkins 1969, 53). It is one thing to make such a claim with reference to the early years of development, but left-nationalist political economists extended the staple approach, based on parts of Innis’s writing, to Canada in the twentieth century. Watkins described modern Canada as a “small and open economy, a marginal area responding to the exogenous impact of the international economy. The basic determinants of Canadian growth are the volume and character of her staple exports and the ability to borrow, adapt and marginally supplement foreign technology” (1969,

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70). Bertram and others used the analytic framework in a way that assimilated Canadian economics into the problematic of the underdeveloped world in general: “The export staple model continues to be a useful approach in the Canadian economy, and with allowances for differences in production functions, may also be a useful analytical tool in determining economic policy in certain underdeveloped countries where the export sector may continue to be regarded through colonial eyes” (Bertram 1969, 98). Incorporating the staple approach into the school of underdevelopment theories is based largely on a now-famous section from Innis’s The Fur Trade in Canada, which reads: “The economic history of Canada has been dominated by the discrepancy between the centre and the margin of western civilization. Energy has been directed toward the exploitation of staple products and the tendency has been cumulative … Agriculture, industry, transportation, trade, finance, and governmental activities tend to become subordinated to the production of the staple for a more highly specialized manufacturing community … [Canada] has continued … chiefly as a producer of staples for the industrial centres of the United States even more than of Great Britain” (1962, 385–6). There is a striking similarity between this and the “metropolis-­ hinterland” model of the underdevelopment school examined in earlier chapters, particularly the long section entitled “Metropolis and Hinterland” in Kari Levitt’s classic work, Silent Surrender (1970, 92–115). The underdevelopment or dependency school was developed to analyse the way in which modern imperialism prevented the modernization of the countries on the periphery of advanced capitalism. The dependency of these peripheral countries on the economies of the metropolis was seen to lead to systematic economic underdevelopment. The staple school in Canada offered a variant on this approach. Canadian development (such as it was), theorists of the school argued, was driven by demand for Canadian staples from more developed countries – particularly the United States – a relationship that locked Canada into a “staple trap,” rendering its economy unnaturally reliant on the export of unprocessed or semi-processed natural resources and slowing down the development of an indigenous manufacturing sector. The Home-Market Alternative If the staple-trap approach has been hegemonic in Canadian political economy, it is not the only approach. A small group of writers has

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approached the same subject from the standpoint of what I would call the “home-market approach.” This tradition has two distinct planes of analysis, both of which exist in clear form in the writings of Lenin.20 The first is similar to the view of the dependency theorists: conceptualizing the consequences of attempting development in the context of a hierarchical world system dominated by a handful of imperialist powers. This – a well-known aspect of the historical materialist canon – has often been used and cited by dependency theorists, particularly a short pamphlet Lenin wrote in the midst of the First World War ([1917] 1964). The pamphlet, with all its flaws, clearly painted a picture of a world divided into a handful of imperialist powers and a mass of what could accurately be called dependencies. But too often this is the only aspect of Lenin’s analysis that the early dependency theorists emphasized: the hierarchical chain of the world system and the impediments to further economic and social advance. The second plane of analysis, also in Lenin, concerned the establishment of capitalist class relations even in those parts of the world system most firmly caught in the web of “dependency.” The subject matter of Lenin’s The Development of Capitalism in Russia ([1899] 1960) was the manifestly underdeveloped economy of late nineteenth-century Russia, a country understood (probably accurately) by Wallerstein as then belonging to the semi-periphery of the world system (1974, 411). Lenin’s book is subtitled “The Process of the Formation of a Home Market for Large-scale Industry,” and in the preface to its first edition Lenin wrote that he had “set himself the aim of examining the question of how a home market is being formed for Russian capitalism” ([1899] 1960, 25). In other words, even in Russia, with its massive peasantry, powerful semi-feudal classes, and foreign ownership of much of its new industry, a key plane of analysis was the formation of a capitalist home market and the development of both a capitalist class and a working class. If such a plane of analysis was important for a semi-feudal country such as Russia, it is doubly important for a place such as Canada, where there was (with the exception of Quebec) no legacy of feudalism to overcome. This classical historical-materialist approach was part of the unquestioned framework of Stanley Ryerson in his Unequal Union. For Ryerson, the home-market approach was central: “Railways in British North America served both as an instrument of colonialism – extracting raw materials and semi-processed products required by the metropolis – and as engines of industrialization, stimulating the growth of local

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manufactures and of a home market” (1975, 258). Ryerson did not develop this analysis, but several non-Marxists – in particular H. Clare Pentland, in his decades-old, but long-unpublished Labour and Capital in Canada (1981), and to some extent John McCallum, in his Unequal Beginnings: Agriculture and Economic Development in Quebec and Ontario until 1870 (1980) – went some way towards fleshing out a home-market explanation of the early years of Canadian capitalism. Pentland’s work has had one of the more interesting histories of any piece of Canadian political economy. For years it existed in manuscript form and was accessible solely to diligent academics browsing through university libraries. It became widely available only after Pentland’s death. Reading it was a “rite of passage” for any who wished to enter the ranks of Canadian political economy. Incorporating its ideas into those ranks was another matter. Watkins articulated a fairly widespread view of staple-school theorists when, in 1977, he warned us to be “on our guard” when dealing with Pentland’s work (2006b, 44). It is important that Pentland’s work – which, in the face of a hostile audience, remained out of circulation for the entire generation of the emergence of “classic” CPE – was finally made accessible in the 1980s. Pentland accepted that staples exports were important for Canada, but sharply differentiated Canada’s pre- and post-1820 economy. Surveying developments since 1820, he concluded that Canada did not get caught in a “staple trap” and could not be considered as one of the world’s underdeveloped countries, but must be treated as an advanced industrial society. Pentland argued that, in the decades after 1820, Canada did develop a “national economy of an industrial type.” Certainly by 1870 Canada distinctly did not fit the picture painted by the staple-trap approach. Between 1820 and 1870 Canada developed the basic structure of an advanced industrial society, and it is only in the terms appropriate to such a society that it can be adequately analysed. “It is true,” Pentland said, “that Canada’s transformation was not as rapid, nor as certain and decisive, as that of the United States. It is also true that the Canada of 1870 was a small and rather immature specimen of an industrial country. Nevertheless, Canada’s economic integration; its diminished dependence on a single export, or a single market, and on foreign trade in general; the versatility of a labour force shifting from extensive to intensive forms of production; the bustle and variety of activities of its expanding cities; all these distinguish the 1870 economy from its staple-producing predecessor of a half-century before” (1981, 130–1).

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There are, as Pentland noted, scanty data concerning nineteenth-­ century Canadian economics. Those that exist show the dominant place occupied by agriculture in this period. Pentland then insisted on a sharp distinction between the commodities involved in staples exports and an agricultural economy per se. The point is important. Most staple theorists tend to include commodities such as fur, lumber, wheat, and corn under the general label of “staples” in a fairly undifferentiated manner. Pentland’s point was that the economic impact of the production of these different “staples” was quite different. As with the later world systems theorists, particularly Chase-Dunn, cited earlier, Pentland brought the issue of labour and capital intensity into the foreground of his analysis. The process of the “production” of a fur pelt was quite labour intensive, and did little to stimulate local demand. Agriculture is – or can be – very different. Increasing the productivity of agriculture requires a steady increase in capital intensity, which increasingly embeds the agricultural economy in a wider sub-stratum of nascent industry. The dominant place of agriculture in the early Canadian economy was, for Pentland, “a necessary condition to shift the weight of the economy away from the gathering of surface products, and to provide the base required for manufactures.” The shift away from the gathering of surface products as the chief staple export to the production of agricultural staples corresponded with a “considerable expansion of commercial, transportation and professional activities … a marked decline of domestic services and finally, though this trend is the less emphatic, the correlative expansion of industrial activity, proportionally as well as absolutely” (1981, 134–5). Both Pentland and McCallum did some work to pull together what data do exist. Based on the Canadian censuses of 1871, 1881, and 1891, Pentland compiled a chart showing the occupational distribution of the Canadian population (1981, 132–4). From such a chart, some generalizations are possible about the changing nature of the Canadian economy. For example, “Canada was becoming more and more an agricultural country up until 1871, and more industrial, commercial and professional at the same time” (134). This is consistent with Pentland’s argument that Canada industrialized on the back of a productive agricultural sector. Taking his data from the 1851, 1860, and 1870 censuses, McCallum provided a less extensive but more detailed chart showing the slow but steady growth of Canada’s industrial working class between 1851 and 1870 (1980, 130–1).

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Donald Creighton provided a similar schema for the development of Canadian industry in a path-breaking essay published in 1937. In “The Economic Background of the Rebellions of 1837,” he identified the decades after 1820 as a watershed for the economies of Lower and Upper Canada, where the “shift from the older trades” (the fur trade in particular) to agriculture was accelerated, creating a demand for new ­markets and spurring economic development (Creighton 1972, 105). The decisive change in Upper Canada between the 1820s and the 1870s, according to Pentland, was the creation of a home-market economy. Before the 1820s, Upper Canada was a backwoods society where “local self-sufficiency was encouraged, even necessitated, by the absence of transport facilities capable of drawing the back country into a national or world economy.” In this period, staples were undoubtedly important. Yet even here, Pentland challenged the usual contention that they were the leading sector of the economy. He argued that, even at its peak, no more than 15 per cent of the Canadian labour force was involved in the fur trade. The early colonies in what is now Canada were predominantly agricultural in nature “in which farming was the main occupation and support of the people.” This agriculture, even at its beginnings, began to support crafts in the towns and villages, “the local mills, the ironworks and the shipyards, [and] a respectable level of secondary industry” (1981, 131, 141). What transformed this backwoods agricultural economy was, ironically, the scale of the development of Upper Canada’s inland transportation systems. The scale was evident at the time. Between 1852 and 1858, for example, “300 to 600 miles a year” of new lines were put in place (McCalla 1993, 207). The irony was visible to political economists with the benefit of hindsight. The “successful completion of a ­canal network in the 1840s and the triumphant sweep of railway lines in the 1850s … were conceived by those who dreamt of binding Canada more firmly into the system of transatlantic exchange … yet had the opposite effect of creating a viable Canadian economy” (Pentland 1981, 146). Transportation systems, then, designed to promote the export of staples had a subsidiary effect that was equally if not more important – the stimulation of local industry and the creation of a home market. Ryerson made much the same point. The building of the railways, he  argued, “gave an impetus to industrialization generally, but its most ­direct and immediate effect was in the local manufacture of the railways’ own equipment. As Montreal, Kingston, Toronto, Hamilton

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became centres for turning out engines, rolling stock, equipment, supplies, a heavy industry – until then largely lacking – was brought into being” (1975, 260). Pentland drew out another effect of this railway boom: the economic impact of the penetration of Ontario’s hinterland. Masses of subsistence farmers along the lines were suddenly enabled to sell in a wide market and to buy consumer goods and machinery with their earnings, and were encouraged to maximize their outputs … food surpluses brought from remote farms by the railways usually found their market in the growing Canadian cities. Still more important, the purchases of the masses thus introduced to exchange as the normal way of life, while they included cloth and crockery and tea from abroad, were most often of goods produced in Canada … The net effect of Canada’s revolution in transport, then, was much less the stimulation of exports, or of imports, than the presentation to Canada’s farmers and manufacturers of the coherent home market which they would have had the greatest difficulty in creating for themselves. (1981, 147)

The industry associated with a wheat economy has been documented by Douglas McCalla, who wrote about the capacity of the wheat economy to “create capital,” evidenced in the “rapid establishment of grist and saw mills throughout the settled areas of [Ontario]” (1993, 29). John McCallum also vividly illustrated the way in which the development of inland transportation fostered the development of the homemarket economy with reference to the experience of the port of Oakville during the 1840s and 1850s: “The townspeople financed and built the road that tapped the agricultural hinterland, and the transportation of wheat to the port was handled locally.” The impact of this trading role on the local economy was to stimulate the development of secondary manufacturing: “The town’s foundry made the machinery that milled the wheat, and most of the ships used in the export trade were built in the town.” McCallum went on to claim that this development of a secondary manufacturing sector to the economy was all-pervasive: almost all aspects of the process “starting with the planting of the wheat and ending with its delivery as grain or flour in Montreal were performed by the local economy” (1980, 8). This and many other aspects of McCallum’s approach paralleled the treatment of the origins of Canadian capitalist industry developed by Pentland. In a very interesting section of his book, McCallum

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demystified the development of the Ontario and Quebec economies. Using the research of US historian Douglass C. North, he compared the development of Ontario with that of the US West and that of Quebec with the US Northeast. The parallels are indeed striking. By implication, McCallum suggested that the Canadian economy is a smaller version of the US – a proposition that, if true, renders suspect much of the underdevelopment approach to the Canadian economy. In his comparison of Ontario to the US West, McCallum argued that the most important changes in the economy of the latter were “the surges of western expansion associated with high prices of wheat and corn, the redirection of trade from the south to the east and to Europe, the accelerated shift of population out of self-sufficiency during periods of expansion, and the development of a diversified economic structure.” He quoted North to indicate that the effect of the spread of the wheat economy was to foster economic development, not to lock the West into a staple trap. North wrote that “locally oriented manufacturing trade and services developed along with the widespread pattern of towns in order to serve the local consuming market.” McCallum acknowledged that there were differences between the experience of the US West and that of Ontario, the most important being “the latter’s concentration on a single export crop.” The US West exported both wheat and corn and products derived from them, while Ontario was almost solely reliant on wheat. “Despite this difference, the dynamics of growth and the resulting economic structure were very similar in the two regions” (McCallum 1980, 108; North 1961, 135, 153–5). As it affects our investigation, the key point bears repeating: the ­category “staples exports” can obscure more than it reveals about the underlying dynamics of the economy. A perspective “focusing on staples alone yields an oversimplified and fundamentally inaccurate view of the process of economic development in Upper Canada” (McCalla 1993, 5). If the export staple is a commodity such as a beaver pelt, it can indeed be accompanied by a very underdeveloped local economy, given the labour-intensive nature of producing pelts. If the export staple is wheat or corn, however, it is sustainable only if the economy develops a local, secondary manufacturing sector. Agriculture requires implements, and its trade requires roads, canals, and railroads. The production of implements and the building of transportation lines can lay the necessary infrastructure of a modern, industrial economy. (And if the staple export is oil boiled out of the Alberta mud in a massively capitalintensive manufacturing process …)

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Paralyzed by custom? McCallum clearly viewed agriculture as central to industrial development. Trade between town and country was a necessary prior development to that of industry. “Until the late 1860s, Ontario wheat was the engine of economic growth. Scores of towns dotted the province, and most of these owed their existence to the handling of wheat and the servicing of the local farm population. Agriculture created both the means and the need for locally based transportation developments, while for the country as a whole, agricultural exports, which made up well over half of total exports after 1850, provided the traffic and creditworthiness necessary for the larger transportation projects” (1980, 5). Pentland shared this view. In all developed capitalist economies, he argued, there is a “correlation between agricultural efficiency and industrial advance.” He claimed that, with the possible exception of Switzerland, “countries that never had a strong agriculture have failed to become important industrially” (1981, 139). An economy based on agriculture that is “efficient in the capitalistic sense” – that is, oriented towards growing cash crops for exchange, rather than towards selfsufficiency, increasing productivity through mechanization, and accumulating a surplus, has two qualities that encourage industrialization: its ability to attract large-scale settlement, and its ability to support a large and growing population. On such a base, industrialization becomes possible. The closing “of their export markets,” Pentland argued, “if the inhabitants are not paralyzed by custom or confusion or outside control, may hasten the development of a diversified economy. An agricultural population … is an obvious and permanent market for manufacturers” (140). Ontario farmers were not “paralyzed by custom,” but Quebec farmers were, and it is to this that Pentland attributed Ontario’s prominence in the new industrial society. It is here that he and McCallum parted company. Both focused on the development of a home-market economy as central to Canada’s economic growth. Both agreed that Ontario’s agricultural sector was much more productive than Quebec’s. McCallum pointed out that, in 1850, “the average Ontario farmer had a value of cash sales at least five times that of his Quebec counterpart, and this ratio never fell below three in the years before Confederation” (1980, 5). Both argued that Ontario’s more productive agricultural sector was the frame around which that province’s industrialization took place. But they were at odds as to why Ontario provided that agricultural frame and Quebec did not.

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McCallum gave pride of place to poorer geography and less favourable soil and climate conditions in Quebec – in other words, he located Quebec’s economic backwardness in backward technical factors in the economic process (1980, 25–44). This is a point picked up by Leo Panitch, who argued that, “[i]n the case of Quebec … the farmer was unable to produce a wheat staple competitively, mainly due to climatic factors” (1981, 15). Pentland agreed that these were obstacles to development, but he maintained that the greatest obstacles were the way in which labour and the economy in Quebec society were organized – what Marx would have called the social relations of production. McCallum mentioned this approach but downplayed its importance. For Pentland, “continual frustration withered the power and will to produce. The obstacles to efficiency (in a capitalistic sense) imposed by feudal institutions were accentuated by continual subdivision which produced strip farms less and less economic or capable of improvement” (1981, 141). The habitants were “paralyzed by custom,” and that custom was part of their inheritance from feudal France. Watkins described North America at European contact as an “‘empty’ land” – an unfortunate choice of adjectives that ignored the not-inconsiderable history of indigenous societies (1963, 143). Europeans filled this land with more than bodies and commodities. Britain, France, and Spain also exported their civilization and customs, their social relations of production. For France and Spain that meant feudalism – lords and serfs, seigneurs and habitants. For Britain it meant capitalism – bosses, workers, and capitalist farmers. And, as in Europe, Pentland argued, the social relations of production associated with capitalism – in terms of industrial development – proved superior to those associated with feudalism: A population used to maximizing production and surpluses over local needs is likely to exchange, and consume also, at a high level. The attitudes and institutions that flourish in an agricultural economy that is efficient in the capitalistic sense are well suited to produce successful industrial managers and workers. A flourishing export trade invites the transport media that bind the regions they penetrate into a coherent national economy. The surpluses of a prosperous and market-oriented agriculture are likely to be one important source of the capital required for industrial development. In several respects, then – as a market, as a source of labour and capital, as a coherent economy whose permanence seems certain – a surplus-producing agriculture offers superior conditions for industrialization. (1981, 140)

200  Escape from the Staple Trap

Pentland’s limitation, however, is that he emphasized the cultural manifestations of a material and historical phenomenon. This is part of the particular eccentricity of Pentland as a theorist. His discussion was too parallel to that of Marx not to have been seriously influenced by historical materialism. But, according to Paul Phillips, “Pentland never considered himself a Marxist … He was an independent thinker who rebelled against the constraints of any orthodoxy … Pentland was … an independent and original scholar who did not disdain any tradition, but whose own Canadian analysis coincided rather well with the radical or Marxist tradition in European and even American scholarship” (Phillips 1981, xi–xii). Thus, although his is an incredibly useful pathbreaking analysis of the early years of capitalism in Canada, Pentland did what a historical materialist would avoid: he emphasized “culture” and “tradition” and “habits” of accumulation as the difference between Ontario and Quebec. At times his comments come across as ethnically biased: Upper Canada seen in a positive light, Lower Canada in a negative light. His case would have been much stronger had he incorporated more fully the key categories of historical materialism and showed, as Ryerson did, that the root of these “customs” lay in the oppressive feudal system that was inherited from France and re-imposed on Quebec by the conquering British. The slowing down and distortion of development in Quebec, then, was not because of national traits, but because of feudalism and imperialism. Again, this is an investigation that proceeded along the same lines as Creighton’s. For Creighton, the prime difference in the economic development of Lower and Upper Canada was because the population of the former was “still devoted to subsistence agriculture and to a debased feudal land-holding system” (1972, 106). It could, of course, be disputed as to whether there was any slowing down and distortion of development in Quebec at all. Ryerson himself noted that, in the mid-nineteenth century, the “most impressive concentration of … metal work [in Canada] was at Montreal.” Similarly, Montreal had a very large shipbuilding industry. “The Canada Marine Works at Montreal in the space of less than two decades built and launched 111 vessels” (1975, 45). But to make the case, it is not necessary to deny that some industrial development did occur in Quebec. At the time of the Conquest, the principal corridor in what is now Canada was not Montreal–Toronto but Montreal–Quebec City. Ontario was an undeveloped hinterland, distant from markets and largely unsettled. What is important is why Lower Canada was so slow to develop, given

Escape from the Staple Trap  201

its many advantages over Upper Canada and why it steadily lost ground to the new capitalist economy centred on Toronto. It took a century of state policy that consciously benefited English Canada to the detriment of Quebec before the balance was shifted. From cutting off the borders of the conquered territories of New France, denying it access to much of the fur trade and the most lucrative fishing areas, to propping up the power of the conservative, feudal, land-based clergy and aristocracy, to forcing Quebec to pay for the debts incurred by Ontario in the completion of its canal and road system – all these conscious acts of British imperialist policy served over time to diminish the role of Montreal and Quebec and increase the role of Toronto and Ontario (Ouellet 1980; Ryerson 1972, 1975). The debate over the different trajectory of Quebec and Ontario aside, the main point for our purposes is that the impact of agricultural production as a “staple” for export, particularly in what is today Ontario, was to stimulate the growth of a home market by creating a demand for farm implements, the need for expanded transportation facilities – which, in turn created new manufacturing needs for rolling stock and canal building – and new marketing opportunities by opening up the hinterland and permitting marginalized subsistence farmers to turn to surplus production. This is an entirely different perspective than that of the staple-trap schools, whether of the dependency or semi-periphery variety. These schools saw Canada’s twentieth-century “underdevelopment” as rooted in its nineteenth-century pattern of economic development, which locked Canada into a staple trap. Given the economic development that has taken place since the nineteenth century, the home-market approach seems on much stronger ground. That approach argues that, through the creation of a home market in the midto late nineteenth century, Canada – even if it was a rather small and immature industrial society compared with that of its southern rival – could best be described using language appropriate to industrial societies rather than language appropriate to peripheral, dependent, underdeveloped ones. Manufacturing in Canada in Global Perspective The critical question, of course, is: how well have these theories held up over time? The staple-trap school was premised on the assumption that staple dependency truncated the development of a manufacturing sector in Canada. This view, as has been argued throughout this book, has

202  Escape from the Staple Trap

been central to debates in Canadian political economy. If the claim of the staple-trap thesis is that Canada’s failure to diversify from a reliance on staples exports led to a withering of Canadian manufacturing, then we should see some evidence of this relative to manufacturing in other advanced capitalist countries. Can this be demonstrated? Paul Bairoch developed a methodology for the formation of a composite picture of the history of world manufacturing that can be applied to the development of Canadian manufacturing over the past two centuries. Bairoch’s framework focuses directly on “manufacturing industry that is industry in general with the exception of mining, construction, electricity, gas and water” (1982, 271). His study of this sector completely confirms the insights of both the dependency and world systems schools – that a central dynamic shaping the world system has been the extraction of wealth from the periphery by the core. Bairoch used different terms – Third World instead of periphery, First World instead of core – but the point is the same. Further, his study also confirmed the findings of the majority of world systems theorists – that, in the resulting hierarchical world economy, Canada’s place is among those at the top, and has been for a considerable length of time. Modern manufacturing emerges first in England. “The first imitators,” Bairoch wrote, “were most notably Switzerland, Belgium, France and the United States. Once these early manufacturing powers began developing trade links with what were to become their colonies, the impact was extraordinary. After 1813 … there is … evidence that the total volume of manufacturing production of the Third World was beginning to fall” (1982, 272–3). Further: “There cannot be any question but that the cause of the de-industrialization in the Third World lay in the massive influx of European manufactured products, especially textiles, on the markets of these countries” (277).21 Bairoch also explained that, [i]t is in the years 1830 to 1860 that this division between the future developed world and the Third World, which was to have such important consequences, began to take clear shape. The industrialization of the former led to the deindustrialization of the latter, and the proportional contribution of each region to the total output of manufacturing production was almost exactly reversed. If we include Japan with the Third World countries of that time, these still held some 63% of total world manufacturing potential in 1830, as against 37% for Europe and North America: by 1860 the proportions had become 39% and 61% respectively. (274)

Escape from the Staple Trap  203

What is today Canada was a collection of colonies in the period from 1830 to 1860, and so, in a formal sense, was similar to those areas that, Bairoch argued, experienced deindustrialization through their encounter with imperialism. But Canada was a collection of colonies of a different kind. Rather than experiencing deindustrialization, Canada industrialized. While imperialism was stripping the industrial potential from the bulk of the world, Canada was among that small group of countries, and even smaller group of ex-colonies, in which manufacturing potential was slowly but surely taking hold. Tables 8.1 and 8.2 reproduce Bairoch’s findings for the key measurements of manufacturing growth. Table 8.1 measures total manufacturing output of the ten leading world powers from 1860 to 1980. The United States, fifth in 1860, rose to first place by 1913, a position it consistently held up to 1980. Germany, seventh in 1860, rose to fourth place in 1980, but actually lost considerable ground to the United States – in 1860 its gross manufacturing output was 69 per cent of that of the United States; in 1980 it was only 28 per cent. In part this demonstrates the extraordinary population growth of the United States and the terrible cost to Germany of losing two World Wars. Canada’s position, for us, is the most interesting. In 1860 it was the twentieth leading manufacturing power; by 1980 it ranked tenth. Table 8.2 measures the same phenomenon, but on a per capita basis, rather than on an aggregate basis. This is, of course, a more meaningful statistic. On an aggregate basis, India and China produce more manufactured goods than does Canada, but they each have a vastly greater population, so, on a per capita basis, they disappear from the table altogether – the great industrial revolutions transforming those countries today were not yet visible in 1980. Canada, on this basis, moved to fourth in the world by 1980, trailing only the United States, Sweden, and Germany. Thus, in the critical years of early industrial expansion abroad – years in which imperialism reduced the industrial potential of countries such as India and China – Canada’s industrial potential was steadily rising. A further refinement of these data would, of course, be instructive. Per capita figures, while better than aggregate figures in providing a window on the structure of an economy, are still less useful than a measure of production per employed manufacturing worker – the level, that is, of productivity in industry. As Bairoch explained, “[w]e … wanted to try to estimate the variations in labour productivity by means of the ratio between the total volume of production and the numbers

204  Escape from the Staple Trap Table 8.1.  Total Relative Manufacturing Output, 10 Leading World Economies, 1860–1980 1860

1913

1953

1980

(United Kingdom in 1900 = 100; number in brackets ­indicates country’s standing in 1860)   1. United States (5)   2. Russia/Soviet Union (6)   3. Japan (9)   4. Germany (7)   5. China (n/a)   6. United Kingdom (1)   7. France (4)   8. Italy (10)   9. India (3) 10. Canada (20)

16 16 6 11 45 18 6 19 1

298 77 25 138 33 127 57 23 13 9

1,373 328 88 228 71 258 98 71 52 66

3,475 1,630 1,001 747 553 441 362 319 254 220

Source: Bairoch 1982, 284, 294, 302.

employed in the industrial sector, but due to the immense task involved in homogenizing data on the active working population we have been forced for the time being to leave this question aside” (1982, 281).22 In fact, it was difficult to homogenize the data because Bairoch’s principal concern was to compare the global North with the global South. But within the global North itself, fairly homogeneous statistics already existed. On the basis of those statistics, Canada was second only to the United States in manufacturing productivity in the 1950s, a spot it did not relinquish – to Japan – until the 1980s. Through Bairoch, we get a very clear picture of Canada’s relative manufacturing presence in the world as a whole. What about Canadian manufacturing relative to US manufacturing, both in the era covered by Bairoch and into the modern era? Here again we adjust for population difference between the two countries by calculating a “relative weight” for Canadian manufacturing employment to compare it properly with manufacturing employment in the United States. A figure of 100 indicates that the relative weight of manufacturing employment in Canada is identical to that in the United States. A figure of 70 indicates that the weight of manufacturing employment in Canada is 30 per cent less than in the United States. A figure of 130 indicates that the weight of manufacturing employment is 30 per cent more in Canada than in the United States. In the last decades of the nineteenth century – from 1870 until

Escape from the Staple Trap  205 Table 8.2.  Relative per capita Levels of Industrialization, 10 Most Industrialized ­Countries, 1750–1980 1750 1800 1830 1860 1880 1900 1913 1928 1938 1953 1963 1973 1980 (United Kingdom in 1900 = 100) Developed 8 countries United States 4 Sweden 7 Germany 8 Canada Switzerland 7 Japan 7 United Kingdom 10 France 9 Russia/Soviet 6 Union Italy 8

8

11

16

24

35

55

71

81

135

194

315

344

9 8 8 5 10 7 16 9 6

14 8 9 6 16 7 25 12 7

21 15 15 7 26 7 64 20 8

38 24 20 10 39 9 87 43 10

69 41 28 24 67 12 100 56 15

126 67 85 46 87 20 115 59 20

182 84 101 82 90 30 122 82 20

167 135 128 84 88 51 157 73 38

354 163 144 185 167 40 210 95 73

393 262 244 237 259 113 253 167 139

604 405 366 370 366 310 341 259 222

629 409 395 379 354 353 325 277 252

8

8

10

25

52

26

39

44

61

121

194

231

Source: Bairoch 1982, 284, 294, 302.

1900 – the weight of manufacturing employment was somewhat less in Canada than in the United States, but not qualitatively, with the Canadian figure ranging from 89 to 96. By 1911, however, the Canadian figure had dropped to 78, and in 1921 was still only 79, indicating that the weight of manufacturing employment in the first decades of the twentieth century was 20 per cent less in Canada than in the United States – although, in 1931, after the 1929 stock market crash, Canada’s relative weight was up to 97, almost identical to that in the United States.23 The pre-1931 figures could be interpreted as evidence of Canada’s manufacturing decline relative to the United States. But in Canada, those decades witnessed the “opening up of the West,” the mass migration from eastern Europe and elsewhere to transform the prairies from buffalo grass to wheat. McCallum and Pentland argued that the production of wheat for the market laid the basis for a cycle of capital accumulation in Ontario and Quebec, and this is clearly what also has happened in the prairies. Although, in the first instance, the creation through immigration of millions of new farmers pushed overall manufacturing statistics down, in the years that followed manufacturing more than recovered. Late nineteenth and early twentieth-century statistics are somewhat patchy compared with contemporary statistics.

206  Escape from the Staple Trap

For the latter we have two databases on which to draw. Both Canada and the United States compile information on their workforces using a household survey and a payroll or workplace survey. Figure 8.1 shows the relative weight of the former from 1969 to 2014 and of the latter from 1991 to 2014. The results tell a fascinating story. Through the 1970s and 1980s the relative weight of manufacturing in Canada was somewhat lower than in the United States – for much of the time between 10 per cent and 20 per cent lower. But in the twentyfirst century a counterintuitive gap has opened up – counterintuitive because the weight of manufacturing employment has become noticeably greater in Canada than in the United States. In 2005, according to the household surveys, the relative weight of manufacturing in Canada was 25 per cent greater than in the United States. The gap has since narrowed, but into 2014 the relative weight of manufacturing employment in Canada remained greater than in its southern neighbour. By themselves the numbers presented here could paint a picture of a dynamic, expanding Canadian manufacturing sector, but this is not exactly the case. Table 8.3 quantifies employment in manufacturing in the two countries in five-year blocks, from 1971 to 2011 for the household surveys, and from 1991 to 2011 for the payroll surveys, concluding with 2014, the most recent year for which figures are available. From 1971 to 2014, according to its household survey, the United States lost 4.5 million manufacturing jobs, a decline of almost one-quarter. By contrast, in Canada over the same period, manufacturing employment numbers were virtually unchanged. The payroll data, commencing in 1991, tell a  slightly different story: Canada’s manufacturing employment fell steeply, by 300,000, or 17 per cent; in the United States the fall was even steeper – a decline of 5 million, or almost 30 per cent. The relatively better performance of manufacturing employment in Canada compared with that in the United States is not so much a story of Canadian industrial dynamism, but of long-term US weakness. That is not irrelevant to the discussion of this chapter. The picture of inevitable Canadian industrial decline that “staple trap” dependency theorists paint usually includes a picture of an inexorably expanding US economy. The facts presented here paint quite a different picture. Conclusion The outlines of the development of Canadian manufacturing in the nineteenth century have been clearly visible for some time. But visibility

Escape from the Staple Trap  207 Figure 8.1.  Relative Weight of Manufacturing Employment, Canada and the United States, 1969–2014

Sources: Author’s compilation from data available in ILO (2014b); Statistics Canada (2013a, 2014d,e); United States (2015); World Bank (2014b).

does not always mean integration into political economic analysis. Gordon Laxer, for instance, situated an examination of Canadian capitalism within a clear comparative framework, using, in part, as has been done here, the pioneering work of Paul Bairoch. Laxer cited a table of Bairoch’s documenting that, in 1860, Canada was the world’s twentieth leading manufacturing power (1989, 43). By 1913 Canada had moved to thirteenth, by 1953 it was ninth, and in 1980 it was tenth (Bairoch 1982, 284). This is evidence of the development of manufacturing, not its truncation. Yet Laxer proceeded as if it were necessary to explain why Canada’s manufacturing base had developed so poorly. There is no need to avoid the facts. The great strength of the homemarket approach outlined in this chapter is that it provides a basis for coming to terms with the facts. Focusing on the way in which staples production gave way to the development of capitalist agriculture, which in turn created a demand for manufactured goods that stimu-

208  Escape from the Staple Trap Table 8.3.  Employment in Manufacturing, Canada and the United States, 1971–2014 Household Survey Canada

Payroll Survey

United States

Canada

(number of jobs) 1971 1976 1981 1986 1991 1996 2001 2006 2011 2014 Change from 1971

1,766,000 1,921,000 2,124,000 1,989,000 1,868,000 1,925,700 2,229,000 2,107,200 1,760,200 1,733,100 –32,900 (–1.86%)

19,606,000 20,261,000 21,817,000 20,962,000 20,580,000 20,518,000 18,970,000 16,377,000 14,336,000 15,100,000 –4,506,000 (–22.98%)

United States

(number of jobs)

1991 1996 2001 2006 2011 2014 Change from 1991

1,778,282 1,779,564 1,977,887 1,820,265 1,488,941 1,473,868 –304,414 (–17.12%)

17,067,750 17,236,750 16,440,667 14,156,250 11,726,000 12,141,167 –4,926,583 (–28.86%)

Sources: Author’s compilation from data available in ILO (2014b); Statistics Canada (2013a, 2014d,e); United States (2015).

lated the development of local industry in the surrounding towns, and on the way transportation lines developed to facilitate trade and actually had their greatest impact in stimulating demand for local manufacture – in short, focusing on the creation of a home market, an approach based on the scholarship of Pentland, McCallum, McCalla, Ryerson, and others – provides an alternative to the staple-trap approach’s focus on dependency and underdevelopment. By looking beyond a simple staple-trap argument, the home-market approach is strongly situated to accurately theorize the development of an advanced capitalist economy in the Canadian context. The home-market industrial development that took place in Canada is explicable only if the concept of political sovereignty is integrated into the analysis, as has been argued throughout this book. Canada’s initial industrialization happened much more thoroughly in southern Ontario than in more populous and settled Quebec. This phenomenon was intimately tied up with the suppression of sovereignty in Quebec, enforced by the Conquest, which imposed a typical neo-colonial structure on the province that ensconced the power of a landlord class and the Catholic Church. These proved severe impediments to Quebec’s

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development. Ontario, as the principal beneficiary of the sovereignty subcontracted to the united Canadas in the 1840s, had a much clearer path to industrialization. The suppression or distortion of sovereignty has been experienced intimately by many countries in the global South, countries that, unlike Canada, can lay claim to being a “late follower.” Canada was not the first to undergo the transformation to industrial capitalism, but by no means can it be considered a “late follower,” as Laxer attempts to label it. It lagged the United States a little, but faced nothing like the obstacles of real late followers: Iran, Indonesia, the Philippines in the twentieth century, or Russia in the late nineteenth. Industrialization in the Russia Lenin analysed in 1899 was hampered by a conservative and powerful semi-feudal landed aristocracy combined with substantial non-resident control of the economy. In Canada there was non-resident control, but, except in Quebec, the legacy of semi-feudal relations was simply not an issue. There was no massive class of landless peasants, and no landed aristocracy stood as a barrier to capital accumulation. This history has implications for how we understand the industrial revolutions under way today. Today both China and India are in the throes of industrial revolutions that are transforming the world economy. Surely the political story of the Indian subcontinent’s emergence from British domination and the political story of China’s assertion of its sovereignty in the face of domination by the European powers, Japan, the United States, and the Soviet Union forms an indispensable part of these two countries’ contemporary economic transformation. The last two chapters offered an alternative to the staple-trap frameworks usually applied to the origins of the Canadian economy. Sovereignty, subcontracted from Britain to the Canadian elite in the nineteenth century, laid the basis for a home-market-driven industrialization in the nineteenth and twentieth centuries. The left-nationalist approach to the origins and subsequent development of Canadian capitalism insists that Canadian manufacturing suffered permanent structural underdevelopment. The evidence will not support this claim. There are differences between the Canadian and US manufacturing economies. There are periods when the Canadian developed much more slowly than the US. But there are also periods when the Canadian manufacturing economy developed faster than its US counterpart. There is certainly no evidence of Canada’s long-term imprisonment in the left nationalists’ “staple trap.” If Canada was ever in such a trap, it escaped from it long ago.

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This is, of course, just a sketch of the complex developments of many decades, but it might allow for a more fruitful understanding of the foundations of Canadian capitalism than the staple-trap framework that has dominated Canadian political economy.

Conclusion

POLITICAL ECONOMY OUTSIDE THE TRAP Canadian political economy (CPE) has always been bound up with social movements and political ideology, and, for much of its history (as this book has suggested) the most accurate way to designate that ideology is via the term “left nationalism.” Earlier three “moments” in the assertion of a left-nationalist politics were identified. The first, the dependency moment in the Waffle era, was without question the strongest. The second, emerging in the context of the campaign against free trade in the 1980s, was less powerful, but close enough in time to the first to “feel” as if a movement from an earlier era was reviving. The third moment was the attempt, in this century, to ascribe semi-peripheral status to Canada’s place in the world system. The brief attempt by the editors of Canadian Dimension to reinscribe left nationalism on progressive Canadian politics in the context of the antiglobalization movement served as a bridge into the semi-periphery moment, and brought to the surface some important themes one can use to bring this book to a close. In using the language “struggle for sovereignty,” the Canadian Dimension editors avoided the sharpest formulations of the left-­nationalist/ dependency school. Without question, though, the content was the same. The editors argued, as the 1970s left nationalists had before them, that “Canada has never known a fully sovereign existence” and “that Canada’s nation-building project has never been fully implemented” (Canadian Dimension Editorial Collective 2002, 14, 17). In an earlier era, political economists would have used the term “incomplete bourgeois revolution” to describe these phenomena, which have been ­associated with countries oppressed by imperialism. These oppressed

212  Escape from the Staple Trap

countries were said to have a “national question” with an objectively anticapitalist dynamic. This has been a central premise of Canadian left nationalism. The Canadian Dimension editors identified the leftward evolution of the Council of Canadians, but argued that this evolution was not a move away from left nationalism, but “the sociological outcome of a consistent struggle for sovereignty in the Canadian state” (Canadian Dimension 2003, 35). In other words, because Canada was a dependency of the US empire, the campaign for sovereignty inevitably would propel activists to the left. This proposition can be tested. Take, for instance, the leftward political evolution of the Council of Canadians and its principal spokesperson, Maude Barlow. In the early 1980s Barlow was associated, not with the left, but with the Liberal Party. She served briefly as adviser on women’s issues to Pierre Trudeau and then as a special adviser on social justice issues to Liberal leader (and then leader of the Official Opposition) John Turner. In 1988 she sought (and lost) the Liberal Party nomination in the riding of Ottawa Centre in the run-up to that year’s “free trade” election. She did not find this open identification with Canada’s traditional party of government at all inconsistent with her being a Canadian nationalist. In the late 1980s, she was simultaneously co-chair of the anti–free trade group, the Pro-Canada Network (Dunphy 1987; Eggertson 1988; Smith, Crane, and Cohn 1987). The Liberals abandoned the anti–free trade camp in the 1990s and, in some ways, became more neoliberal and continentalist than their Tory predecessors. In the 1990s, as head of the Council of Canadians, Barlow emerged as one of the Liberals’ most vocal critics. In the course of this leftward political evolution, she began to distance herself from certain aspects of Canadian nationalism. The 1995 referendum in Quebec on sovereignty-association was one such turning point. Tens of thousands of English Canadians – propelled by discounted airfares and free bus tickets – descended on Montreal for a Canadian nationalist rally to “persuade” Quebec to stay in Canada. This was the real deal, the open face of Canadian patriotism. The Toronto Star’s Lynda Hurst berated Barlow for not supporting the rally, but Barlow thought that “patriotism can too easily flow into right-wing nationalism” (Hurst 1995). Barlow’s recoil from the open display of Canadian patriotism was shared by others. Here is how one witness described it. I’m writing this letter on the train Friday morning heading from Toronto to Montreal filled with the ya-hoo Canada gang. They put on extra cars. It



Conclusion 213 is normally three, all empty. This time it was eight, packed out. The line-up went all the way from the train gate to the information light. There was one francophone black woman. All the rest were white, anglophone, ­middle-class and middle-aged. This is serious nationalism we’re dealing with. This is much more than the crowd that goes out to cheer the Blue Jay’s [sic] victory. This is nationalism with the real politics of the state, not the symbolism. I felt like it was a smile over bared teeth, the smile of a vampire. My buddy who gets on at Belleville asked the conductors when the ya-hoos are coming back, and I think I can beat them. The ride home will probably be more teeth than smiles, methinks. (Brooks 1995)

In 1995, Barlow was recoiling from patriotic Canadian nationalism’s invasion of Quebec. On 21 April 2001, Barlow was channelling internationalism, not Canadian nationalism. That day she addressed an enthusiastic rally of three thousand in a tent in Quebec City, part of the protests against the Free Trade Area of the Americas meetings being held in that city. “Welcome to the Revolution,” she thundered from the  podium. “As she repeated it in French, Spanish and Portuguese, the [three other] principal [European] languages of the Americas, the standing ovation roared louder.” She then joined the march of 65,000 and choked her way through clouds of tear gas and pepper spray to the perimeter defended by ranks of riot police (Bell 2001). This is not to say that Barlow was no longer a left nationalist. But without question the emphasis of her politics, in the context of the antiglobalization movements of the 1990s and early 2000s, shifted considerably away from the nationalism of the Pro-Canada Network days. As a vocal and consistent critic of the neoliberal agenda pursued by the then-ruling Liberals, Barlow immersed herself more and more in the growing antiglobalization movement. That movement had little sympathy for the 1970s-era view of Canada as “oppressed,” and there was even less resonance for a Canadian left-nationalist politics. Murray Dobbin paints an accurate picture: “the Council has moved beyond the issue of sovereignty and nationalism to focus, like other antiglobalization organizations, on the issue of class warfare (in Maude Barlow’s words) in the context of the struggle for democracy” (2002, 23). Contrast Barlow’s political evolution with that of David Orchard. Shaped by the same 1970s and 1980s left nationalism, in subsequent years he followed a completely different trajectory. Like Barlow, Orchard was a vocal critic of the Tories’ push to sign the Canada-US Free Trade Agreement (CUFTA) in the late 1980s. Orchard, then the

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head of Citizens Concerned about Free Trade, was hauled away by the RCMP in May 1987 for shouting at Prime Minister Brian Mulroney, “you’ve got no mandate to negotiate a free trade agreement with the United States” (Toronto Star 1987). But as the Liberals took up the torch of neoliberalism and continentalism in the 1990s, Orchard began to seek political solutions, not in the antiglobalization movement, but in the traditions of Canadian conservatism. In 1996 this evolution towards conservatism of one of the best-known Canadian nationalists went public in a major opinion piece carried by many Canadian newspapers. Orchard cast his anti–free trade position as of a piece with John A. Macdonald’s politics of “a strong central government and economic nationalism” whose goal was “to secure Canada’s independence. ‘Canada for Canadians’ was his slogan” (Orchard 1996). Orchard was not simply toying with this idea. In 1998 he joined the Tory party, and threw his hat in the ring as a leadership candidate. Abbie Bakan documented the pull this had on a large number of Canadian left nationalists: “Fully 7,000 followers, some of whom identify themselves as left activists, have joined the Tories solely for the purpose of voting David Orchard into the leadership. With a membership fee at a low annual rate of $10.00, the Orchard campaign leaders are calling for socialists and militants to join the ‘Ten dollar revolution’” (Bakan 1998). Orchard, though receiving a respectable 16 per cent of the vote in the first round and 22 per cent in the second, lost his leadership bid. He had earlier intimated that, if he lost, he would likely quit the party (Walker 1998). Once defeated, however, he did exactly the opposite, and ran as a federal Tory candidate. In 2003 he again ran for leader of the party, was able to control one-quarter of the delegates at the Tory convention, and, in effect, became the “king-maker,” passing his support to eventual winner Peter McKay in exchange for McKay’s agreement to re-­ examine the terms of Canada’s free trade deals with the United States (McDougall 2003). This all ended rather differently, of course, with the Tories evolving, not in Orchard’s direction, but instead toward a fusion with the Reform Party and a new leader named Stephen Harper. The neat connection between Canadian nationalism and the political left that was taken for granted by left nationalists in the 1960s and 1970s and reiterated in 2003 by the Canadian Dimension editors cannot be demonstrated in the case of either Barlow or Orchard. Both, in the 1980s, were nationalist opponents of free trade. But Barlow took very seriously the antiglobalization movements of the next two decades,



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and was influenced by them, in the process muting the “pro-Canada” emphasis of the 1980s. Orchard, on the other hand, in holding onto the nationalist framework of the 1980s and not immersing himself in  the antiglobalization movements, evolved in a very different direction, ending up, for a time, as a prominent, nationalist Canadian conservative. In a certain sense, the expression of patriotism in the 1995 Quebec referendum campaign was the start of a “coming of age” for Canadian nationalism, a nationalism that now seems ubiquitous. The 2010 Olympic Winter Games in Vancouver exemplified this. John Furlong, chief executive officer of the Games, was “stunned at the level of patriotic outpouring that has emerged” (J. Lee 2010). This patriotism peaked on 28 February when Team Canada defeated the US team to win the gold medal in men’s hockey. According to the National Post, “[w]hen, on Feb. 28, mobs of Canadians thronged Robson Square, and Yonge and ­Dundas, and Portage and Main, and Whyte Avenue, and climbed atop bus shelters and light standards and mailboxes across the country, faces painted red, brandishing maple leaves on mittens and toques and flags and posterboard and shirts, singing and bellowing and cheering their national hockey team’s overtime gold medal win over the United States, some saw a long overdue unrepressed pride in patriotism and called it good” (Libin 2010). The staid Economist called it a “jingoistic mood,” focused on the unprecedented success of the Canadian athletes: “Their success … stemmed from a programme to finance athletes’ preparation and training, called ‘Own the Podium’ and organized by the Canadian Olympic Committee five years ago. It had a budget of C$117  m …, raised from government and business, and it worked” (Economist 2010). Consider this for a moment. The jingoism surrounding the Olympics was a by-product of the success of a program encouraged and in part financed generously by the Harper Tories in an age of austerity. What else were they funding generously? In 2012 came the bicentennial of the War of 1812, hailed by the Harper government as a “defining moment” for Canada “that helped establish our path toward becoming an independent and free country.” On that basis, austerity or no, the Harper Tories set out to spend $28 million on events to commemorate the war (Boswell and Postmedia News 2011). Is it a coincidence that this is the same government that presided over the longest war in Canadian history (Afghanistan) and a serious and sustained buildup in Canadian military spending? There is a long association between encouraging

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patriotism at home as an accompaniment to military buildup and the conducting of wars abroad. Were this story to be based, not in Canada, but in Germany, France, or the United States, such a relationship would be taken for granted. Canada’s new jingoism has nothing to do with the left nationalism expected by several generations of Canadian political economy and everything to do with a very old, very toxic Great Power jingoism with which we have become all too familiar. If we understand that, we can unravel public policy stories that otherwise would be completely incomprehensible. Take just one. In 1985 the Mulroney government gave life to the Investment Canada Act to kill the much-debated Foreign Investment Review Act (FIRA). That same year the Mulroney government wound down Trudeau’s ill-fated National Energy Policy (NEP). Four years later, implementing the recommendations of the Macdonald Report, the same Mulroney Tories signed on to CUFTA (Hale 2008, 724). These moves – killing FIRA, killing the NEP, and signing on to CUFTA – have universally been seen as a package, part of the “antinationalist” neoliberal political agenda cemented in the first place by the Mulroney Tories. FIRA, for instance, with all its limitations, at least had allowed for a “limited screening of foreign investment.” Its replacement, the Investment Canada Act, was shaped with a considerably less intrusive “net benefits test” by which to assess non-resident purchases of Canadian corporations (723). So limited was this test that, from its inception in 1985 until 2008, the act was never once invoked to block the takeover of a Canadian corporation. In this century, however, the act is being used with relative frequency – by the very neoliberal Harper Tories. When the Harper government first used it in 2008 to block the sale of MacDonald Dettwiler’s aerospace division to US interests, this was widely seen as “the product of exceptional political and regulatory circumstances rather than a guide to future policy trends” (728). But just two years later, the Harper government used the act to block the sale of Canadian aerospace assets to US-based Alliant Techsystems Inc. (a sale valued at $1.3 billion). This was followed by the much more significant use of the act to stop the takeover of Potash Corporation, a sale that, had it gone through, would have involved some $40 billion changing hands. Two years after that episode, in October 2012, the Harper government ­invoked the Investment Canada Act again, delaying for a few months the proposed $6 billion acquisition of Progress Energy Resources by Malaysian-based Petronas (Erman, Tait, and McCarthy 2012; Keenan and Sharples 2010).



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Look more closely at the most significant of these episodes. In the same year as the 2010 Winter Olympics, Potash Corporation, a giant of Canadian capitalism – the twelfth-biggest corporation (by profits) in the country (Report on Business 2011) – faced a hostile takeover bid from a non-resident multinational corporation. For those opposed to the takeover, the argument was clear: “The issue … is the hollowing out of Canada: when large Canadian firms are acquired by or merged into foreign ones, their earnings then accrue elsewhere and are not reinvested in Canada” (Daifallah and Dov 2010). Look at the actors involved more closely. The authors of this hollowing-out argument were not those of a left-nationalist CPE textbook, but writing in the very conservative National Post. The non-resident corporation involved in the takeover was not a US-based one, but BHP Billiton, based in Australia. It was not a left-nationalist government that used the Investment Canada Act to block the takeover, but Stephen Harper’s Conservatives. The sight of a neoliberal government stepping in to alter the free working of the capitalist market was so unusual that, to deal with it, some commentators attempted to deny that the target company, Potash Corporation of Saskatchewan, was, in fact, Canadian. According to Thomas Walkom, “by any reasonable definition, PotashCorp, as it’s ­familiarly referred to, isn’t particularly Canadian at all. The majority of  its shareholders are foreigners; its senior executives are based in Chicago” (Walkom 2010). This is completely misleading. PotashCorp, in fact, has two head offices, one in Canada and one in the United States. Since the 1990s there have been only a few years in which a majority of its shareholders was based in the United States (PotashCorp 2012), and “most of its earnings are kept in Potash Corp. and reinvested in Saskatchewan” (Daifallah and Dov 2010). Further, it has been a very long time since share ownership and corporate control were one and the same thing. According to a standard understanding of corporate power provided by the Organisation for Economic Co-operation and Development (OECD), “control of a corporation occurs when a single institutional unit owning more than a half of the shares, or equity, of a corporation is able to control its policy” (2003). In other words, identifying that half the shares of a corporation are owned outside of Canada would be significant only if those shares were controlled by a single entity. The OECD goes further: “In practice, when ownership of shares is widely diffused among a large number of shareholders, control may be secured by owning 20 per cent or less of total shares.” The quixotic attempt to paint PotashCorp as “non-Canadian” was, perhaps, a result

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of incredulity that a neoliberal government was “protecting” a Canadian company, an action that simply does not fit the traditional CPE frame. It does, however, fit the themes developed in this book. The Harper Tories, working in sync with an independent capitalist class based in the sovereign Canadian state, carefully acted to protect and enhance its ability to succeed at the business of capital accumulation. We need a clear understanding that Canada is an advanced capitalist country whose government protects the wealth and power of domestic corporations through public policy at home and imperialism abroad. Those who oppose corporate power and imperialism will, of course, end up confronting US-owned auto corporations – corporations that, in the context of the Great Recession, laid off thousands to restore themselves to profitability. The overwhelming majority of corporations, however, will be as Canadian as maple syrup. The first part of the twenty-first century did see movements against the US state and its war for oil in Iraq. But those years also presented us with Canada’s own war for resources in Afghanistan, a Canadian-led bombing campaign in Libya, and in 2014 and 2015 active military involvement in Iraq. A left-­ nationalist analysis that rivets our attention on non-resident, particularly US, capitalists, but downplays the role (and sometimes the very existence) of a Canadian corporate elite is a highly misleading analysis. A political stance that understands the stars and stripes, but not the maple leaf, as a flag of conquest, can seriously disarm social movements. The awareness of the need for such an understanding is growing. The editors of an early twenty-first-century CPE textbook argued that “[m]any who fought against free trade in the 1980s saw themselves as Canadian nationalists defending their country’s sovereignty … Their position evolved as they joined forces with progressive Americans, Mexicans, and other Latin Americans also resisting free trade and neoliberalism on the continent. They developed a more nuanced view of the international role of the Canadian state and adopted sharper internationalist positions on many issues” (Grinspun and Shamsie 2007, 40). Embedding that internationalism in twenty-first-century CPE means escaping the conceptual staple trap of twentieth-century CPE. In its analysis of the origins of Canadian capitalism, the staple-trap approach attempted to assimilate the Canadian experience into that of the underdeveloped economies of the global South. This allowed it no room to anticipate the development that manifestly has occurred in Canadian capitalism – that of a mature, imperialist industrial power, one of the largest advanced capitalist economies in the world despite its very small population base.



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Toronto and Detroit Revisited A French philosopher has told us: “Dead ideas are those which walk around in fancy clothes, but without either character or courage. They are dead because they have become commonplace, making up part of the intellectual baggage of the great army of the uninformed. On the other hand, strong ideas are those which shock and scandalize: evoking indignation, anger and animosity in some, and enthusiasm in others.” – Paul Golay (1915, 20 – author’s translation)

In Canadian political economy in the 1960s and 1970s, there were indeed strong ideas that shocked and scandalized, evoking “indignation, anger and animosity in some, and enthusiasm in others.” These were the ideas of left nationalism. As Robert Laxer wrote in Canada Ltd., “[w]hile other scholars may lend their talents to the esthetics and the rigour of an argument or to the internal consistency of their models, this book concentrates on the real world of political economy … The logic and method of the authors derives from the contention that to understand the world is to be involved in changing the world” (1973, 6). Again and again, Laxer hammered home this contempt for theorizing detached from practice: “An avowed rejection of neutrality in the social sciences is preferable to the pretence of detached objectivity” (1973, 25). These strong ideas evoked animosity. The leadership of the New Democratic Party (NDP) attempted to exorcise their influence by expelling the left-nationalist Waffle. The ideas also inspired enthusiasm. It would not be an exaggeration to say that the hegemonic ideas in English Canada’s biggest radicalization of one or two generations (which the late 1960s and early 1970s certainly witnessed) were those of left nationalism. That the movements associated with these ideas should have disappeared is not unrelated to the inability of the left-nationalist analytic framework to explain the trajectory of Canadian economic development. But testimony to the power of these ideas is the way – even after the movements with which they were associated had long gone – many of their key tenets held on as unquestioned assumptions in the decades that followed. The questionable elimination of the Auto Pact from much of the analysis that makes up the new political economy; the hiding of Canadian manufacturing trade in statistical categories peculiarly ill-suited to developing a profile of the Canadian economy; the implausibility of treating the bitumen sands as analytically equivalent to the fur trade – this

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book has considered all of these. It has tried to underline these and other key analytic weaknesses of the left-nationalist approach, to show the way in which its “weak-Canada” assumptions have permeated much of the subsequent political economy writing on Canada, and to suggest the general lines of an alternative. The need for an alternative is highlighted clearly in the different trajectories of the economies of Canada and the United States, trajectories that have been the opposite of that expected in much of the CPE literature. The book opened with a discussion of Toronto and Detroit. The pertinence of the comparison was brought home forcefully with Detroit’s filing, in July 2013, for “Chapter 9” protection – “the biggest city in the country’s history to declare itself bankrupt, saddled with some $18 billion in debt.” The human face of this bankruptcy is hard to imagine. “There are 78,000 abandoned buildings scattered across Detroit and 40 per cent of the street lights do not work.” Job prospects are so dim that the city’s population has been steadily shrinking: “A city of 1.8 million people in the 1950s, Detroit lost 250,000 residents between 2000 and 2010 and is struggling to stay above 700,000” (Bhat 2013). Detroit’s plight is the most extreme of a problem that extends across the entire United States. “There are five more towns like Detroit in Michigan alone. There are many more municipalities across the country in similar positions” (Whitney 2013). Toronto’s trajectory has been precisely the opposite. Between March 1996 and August 2013, the Toronto Census Metropolitan Area (CMA) added 1.5 million people – almost equal to the entire population of Detroit in the 1950s – and its population stood at 4,983,800 (Statistics Canada 2013c). As for unemployment, the rate in Toronto had dropped from a recession-induced 10.0 per cent in August 2012 to 7.1 per cent in August 2013 (Toronto 2013, 10). Since the Great Recession of 2008, a literature has developed on the way that event seemed to hit the United States much harder than it did Canada. This approach is not entirely novel. During the last major economic downturn, at the beginning of the 1990s, the same theme began to emerge, and contrasting the experience of Toronto and Detroit was then also a point of departure. In 1990 the Economist did a major study of the two cities, arguing that “Toronto is famous as the Canadian city that works; Detroit is notorious as the American city that doesn’t” (Economist 1990a). In 1951 Detroit had almost 2 million people while Toronto had just over 1 million. By 1988 their positions had reversed, Detroit having shrunk by 50 per cent to 1 million and Toronto more



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than doubling to almost 2.5 million. The Economist continued: Toronto “has weathered declines in its old manufacturing base,” making it “the leading financial centre in North America” after New York and Chicago. Detroit, by contrast, had replaced its old manufacturing base with urban decay. “Within a mile of the Renaissance Centre, Detroit’s landmark skyscraper, stand hundreds of handsome red-brick houses. They are similar to the turn-of-the-century houses that fetch $400,000-plus in a gentrified downtown area of Toronto known as Cabbagetown … Yet the Detroit houses are worthless” (Economist 1990a). “What lessons has the one for the other?” the Economist asked, but offered no credible answer. It suggested as one possibility Toronto’s federal form of municipal government, decided on in the 1950s. But anyone familiar with the rather chequered performance of municipal governments in that city will hesitate to attribute too much of Toronto’s relative success to their rule. And since the Economist study was conducted, Toronto’s federal form of government has disappeared; its lead over Detroit, however, has not. A stronger argument would be one that recognizes the pressures in the United States to shift surplus from the welfare state, urban development, capital investment, and so on because of sustained high levels of arms spending over more than a generation. This will be the jumping off point for Arms and the Nation, the second volume of this study. Meanwhile, the Toronto-Detroit story, and the striking comparison of the two cities, will have to remain where it is – at the level of anecdote rather than analysis. The central point of this first volume has been to examine the weaknesses of the mainstreams of Canadian political economy, to suggest an explanation for these weaknesses, and to outline a possible new direction in the ongoing attempt to situate Canada in the world economy. To move from anecdote to analysis, it was first necessary to interrogate Canadian political economy from within the “staple-trap” orthodoxy that has dominated the field since the 1960s. There are staple traps, but they are not the ones identified in the CPE mainstream: the trap of underdevelopment waiting to reveal itself because of Canada’s status as hewer of wood and drawer of water. The first, real, staple trap is an intellectual one that transposes categories appropriate to the global South and attempts to deploy them in the very different reality that is Canada, a full and open member of the G7, key initiator of the G20, and leading member of the International Monetary Fund, the World Bank, and the World Trade Organization. The twenty-first-century version of this ­intellectual trap, which attempts to place Canada in the same semi-­

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peripheral category as Mexico, is as unpersuasive as the twentieth-century version, which attempted to place Canada in the category of the world’s dependent economies. And can there be any doubt that there is another staple trap, an ecological one? The skewing of development in Canada towards the boiling of mud from the bitumen sands is at the centre of much of early twenty-first-century politics. The Keystone XL pipeline has been stopped, for now, because of huge concerns about the danger of transporting oil vast distances across sensitive landscape and reliance on an industry that is at the centre of concerns about global warming. The pressure to build pipelines to move the crude created by our boiling mud economy, however, is relentless in the extreme. Challenging that ecological trap will require a very strong sense of the forces on which we can rely when building social movements. Sovereignty is bound up with this bitumen sands trap, but not the sovereignty of Canada. If in doubt, focus for a minute on Cenovus ­Energy Inc., Enbridge Pipelines Inc., Encana Corporation, Ensign Energy Services Inc., North West Upgrading, NOVA Chemicals Corporation, Penn West Petroleum Ltd., Suncor Energy Services Inc., TransAlta Corporation, and TransCanada PipeLines Limited. These ten corporations had three things in common in 2012: first, they were all Canadian; second, they were all deeply embedded in the bitumen sands and energy industries; and third, they all gave thousands of dollars to both of Alberta’s provincial conservative parties, the Progressive Conservatives and Wildrose (Audette and P.C. Alberta 2012; Kellogg 2012; ­Wildrose 2012). This is the very picture of sovereignty in a capitalist economy, a symbiotic relationship between nationally based corporations and the political parties that shape public policy at the level of the state and sub-state. Moreover, the focus on a mythic suppression of Canadian sovereignty obscures the real sovereignty that is being suppressed: that of indigenous communities. The very success of the assertion of Canadian sovereignty has had the effect of suppressing the legitimate claims of indigenous people to their own sovereignty. The sovereignty issues bound up with the bitumen sands – and the other resources being “developed” in the Canadian economy – are those of indigenous communities on whose land that development is taking place. In northern Alberta alone, this is a huge issue. “The cultural heritage, land, ecosystems and human health of Indigenous communities including the Mikisew Cree First Nation, Athabasca Chipewyan First Nation, Fort



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McMurray First Nation, Fort McKay Cree Nation, Beaver Lake Cree First Nation, Chipewyan Prairie First Nation, and the Métis, are being sacrificed for oil money in what has been termed a ‘slow industrial genocide’” (Indigenous Environmental Network 2012). Building alliances between non-indigenous and indigenous communities will be at the centre of the social movements we will need in the twenty-first century. An unfortunate side effect of the long dominance of left nationalism, however, has been to direct social movements towards a futile search for false allies – in particular, leading to a confusing, on-again off-again courtship with the traditional governing party of Canada – the Liberals. Chapter 3 argued that the intellectual roots of CPE are found in both radical dependency theory and the Liberal Party of Canada. The latter is deeply embedded through the entire history of CPE. Kari Levitt’s Silent Surrender is representative. The very introduction of the notion of Canadian “colonialism” and dependency, in Levitt’s account, comes from one of the most senior Liberal cabinet ministers of the mid-1960s, Walter Gordon, and Prime Minister Lester Pearson. They are joined later in Levitt’s chapter by then Quebec provincial Liberal cabinet minister Eric Kierans. Levitt quoted Gordon as warning, in 1967, of the danger of Canada’s falling into a “semi-dependent position in relation to the United States.” If nothing was done to prevent it, Gordon argued, Canada was in danger of “becoming a colonial dependency of the United States, with no future except the hope of eventual absorption.” He added that, “with economic control inevitably goes political control. This is what colonialism is all about.” He ended by saying that Canada was “haunted by the spectre of a colonial or semi-colonial future.” Levitt then cited Pearson: “It is not a very comforting thought, but, in the economic sphere, when you have 60 per cent or so of your trade with one country, you are in a  position of considerable economic dependence.” A little after, she brought in Kierans, who said that the “tightening of the American grip on our own economic objectives” is “an infringement on our political sovereignty” (Levitt 2002, 1–10). Pearson, of course, was prime minister from 1963 to 1968. Gordon, who went on to become an icon of Canadian nationalism – the “gentle patriot” who warned Canada of the danger of US domination – was an  extremely powerful man in his time. He was finance minister in Pearson’s Liberal government from 1963 to 1965, and from 1967 to 1968 he was president of the Privy Council (Azzi 1999). He was, in other words, one of the senior men in the Canadian state. As for Kierans,

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“[f]rom 1960-63 he served as President of the Montreal and Canadian Stock Exchanges.” In 1963 he was “elected to the Quebec Legislature as representative for the riding of Notre-Dame-de-Grâce and served as Minister of Revenue and later as Minister of Health in the Cabinet of Premier Jean Lesage. In April 1968 …[he] was a candidate for the leadership of the National Liberal Party and as Member of Parliament for Duvernay joined the Trudeau cabinet in July of that year” (Kierans 1974, 299). In that cabinet, his most prominent portfolio was that of postmaster general, where he began the process of downsizing the post office, phasing out the Post Office Savings Bank, and closing many small post offices. He was the first to attempt to introduce massive new automation into the post office, a move that created serious conflict with the postal unions (McDougall 1993, 120). In short, Pearson, Gordon, and Kierans, the three authorities with whom Levitt began to construct her case, were all able representatives of Canadian capitalism. Levitt was not without criticism of Pearson, in particular. Although she quoted him as an authority, she also exposed his waffling on the Vietnam War. Pearson was reluctant to dissociate the Canadian government publicly from the US government because “an embargo on the export of military equipment to the U.S. and concomitant termination of the Defence Production Sharing Agreement would have far-reaching consequences that no Canadian government could contemplate with equanimity” (Levitt 2002, 3). Peacekeeping, in other words, had to take a back seat to Canadian corporate profits. Levitt saw this as part of her argument that Canada was in the process of losing its sovereignty to the United States. Later in her book she wrote about “the problem of maintaining political sovereignty at a time when economic sovereignty is so gravely threatened.” This loss of sovereignty would make it relatively easy for “America’s closest friends,” including Canada, to be “harnessed in the effort to finance the rising costs of empire” (56, 102). As I have touched on in this volume (and will argue in more detail in the second), one reason for the rise to parity with the United States by the European Union has been the ability of the EU’s member states to resist helping the United States finance the costs of empire. On Vietnam, Canada similarly resisted – despite considerable US pressure, Canada did not go to war in Vietnam. This was an exercise in sovereignty, no different than Jean Chrétien’s exercise of Canadian sovereignty in 2003, when he refused to back the US war in Iraq. Just like Chrétien, Pearson was acting as a loyal representative of the Canadian capitalist class. The



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Defence Production Sharing Agreement saw Canadian corporations profit handsomely as they fed the voracious US war machine. Avoiding the war in Iraq meant avoiding the enormous costs of what came to be known as the $3 trillion war (Stiglitz and Bilmes 2010). What could be more sovereign, in a capitalist world, than avoiding paying the costs of a bloody war, while promoting the conditions by which Canadian capitalists could profit from it? This is not a sign of neo-, semi-, or full-on colonialism. It is a sign of (capitalist) sovereignty – the sovereignty of a rich capitalist state. This resistance to being “harnessed in the effort to finance the rising costs of empire” has had extremely important consequences for Canada, Japan, and various western European countries. It is precisely because these countries have ploughed less surplus into the military and reinvested more in the “civilian” economy that they have been able to catch up to the United States in economic development since the Second World War (Kellogg 2013a). A confused relationship with the Liberal Party of Canada is deeply embedded in the entire history of Canadian left nationalism. In the early 1980s Liberal Pierre Trudeau embarked on his NEP. In 1980 ­ Mel  Watkins appeared on a platform with “a beaming federal Mines Minister Judy Erola,” saying that “suddenly we have a Government in Ottawa that is apparently doing something on the economic nationalist front” (Moses 1980). The next year, another former leading Waffler, Robert Laxer, “who, from the left wing of Canadian politics, has been denouncing Liberal governments since the days when Pierre Trudeau was a carefree adolescent on a motorcycle,” along with fourteen other members of the Committee for the Canadianization of the Petroleum Industry (among them Tommy Douglas, Walter Gordon, and Mel H ­ urtig), sat down with Trudeau to encourage him to “stick with his plan to Canadianize the petroleum industry” (Gray 1981). As the 1980s came to a close, the key economic issue shifted from the now shelved NEP to CUFTA. Many saw the 1988 federal election as a referendum on CUFTA. Many leading left nationalists advised “NDP supporters to vote Liberal if the Liberal candidate in their riding has a better chance of winning than the NDP” (Kellogg 1988). When the proCUFTA Tories, under Brian Mulroney, won a strong majority, the left nationalists who had called for an anti-CUFTA vote turned their attention to Quebec, where the Tories had won sixty-three of seventy-five seats. In the aftermath of the election, Mel Hurtig said: “I was very disappointed. I thought it would be very close. What I did not expect was the total collapse of the Liberals and NDP in the province of Quebec

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despite signs of big opposition to the trade deal elsewhere. It was really Quebec that swung the tide in this election” (Dawe and Hutchison 1988). In a major article in the April 1989 Canadian Forum, York University’s Reg Whitaker took this a step further: “The single most dispiriting aspect of this election must be the results in Quebec … To be blunt, free trade was imposed upon English Canada on the backs of Quebec voters.” Whitaker drew extreme conclusions from this analysis: “Quebec nationalism is the enemy of Canadian nationalism … it is clearly on the side of the political Right.” He concluded that “Quebec domination of Canadian politics has never been more obvious, nor more abrasive” (1989, 12). A generation later, clearly visible are not simply the risible anti-­ Quebec affect of Whitaker’s approach, but the inaccuracy of his analysis. The Liberals – the party that was supposed to stop free trade – became the party that, under Jean Chrétien, voted to implement the North American Free Trade Agreement (NAFTA), the successor to CUFTA. Nationalist Quebec generated a burgeoning, not of the right, but of the left, symbolized by a generations-long student movement that has kept university tuition fees the lowest in the country, a deeply rooted feminist movement that has laid the groundwork for the most affordable child care in the country, the massive anti-war demonstrations in 2003 that prevented the Chrétien Liberals from going to war in Iraq, and the emergence of Québec solidaire, one of the most successful new anti-neoliberal parties in the global North. These developments are the opposite of those predicted by left nationalists in English Canada, whose political orientation towards the Liberal Party, in the context of the CUFTA debate, obscured from view the real allies of progressive politics and highlighted with real clarity the contradictions within left nationalism. The second volume of this study, Arms and the Nation, is oriented towards the economic effects of militarism. In this regard Canada has been fortunate. Through the 1960s, 1970s, and 1980s, Canada sustained a much lower level of arms spending than did the United States. By forgoing the development of a warfare state, Canada was able to develop a welfare state to a much greater degree than did the United States. The Canadian economy’s extractivist addiction, however, has partially mitigated the advantages Canada accrued by forgoing a warfare state. This is also where the real trap exists – not one that leads to capitalist underdevelopment, but one that rivals militarism in its waste of human and capital resources.



Conclusion 227

The window of possibilities opened by military parasitism has been threatening to close now for a generation. Canada’s peacekeeping moment ended with its participation in the First Gulf War in 1991. Since then, both Liberal and Conservative governments increasingly have emphasized warfare at the expense of welfare. In the coming years we will all have to confront this trap of militarism. The Harper government tells us that it makes good policy sense to spend billions on re-­ equipping the navy and air force. But in Arms and the Nation I will argue that three generations of feeding the voracious war industry machine in the United States are the principal reason for that country’s long economic decline. Canada can learn lessons from this experience: building a welfare state, rather than a warfare state, is not just good social policy – it is good economic policy. The US experience can also serve as a stern warning: to ensure economic decline, devote increasing resources towards militarism. The orthodox Canadian political economy tradition conceptualized a Canada with a truncated manufacturing sector, weak and declining vis-à-vis the United States. If, in fact, Canadian capitalism’s hand is stronger than most suspect, then an entirely new political orientation for combatting that capitalism will have to be advanced. The weakCanada explanation is engagingly simple: reduced autonomy because of non-resident control of the economy is the source of Canada’s problems. The political solution is similarly simple: increase “Canadian” control, and all will be well. But perhaps this approach is not just simple, but facile. By no stretch of the imagination can the crises that Canadian capitalism has faced in the past, or will face in the future, be ascribed to any lack of “Canadian” control. There is a Canadian capitalist class that is powerful, united, and quite firmly in charge of the economy and the state. Canada’s past, present and future economic problems are rooted in the same complex dynamics which caused unemployment to soar in West Germany in the 1970s and 1980s, caused Detroit to become an economic black hole, wiped out Britain’s coal industry, turned the US steel belt into a rust belt, and led to the dot-com meltdown of the late 1990s and the sub-prime crisis of the twenty-first century. Consequently, the solutions will be similarly complex. No “industrial strategy” with increased investment in research and development or a focus on the “high-tech” sector will suffice. No “Canadian car” or “Canadian oil ­industry” will suffice. No measure of buybacks of the “commanding sectors of the economy” will suffice. Because such strategies attack the

228  Escape from the Staple Trap

wrong enemy (non-resident control) on the basis of incorrect analysis (the Canadian economy is structurally weak in high-tech industries, finished manufacturing, and machine tools), they have no hope of avoiding the difficulties that the coming decades hold in store for all capitalist countries. The message of this book to the hegemonic set of “solutions” that have been advanced in the new political economy is that they all have to be reassessed in the sober light of a paradigm’s failure. One thing should be kept in mind, however, by way of conclusion. Although it seems apparent that the left-nationalist school of political economy that began with such promise at the time of the Waffle has now ceased to function as a coherent, vibrant source of ideas for analysis and strategy in Canadian politics, we all owe it a tremendous debt. By challenging much of what had gone before, left nationalism galvanized a generation into political activity. By attempting a reunification of political analysis with political activism, it attempted to bridge the divide between the struggles of the working class and the theorizations of the left. That it ultimately failed is not the point. It challenged a generation of “dead ideas” walking around, in Paul Golay’s words, “in fancy clothes, but without either character or courage.” Today’s political economists are not beginning again, but building on its legacy.

Notes

Chapter 1 1 A generation ago, this deal was often given the acronym “CAFTA” (Baer 1991; Brown, Deardorff, and Stern 1992; Cox and Harris 1992; Rugman 1990). However, CAFTA corresponds to “Canadian-American Free Trade Agreement,” and once in force the deal was officially titled the CanadaUnited States Free Trade Agreement. Further, in the years since, the United States has signed a major deal with five Central American countries, the Central American Free Trade Agreement, which also carries the signifier “CAFTA” (Morley 2006; Morley, Nakasone, and Piñeiro 2008). In specialist trade and government circles, “CUSFTA” has been extensively used (Clausing 2001; Jones 2000; Romalis 2007). While accurate, it does not lend itself to easy pronunciation. This book has sided with others (Campbell 1993; Grinspun and Shamsie 2007) who have chosen “CUFTA,” an acronym both accurate and possible to pronounce. 2 William Burgess, in his very useful doctoral dissertation, “Canada’s Location in the World System: Reworking the Debate in Canadian Political Economy” (2002, 226), points out that it was this 1963 work by Watkins that first introduced the term “staple trap” into CPE. Watkins’s oft-cited piece is best accessed from the widely circulated collection, Approaches to Canadian Economic History (Easterbrook and Watkins 1969). 3 The preceding three paragraphs were first published in Kellogg (2011, 120–1). 4 Thanks to Professor Geoffrey Hazard, Hastings College of the Law, University of California, who, along with Dr Abigail Bakan – then with Queen’s University, now with University of Toronto – was part of an informal, stimulating discussion in summer 2011 while on vacation in the

230  Notes to pages 20–71 Thousand Islands, during which this particular way of understanding “subcontracting sovereignty” emerged. For Professor Hazard, this was of interest in terms of Britain’s support for and encouragement of the United States’ use of the Monroe Doctrine. As it concerns this study, the concept has clear relevance in terms of Britain’s support for and encouragement of political sovereignty for the elite in what is today Canada. Its use here is quite different from the notion of “subcontracting sovereignty” in the context of neoliberalism, where it refers to taking activities normally in the realm of the state and displacing them to the corporate sector (Freeman and Minow 2009). 5 For a more detailed elaboration of the concept of military parasitism, see Kellogg (2013a). Chapter 3 6 This chapter and the next build on research developed in three conference papers and one academic article. “After Left Nationalism: The Future of Canadian Political Economy” (Kellogg 2003a), from which the overall ­title for this two-volume study has been taken, was delivered at the ­annual meetings of the Canadian Political Science Association (CPSA) at ­Dalhousie University in 2003. A retrospective on the contribution of Kari Levitt was published as “Kari Levitt and the Long Detour of Canadian ­Political Economy” (Kellogg 2005a). It originated as a paper of the same name (­Kellogg 2004b), presented as part of the panel, “Canadian Nationalism and Industrial Policy,” at the 2004 meetings of the CPSA at the University of Manitoba. Thanks to the panel participants – in particular, Cy Gonick, who, in his role as discussant, made many useful and insightful remarks. The critique of the “hollowing-out” framework, “Hollowing Out? Canadian capitalism in comparative context,” was also originally a CPSA political economy paper (Kellogg 2010). The chapter’s title is a conscious play on the title of the influential Gordon to Watkins to You (Godfrey and Watkins 1970). 7 Thanks to Byron Sheldrick, Department of Political Science, University of Guelph, for underlining the significance of this point, while acting as discussant for “After Left Nationalism” (Kellogg 2003a). 8 The political movements associated with left-nationalist ideas are not the principal subject matter of this book. The story has been well told elsewhere; see, for example, Bakan and Murton (2006); Bullen (1983); Hackett (1976, 1980); and Warnock (1989). 9 The statistics are taken from the International Labour Organization. Manufacturing is contained in one category, and the figures for the

Notes to pages 72–104 231 services sector are derived from a composite of four categories: Wholesale and Retail Trade and Restaurants and Hotels; Transportation, Storage and Communication; Financing, Insurance, Real Estate and Business Services; and Community, Social and Personal Services. The latter category incorporates the very large health care, education and public administration sectors. 10 A word of caution is necessary in country comparisons of GDP between the United States and Canada. The US Bureau of Economic Analysis provides a table of “Gross Domestic Product by Industry Accounts,” which at first glance should provide a quick way of calculating the share of GDP for each type of economic activity. However, “[g]ross output is measured by summing the value of the industry’s sales or receipts, other operating income, commodity taxes, and inventory change; … Because gross output may be produced and consumed as an intermediate input in the same year, aggregations of gross output across industries reflect double-­ counting.” The more accurate measure is of “[v]alue added … measured as the value of the industry’s gross output, less the value of intermediate inputs that industry consumes producing this gross output. … Therefore, the ­value added of all industries equals gross domestic product” (Medeiros, Smith, and Strassner 2005, 34).   No such difficulty presents itself with Canadian statistics, as Statistics Canada restricts itself to measuring “the value of output of an industry less the value of intermediate inputs required in the production process. In this sense, it is an output-based measure of economic activity and is commonly referred to as the value-added of an industry” (Canada 2009). A comparison based on US gross output statistics and Canadian valueadded statistics would, for instance, overstate significantly the relative size of US manufacturing in cross-country comparisons. Chapter 4 11 The research that forms the core of the first part of this chapter was first presented in Kellogg (2010). 12 Apologies to Aretha Franklin (1985). 13 For a contemporary summary of the argument, see Frank, Chew, and Denemark (1996). Again, this is a point that deserves exhaustive treatment in its own right. Frank’s thesis has certainly been profoundly important in outlining the development of many “peripheral” economies in the world system. But in the twenty-first century, we are witnessing once-dependent economies such as those of China, India, and Brazil establishing viable home markets and moving aggressively into the world economy on the

232  Notes to pages 110–41 basis of a regime of expanded accumulation and reproduction, with implications that are only beginning to be appreciated. Chapter 5 14 Some of the arguments in this chapter first appeared in Kellogg (2008), which is a continuation of research presented in two other conference papers (Kellogg 2005b, 2006). The introduction is adapted from a portion of a chapter on the Alberta oil industry (Kellogg 2015). 15 It was only in 1961 that the then Dominion Bureau of Statistics reconfigured its statistics to highlight the export of fully finished end products (Dominion Bureau of Statistics 1961). The categories prior to 1961 were ­agricultural and vegetable products; animals and animal products; fibres, textiles and textile products; wood, wood products and paper; iron and its products; non-ferrous metals and their products; non-metallic minerals and their products (except chemicals); and chemicals and allied products (Dominion Bureau of Statistics 1947a). In two earlier projects (Kellogg 1991, 2008), I attempted to recompile these earlier statistics to make them compatible with those from post-1961. For the purposes of this book, however, I decided to let the two “eras” speak in their own terms. Readers can draw their own conclusions. 16 Interestingly, Saskatchewan also has significant shale deposits, which, beginning in the first decade of the twenty-first century, began attracting the interest of oil speculators (Schmidt 2007). Chapter 6 17 The title of this chapter is consciously derived from Dewitt and Kirton’s interesting and influential analysis of Canadian foreign relations by a similar name (Dewitt and Kirton 1983). Many of the arguments in this chapter were first workshopped at panels organized through the political economy section of the CPSA. “Canada as a Principal Economy: A Comparative Critique of the ‘Counter-Discourse of Political Economy’” (Kellogg 1987) was delivered at one such panel in 1987 in the context of the anti-free trade discussions of that era. At the 2003 CPSA political economy meetings, in the context of the anti-globalization movement, I delivered the paper, “After Left Nationalism: The Future of Canadian Political Economy” (Kellogg 2003a), part of the panel, “Future of the Left in a Neo-Liberal Era.” That 2003 paper was a continuation of themes developed in a discussion launched the previous year by Canadian Dimension on the merits of a “campaign for Canadian sovereignty.” See Canadian Dimension Editorial

Notes to pages 146–204 233 Collective (2002), my response (Kellogg 2003c), followed by a rejoinder by the CD editors (Canadian Dimension 2003). My 2003 CPSA paper also became the focus of an online debate at viveleCanada.ca kicked off by Robin Mathews (2003b), followed by my response (Kellogg 2003d), contributions from left-nationalist veterans Jim Laxer (2003) and Mel Hurtig (2003), and concluding comments from myself (Kellogg 2003b) and Mathews (2003a). A version of the paper, incorporating some of these debates, was published as Kellogg (2004a). 18 Of interest is that, while trade had been loosening between Canada and the United States, it had been tightening between the United States and the rest of the world. In 1989 the Economist noted that “[t]he share of America’s imports restrained by quotas and other barriers rose from 12% in 1980 to nearly 25%” (Economist 1989). Chapter 8 19 The ideas for this chapter were first prepared as a conference paper; see Kellogg (2010). 20 A long footnote in David McNally’s 1981 critique of Harold Innis provided the initial impetus for the research that went into this section. McNally – after indicating the importance of the work of H. Clare Pentland – ­stated that “we still lack any general study comparable to Lenin’s The Development of Capitalism in Russia” (Lenin [1899] 1960; McNally 1981). Too often, when Lenin’s name is invoked, it serves only to signify the stillraging debates about the merits or demerits of the Russian Revolution. Apart from his role as a revolutionary organizer, Lenin was a serious scholar in his own right – including in the field of political economy. Lenin’s method in his study of early Russian capitalism is, in fact, quite relevant to a discussion of the early years of Canadian capitalism. It is this Lenin that I examine here. 21 Bairoch was a wonderful statistician, but his work needs to be supplemented with an understanding of the non-economic factors that led to the spread of European imperialism. There was no automatic acceptance of “superior” European goods in either the Indian subcontinent or China. The former did not “accept” European goods until the army of the East Indian Company had engaged in a war of conquest and occupation. In China, two devastating “opium wars” laid the country prostrate in the face of rampaging, avaricious western capitalism. This political aspect of the story is absolutely central, but will have to await separate investigation. 22 It is worth adding a comment here on Bairoch’s methodology. Of most ­interest is that pertaining to the twentieth century. His most interesting

234  Note to page 205 category, “per capita level of industrialization,” was based on “the amount of value-added by country and by region of the world.” For the total volume of manufacturing output, twentieth-century data were “calculated on [the] basis of individual countries [sic] indices” (1982, 319). There are particular difficulties with both these methodologies for the Third World and for the Soviet bloc that required special adjustments, but not for the western advanced capitalist nations of which Canada is a part. See his painstaking methodological appendix (311–31). 23 Author’s compilation from data available in Basavarajappa and Ram (1983, series A1); Beshiri (2010, 4); Sawyer (1983, series R1–22); United States (1975a, series D 127–141, series D 152–166; 1975b, series A 6–8).

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Index

Index prepared by Angela Pietrobon Abu-Laban, Yasmeen, xx accumulation, 28, 58, 102–4, 139, 167–8, 175, 181, 183–8, 200, 209, 218, 231–2n13 advanced capitalist countries, 6, 16–17, 69, 99–104, 109, 122, 128, 153, 155, 168, 176, 218; advanced capitalist economies, xvi; economy, 14, 99, 104, 135, 139, 144, 208; employment in, 157–9; manufacturing, 201–6; output per capita, 160–1; productivity and competitiveness, 161–3 Afghanistan, xvi; and Canada, 215, 218; Canadian policy in, 21; US military involvement in, 153 Africa, 10, 18, 122, 165, 185–6 agriculture, 37, 103, 191; Canada, 103, 121; in core compared to other zones, 126; in core compared to periphery, 53–4; early Canadian economy, 193–201, 207; employment in, 33 Akwesasne, 84–5, xv–xvii, xx; Cornwall bridge protests (1968),

84, xv–xvii; Cornwall Island, xv. See also Mohawk Albo, Greg, 7, 15 Alcan, 86–8, 177 Alcoa, 86–8, xv American. See United States; US Apple, 49–50, 169 Argentina, 13, 142 Arrighi, Giovanni, 35–6, 38–9, 48, 52, 54 Asia, 15, 64 Assiniboine, 41 Australia, 12, 24–35, 37–9, 43–4, 136–7, 156; currency value, 56; development indicators, health, 31; employment in agriculture, 33; GNI per capita, 30; number of corporations, 49–53. See also corporations; mergers and acquisitions Austria, 43 Auto Pact, 219; Auto Pact Effect, 127–35, 139 automobiles. See industry Babones, Salvatore, 44 Bairoch, Paul, 202–4, 207, 233–4nn21–2

264 Index Bakan, Abigail, 141, 214, 229n4 Bangladesh, 170 Bank of England, 56 banks and banking, 10, 40, 56, 87, 89, 106, 108, 178–9, 220, 224 Barlow, Maude, 212–15 Bayne, Nicholas, 63 Beckett, Katherine, 153–4 Belgium, 38, 42–3, 202, xvi Bertram, Gordon W., 190–1 bitumen, 129, 222; bitumen sands, 6, 110–13, 121, 127, 139, 219; bitumen sands effect, 123–6; oil, 6, 110–13, 124–6, 129, 139–40, 197, 222–3; tar sands, 12, 111, 124–5 Bluestone, Barry, 106, 108–9 Boli-Bennett, John, 38 branch plants, 58–9, 95, 102, 114, 129, 168 Brazil, 10, 18, 63, 79, 88, 104, 142, 170, 231–2n13; compared with Canada, with India, 13, 118, 127, 129; as semi-peripheral, 38; staple trap, caught in, 9; World Social Forum, and encuentro move to (1999), 143 Britain, 19, 36, 153, 155–6, 191, 227; as exporter of capital, 101–2; Hobsbawm on origins of industrialization in, 118; and North America, export of capitalism to, 199; subcontracting of sovereignty, 185–9, 209, 229–30n4. See also United Kingdom British Columbia, 135 Cameron, Duncan, 5–6, 66, 147–8, 159; on the Liberal Party, and Walter Gordon, 60–1; The Other Macdonald Report, 145–51, 156–7, 159, 162; use of “Washington Consensus” for Canada, 170

Canada: and Afghanistan, 21; capitalist class in, 175–84, 188; as centre, 116; class, and development of capitalism in, 103; compared with Mexico, 26–32; as core, 23–56, 59, 104, 135, 139–40, 166; currency value, 56; development indicators, health, 31; drawer of water, 59, 111, 124, 128, 136, 221; employment in agriculture, 33; external trade profile, 110–40; fur trade, 84, 194–5, 201, 219; GNI per capita, 30; hewer of wood, 59, 111–12, 123, 128, 136, 164, 221; and Iraq, 183, 218, 224–6; jingoism, 215–16; and Libya, 218; employment in manufacturing and industry, 67–70; manufacturing output, 203–5; and Mexico compared, 44–9; multinational corporations, 49; neoliberalism and the welfare state, 31, 146–7; post-war economy, 66, 119, 146–7, 186; pumper of oil, 112, 123–4, 164; as semi-periphery, 6–8, 23–56; and settler colonialism, resulting in indigenous community dependency/underdevelopment, 84–5; trade, 195–8; trade and the staple approach, 190–1; unemployment, relative to OECD countries, 148–58; United Empire Loyalists (UEL), 11, 40, xv, xx; and Vietnam, 183, 224; warfare state, 226–7; welfare state, 183, 226–7; women’s employment compared to men’s, 159. See also Auto Pact; Canadian Political Economy (CPE); capitalism; class; First Nations; military; trade; United States; war; World Systems Theory (WST)

Index 265 Canada Ltd. See Laxer, Robert Canadian control, 10, 76–9, 82, 86, 130, 165, 181–3, 227 Canadian Dimension Editorial Collective, 214; call for nationalist resistance movement, 8, 142; on Canadian manufacturing, 128, 144; on Canadian mining abroad, 10; on sovereignty, 143–4, 211–12 Canadian Political Economy (CPE), 3–11, xvi–xviii, passim; definition, 4; and foreign direct investment (FDI), xix–xx; and trade, 113–17; frameworks as expressions of left nationalism, xvi; new political economy, 122, 129, 135, 147, 149, 162–3, 219, 228. See also Left nationalism Capital and Coercion. See Kentor, Jeffrey capitalism: bourgeoisie, 24, 32, 47, 115, 171–3, 175–6, 181, 183, 185, passim; capitalist class, 7, 24, 91, 93, 167, 170, 192, 218, 224, 227; capitalist class, Canada, 175–84; comprador, 7, 103, 115, 170, 172, 174, 180–1; Europe, 199 Caribbean, 18, 25, 58, 103, 168, 186, xix; banks, 10; social movements in, 142 Carroll, William, 91, 95, 115–16; on foreign investment, 186–7 Cavallo, Alfred J.: on bitumen sands production, 124–6 Central America, 103; Central American Free Trade Agreement (CAFTA), 229n1 Chase-Dunn, Christopher, 48, 53–5, 125–6, 144, 194; Global Formation, 53 Chile, 142, 160, 176

China, 44, 50, 59, 63, 83, 170, 185, 231–2n13, 233n21; comprador class in, 171­–2; industrial revolution, 15, 209; industrialization, 47–8; low-wage economy, 101; manufacturing output, 203–5 Chirot, Daniel, 37, 49 Chrétien, Jean, 64, 83, 226 Clark-Jones, Melissa, 149 Clarkson, Stephen, 25–7, 31, 46 class, 5, 16, 66, 169, 173, 185, 194, 208–9, 213, 228; and development of capitalism, Canada, 103; structures, 26, 32, 34, 36–7, 47–8, 53, 165. See also capitalism Clemens, Jason: The Canadian Century, 181 Clement, Wallace, 11–13, 78–80, 113–14, 127–9, 170, 172–3 Cohen, Marjorie, 26–7, 31 colony, 84, 115–16, 143–4, 173; neocolony, 6, 13, 62, 65, 74, 165, 173, 189, xvi; resource colony, 164–5; semi-colony, 65, 74, 115–16, 165, xvi Companhia Vale do Rio Doce (CVRD), 87–8 Cornwall, 84, 135, 139, xv–xvii corporations, 49–52, 55, 76–7, 175–84, 216–17. See also direct investment; mergers and acquisitions; multinational corporations; non-resident Corporations and Labour Unions Returns Act (CALURA), 78, xx Creighton, Donald, 195, 200, xix; Dominion of the North, xviii crisis: economic, 18, 64; eurozone, 69; extractivism, 20–1; Great Recession, 5, 17–18, 26, 28, 62–3, 69, 132–3, 148, 150–2, 156, 182, 218, 220; peso, 27. See also recession

266 Index Crowley, Brian Lee: The Canadian Century, 181 Cuba: staple trap, caught in, 9 currency, 27–8, 56 Davis, Byron, 44 deindustrialization, 6, 65–74, 82, 115, 147–8, 202–3 Denmark, 39, 43, 149 dependency, 7, 42–3, 102, 104, 121, 128, 130, 135, 144, 175, 211–12, 223; resource–export, 26; rich, 7, 62, 84, 164–5; theory, 11, 13, 55–85, 114– 16, 190–2, 201–2, xix–xx. See also staple trap; underdevelopment Detroit, 3–4, 219–21, 227 Dhamoon, Rita, xx direct investment: Canadian direct investment, 95–103, 176; Foreign Direct Investment (FDI), 74, 95–105, 113–14, 122–3, 176, 186–7, xx–xxi; Foreign Direct Investment (FDI), definition, 95 discourse analysis: counter-discourse of political economy, 147; statistical discourse analysis, 82, xxii–xxiii Dobbin, Murray, 213; on comprador class, and China, 171; use of “Washington Consensus” for Canada, 170 Dominion Bureau of Statistics (DBS), 137–9, 232n15. See also Statistics Canada Dominion of the North. See Creighton, Donald Drache, Daniel, 5–6, 11–13, 27, 66, 78–80, 84, 113–14, 147–8, 159, 190; The Other Macdonald Report, 145–51, 156–7, 159, 162 Draimin, Tim, 10, 13

Drangel, Jessica, 35–6, 38, 40, 54 elite: comprador elite, 19, 167, 169–75, 170, 186; comprador elite, China, 171 Engels, Friedrich: capitalism, and reserve army of labour, 154–5 entrepreneurship, 58–9, 167–9 Europe, 26, 36–7, 42, 48–9, 63–6, 68, 74, 101, 107–8, 148, 168–9, 197, 224–5, passim; capitalism, 199; and European colonialism and imperialism, 18, 165, 171, 187; impact of modern manufacturing on Third World, 202; imperialism in India and China, 233n21; manufacturing and exports, 136–7; settler colonialism and European fur trade, 84–5; and military parasitism, 20. See also Britain; Germany; North America; Spain; Sweden; Switzerland; trade; United Kingdom European Union, 6, 64–5, 224 Eurozone, 69 exchange rate: use of, for GDP per capita, 160; Australian dollar, relative to US dollar, 28–9; Canadian dollar, relative to US dollar, 28–9; market exchange rate, 27–30; Mexican peso, relative to US dollar, 28–9; Norwegian krone, relative to US dollar, 28–9 export of capital, 101–4; definition, 99–100. See also Britain; direct investment; trade extractivism, 20–1, 124, 226 Falconbridge Ltd., 10, 87–9 farmers, 147, 196, 198–9, 201, 205

Index 267 feudalism: proto-feudalism, 171; Quebec, 192, 199–200 Finland, 43 First Nations, 11, xvi. See also Akwesasne; Mohawk foreign: control, 78–9, 81–2, 114, 184; Foreign Direct Investment (FDI), 74, 95–105, 113–14, 122–3, 176, 186–7; foreignness, xx; investment, 55, 60; ownership, 55, 59–60, 77–9, 114, 180, xix. See also non-resident Foucault, Michel, xxiii France, 38, 42–4, 63, 100, 103, 117, passim; corporations, 50–2; employment growth, 158; employment in manufacturing and industry, 67–70; manufacturing, 162–4, 202, 204–5; and North America, export of feudalism to, 199–201; unemployment rates, 150–1; women’s employment compared to men’s, 157 G7, 26, 49–53, 62–5, 67–70; countries, control of world GDP, 83, 98, 117, 142, 144, 150–1, 156–61, 163, 165, 170, 173, 221 G8, 142 G20, 62–5, 221; Paul Martin, and Canada’s role in shaping the, 64 Galtung, Johan, 24–5, 39, 46 Germany, 8, 14, 39–40, 43–4, 48, 50–2, 63, 100, 109, 163–4, 173, 175, 216; employment growth, 158; employment in manufacturing and industry, 67–70; GDP per capita, 160–1; manufacturing output, 203–5; unemployment rates, 150; women’s employment compared to men’s, 159

Gidengil, Elisabeth, 36, 40 Glenday, Daniel, 25, 39–40, 44–5, 53 Global Formation. See Chase-Dunn, Christopher global North, 12, 14, 18, 31–5, 38, 47, 57, 63, 83, 173–4, 176, 186–7, 204, 226; direct investment, and Canada, 97–9. See also direct investment; non-resident global South, 9–15, 18, 32, 34, 58, 65, 72, 83, 169–71, 173–6, 186–7, 204, 209, 218, xvi, xxii; direct investment, and Canada, 98, 100, 102–3; mass movements in, 142–3. See also direct investment; non-resident Golay, Paul, 219, 228 Gonick, Cy, 67, 80 Gordon, Todd, 175 Gordon, Walter, 61, 223, 225 Graham, William, 13 Greece, 48–9, 67, 149, 156 Grimes, Peter, 38, 43, 54–5 Gross Domestic Product (GDP), 18, 64, 133, 147, 159, 231n10; Canada, 147; foreign acquisitions and ownership, Canada, 180; G7 countries, control of world, 83; manufacturing, Canada, 71, 73–4; manufacturing, United States, 73–4; motor vehicle and parts production, Canada, 133–4; motor vehicle and parts production, United States, 133–4; per capita, country comparisons, 160–1. See also Canada; United States Gross National Income (GNI), 27, 29–30 Gross National Product (GNP), 37, 39, 55 Gunder Frank, Andre, 57–8, 82

268 Index Haiti, xvi Harper, Stephen: government, 156, 184, 214–18, 227 Harris, Nigel, 131 Harrison, Bennett, 106, 108–9 Haudenosaunee (Six Nations Iroquois Confederacy), 40–1 Hazard, Geoffrey, 229n4 hegemony, 6, 115 hinterland, 58, 121, 168, 173, 190–1, 196, 200–1. See also Kari Levitt historical materialism, 66, 200, xxi; H. Clare Pentland, influenced by, 200; historical materialist political economists, 115 Hobsbawm, Eric J., 118, 135 hollowing out, 79, 82, 86–95, 110–11, 169, 175–80, 217 home market, 19, 103–4, 139–40, 187–8, 190, 191–8, 201, 207–9, 231–2n13 Hong Kong, 43 Honig, Bonnie, xx Hungary, 160 Hurtig, Mel, 61, 78, 80, 225–6, 233n17 Iceland, 149 Ikeda, Satoshi, 27–32, 36, 39, 45 imperialism, 88, 103–4, 139, 142, 191, 203, 211; Antonio Negri on, 5; Canadian, 7, 218; effect on Quebec, 200–1; empire, British, 37, 59, 60, 185; empire, Canada, 165; empire, rising costs of, 224–5; empire, United States the centre of, 20; empire, US, 13, 19–20, 59, 66, 116, 153, 164, 212; European, 18, 165, 233n21; European, and China, 171, 233n21; Lenin on, 100–1; US,

7, 88, 165, 173. See also Britain; Canada; Europe; United States India, 36, 50, 63, 88, 170, 185, 231–2n13; compared with Canada, with Brazil, 13, 118, 127, 129; and European imperialism, 233n21; industrial revolution, 15, 209; manufacturing output, 203–5; as semi-peripheral, 38 Indonesia, 64, 170, 209; industrial revolution, 15; industrialization, 47–8 industrial structure, 6, 17, 66–7, 128, 132 industrialization, 122, 135–8, 163, 187, 192, 202–3; and agriculture, 198–9; Britain, 118, 187; Canada, 36, 196; landlord class, resistant to, 171; and manufacturing growth, 203–6; Mexico, maquiladora, 45; Ontario and Quebec, 208–9; Russia, 209; semi-peripheral countries, 47. See also deindustrialization industry, 54, 126, 191–2; automobile, Canada, 127–33; automobile, Canada and United States compared, 133–4; Canada, 66, 80, 100–1, 103, 147–8; Canada, development of, 194–6, 198, 200–3, 207–8; G7 countries, 67–8, 162; United States, 105. See also industrialization Innis, Harold, 9, 101, 115, 126; the staple approach, 189–91 International Monetary Fund (IMF), 56, 221; Washington Consensus, 170 International Nickel Company of Canada (Inco), 10, 78–9, 87–9

Index 269 Iran, 13, 111, 170, 209 Iraq, 111; and Canada, 183, 224–6; and the United States, 153, 218, 224–5 Ireland, 43, 67, 149 Israel, 43 Italy, 8, 36, 38, 42–4, 48, 50–2, 159, 162–4, 204–5; employment growth, 158; employment in manufacturing and industry, 67–70; part of G7, 63; unemployment rates, 149–50, 156; women’s employment compared to men’s, 157, 159 Japan, 9, 20, 42–4, 49–52, 63–4, 66, 74, 107–9, 148, 159, 162–4, 169, 184, 209, 225; as core, 37–8; employment growth, 158; employment in industry and manufacturing, 67–70; manufacturing output, 203–5; unemployment rates, 150; women’s employment compared to men’s, 157 Johnson, Troy R., 84 Kentor, Jeffrey, 43–4, 53; Capital and Coercion, 43 Kick, Edward, 37–8, 40, 44, 55 Kierans, Eric, 223–4 Klassen, Jeremy, 91, 95 Korzeniewicz, Robert, 42–3 Kuwait, 111 labour, 43, 53, 100–1, 104, 125, 199; Canada, 155, 157, 194–5; child labour, Mexico, 33–4; Engels on reserve army of, 154; hoarding, 151; Mexico, 12, 32–4; Sweden,

151; Switzerland, 151–2; United States, 152–5, 157. See also unions; women; workers Labour and Capital in Canada, 1650– 1860. See Pentland, H. Clare Latin America, 122, 155, 165, 186–7, 218, xix; presence of Canadian capitalism in, 10; and proto-­ feudalism, 171; social movements in, 142–3; structural underdevelopment, 58, 82; and the Washington Consensus, 170 Laxer, Gordon, 8–9, 12, 25–7, 49–50, 53, 55, 78–80, 142, 174, 207, 209; Open for Business, 79 Laxer, Jim, 102–3, 130–1, 173 Laxer, Robert, 5–7, 66, 225; Canada Ltd., 66, 219 Leacy, F.H., 78, xx Left nationalism, 3–11, 4–14, 23–85, 87–8, 141–66, 211–12, 219, 225–6, 228, xvi, passim; classic moment, 23, 57–85, 99, 141, 145, 167; classic moment, definition, 7; corporate nationalism, 87–8, 179; dependency moment, 7, 85, 211; free trade moment, 141–66, 211; free trade moment, definition, 7; Left nationalist, 7–8, 11, 13, 15, 19, 58, 60–1, 66, 73–4, 80–2, 115, 128, 160, 175–6, 209, 211–14, 217–20, 225–6, 228; national oppression, 5, 105, 109; nationalist moment, 7, 21, 61; nationalist resistance, 8, 142–5, 164, 166; semi-periphery moment, 23–56, 85, 141–2, 211; semi-periphery moment, definition, 7–8; and the staple approach, 190

270 Index Lenin, Vladimir, 99–102, 104, 192, 209, 233n20; The Development of Capitalism in Russia, 192, 233n20 Levitt, Kari, 5–6, 60–2, 66, 83–4, 119, 121, 191; on Canada as rich and underdeveloped, 65; on decline of Canada, US dominance, 105–6, 108–9, 114, 223–4; on dependency and entrepreneurship, 167–9; on making dependency framework fit Canada, 58–9; use of FDI, and impact on Canadian development, 95, 99–101, 103, 114; use of non-resident ownership, 74–5, 80–1; Silent Surrender, 58, 60, 77, 191, 223 Liberal Party, 13, 21, 145–6, 212–14, 223–7; nationalism, 60–2, 172. See also Trudeau, Pierre liberal political economy, 4, xxi Liberia: as peripheral, 38 Libya: as semi-peripheral, 38, 111; and Canada, 218 Luxembourg, 27, 42–3, 149 Macdonald Commission Report. See Macdonald, Donald Macdonald, Donald: Macdonald Commission Report, 131, 145–7, 216 Magna Corporation, 130–1, 172, 177 Maizels, Alfred, 70–1, 117, 121–2, 136–7, 163 Malawi: as peripheral, 38 manufacturing, 54, 66–75, 125–6, 191; Canada, 8–9, 59, 79, 114, 116–22, 127–38, 144, 147–9, 201–3; Canada and United States compared, 204– 9; employment, 5–6, 67–73, 81, 136, 163, 204–8; G7 countries, 162– 4; growth and output, ten leading

countries, 203–5; high-tech, 17, 227–8; secondary, Canada, 196–7; statistics, US control of Canadian, 81–2; statistics, US share of world, 106–7; trucated, 117, 127, 201, 227; truncation, 74, 112, 117, 122. See also Canada; France; Germany; Italy; Japan; Mexico; United Kingdom; United States maquiladora, 45, 48. See also Mexico Martin, Paul: and Canada’s role in shaping the G20, 64 Martin, William, 42–3 Marx, Karl, 24, 43, 54–5, 103, 139, 199–200, xxi. See also historical materialism Marxism, 172. See also historical materialism McCalla, Douglas, 196, 208 McCallum, John, 194, 196–9, 205, 208; Unequal Beginnings, 193 McKay, Ian, 185 McNally, David, 12, 115–16 men: access to military, United States, 153 mergers and acquisitions, 78, 86–95, 101, 176–80, 216–17. See also direct investment Métis, 11, 41, 223 metropole, 58 metropolis, 58, 168, 173, 190–2 Mexico, 13, 35, 38, 41, 55–6, 83, 160, 189, 222; and Canada compared, 44–9; child labour, 33–4; compared with Canada, 12, 25–32; development indicators, health, 31–2; employment in agriculture, 33; GNI per capita, 30; industrialization, 47–8; number of corporations, 49–52; oil in, 12; peso, 27–9,

Index 271 56; as semi-peripheral, 38; social movements, 143–4; undocumented workers, 155. See also Canada; World Systems Theory (WST) Microsoft, 169, 172 military, 44, 48–9, 85, 142–3, 225; Canada, expansion of, 215–16; German, 40; interventions, 37; militarism, 20–1, 184, 226–7, xvii; United States, expenditures, 153. See also military parasitism; war; warfare state military parasitism, 19–21, 183, 227 mining, 10, 53, 78, 89, 123–5, 129, 162–3, 202 Mintz, Jack, 182, 184; on foreign ownership, 180 Mohawk, 84, xv–xvi. See also Akwesasne Moore, Steve, 115 motor vehicles. See industry Mulroney, Brian: government, 79, 145, 214, 225; government, use of Investment Canada Act, 216 multinational corporations, 5–6, 88, 217; Canada, 49, 59, 86–8, 110; dependency theory, 58–9; European-based, 108; presence in G7 countries, 49–53; role in world system, 37, 49; United States, 106; US expansion, seen as threat, 105. See also Canada; corporations; direct investment; Europe; mergers and acquisitions; non-resident; United States natural resources, 9, 53, 111–12, 149, 191 Neheyiwak (Cree), 41 Nemeth, Roger, 38

neo-Marxism, 164, 171 Netherlands, 38, 42–3, xvi New Democratic Party (NDP), 60, 66, 111, 219, 225–6, xviii; Waffle, 7, 15, 21, 60, 66, 211, 219, 225, 228 New Zealand, 34–5, 37, 39, 43, 149 Nigeria, 170; oil in, 12; as semiperipheral, 38 Niosi, Jorge, 115 non-resident, xix–xxi; control, 9, 20, 32, 39, 45, 49, 95, 181–3, 209, 228; corporate acquisitions, 86–95; investment, 14, 175; ownership, 14, 45, 55–6, 59, 74–84, 122–3, 176, xxii. See also direct investment; foreign; US control North America, 41, 60, 63, 165, 182, 184, 192, 199, passim; auto production, and the Auto Pact, 132–4; European export of feudalism and capitalism to, 199. See also Auto Pact; Canada; Britain; Detroit; manufacturing; Toronto; trade; trade agreements; United States Norway, 12, 24–8, 34–5, 38–9, 43–4, 55, 136; development indicators, health, 31; employment in agriculture, 33; GNI per capita, 30; krone, strength of, 28; number of corporations, 49–53 Ontario, 5, 118, 165; auto industry, 130, 132; Cornwall, 84, 135, 139, xv–xvii; development of, compared with Quebec, 197–201, 205, 208–9; railway boom, 196; Upper Canada, 40. See also Canada; Ontario Teachers’ Pension Plan; recession; United Empire Loyalists

272 Index Ontario Teachers’ Pension Plan, 176 Open for Business. See Laxer, Gordon Orchard, David, 213–15 Pakistan, 36, 170; as peripheral, 38 Panitch, Leo, 13, 62, 84, 101, 115–16, 175, 183, 187, 199 Pearson, Lester, 223–4 Pentland, H. Clare, 208; analysis of Canadian development, 104, 193–6, 198–200, 205; influenced by historical materialism, 200; Labour and Capital in Canada, 1650–1860, 193 petro-economies, 111 Philippines, 170, 209 Poland, 40, 160 political economy, 3–22, xxi, passim Portugal, 48–9, 149, 156 Potash Corporation, 216–17 Prairie Capitalism. See Pratt, Larry; Richards, John Pratt, Larry, 15–16; Prairie Capitalism, 15 productivity: capital intensity, 43, 54–5, 126, 144, 194; of labour, 53, 194, 203–4; organic composition of capital, 54–5; organic composition of capital, definition, 43 purchasing power parity (PPP), 27–8, 83, 161 Putnam, Robert, 63 Quadrilateral Group of Trade Ministers (Quad), 64–5 Quebec, 40, 225–6, xvii, xx; 1995 referendum, and nationalism, 212–13, 215; auto parts production, 130; demonstrations against FTAA, 5–6, 142; development

of, compared with Ontario, 197–201, 205, 208–9; feudalism, 192, 199–200; nationalism, 59, 226; Québécois, 11; seigneurial system, 103, 171–2 Read, Colin, 9 recession, 5, 17–19, 28, 62–3, 69, 132–3, 147–8, 150–2, 154, 156, 182, 218, 221; dot-com, 107. See also crisis relative weight, 42; of manufacturing employment, 204–7 relative weight of top corporations, 50–2 reproduction, 231–2n13; on an expanded scale, 103 reserve army of labour, 154–5 Resnick, Philip, 36, 115 Richards, John: Prairie Capitalism, 15 Royal Commission on the Economic Union and Development Prospects for Canada. See Macdonald, Donald Russia, 64, 88, 111, 142, 177; capitalism, 192; industrialization, 209; manufacturing output, 204–5 Russian Federation, 170 Ryerson, Stanley, 192–3, 195, 200, 208; Unequal Union, 192 Saskatchewan: Potash Corporation, 217; shale deposits, 232n16 Saudi Arabia, 43, 111 seigneurial system: Quebec, 103, 171 services sector, 54, 230–1n9; as capital intensive in core areas, 126; employment, Canada and United States compared, 71–3; job creation and “McJobs,” 158–9

Index 273 Silent Surrender. See Levitt, Kari Smith, David, 38, 42–3 Smith, Murray, 39 Snyder, David, 37–8, 40, 55 sovereignty, 5, 86, 116, 143, 165, 208–9, 211–13, 218, 222–5, xviii– xix; effective, 15, 18–19; political, 15, 19, 139, 208, 223–4, 229–30n4; subcontracted, 19, 167, 185–9, 209, 229–30n4 Spain, 43, 48, 156, 170; and North America, export of feudalism to, 199 Stanford, Jim, 111–12, 121, 123–4 staple trap, 6, 8–12, 15–17, 21, 136, 189–210, 218, 221–2; Brazil, 9; Cuba, 9; Venezuela, 9. See also Canada; Canadian Political Economy (CPE); Innis, Harold; Watkins, Mel Statistics Canada, 78, 118, 123–4, 135, 157–8, 180, 231n10. See also Dominion Bureau of Statistics (DBS) Stronach, Frank. See Magna Corporation structural weakness, 16, 59, 147–8, 160–1 subcontracted sovereignty, 19, 167, 185–9, 209, 229–30n4. See also Britain sub-imperial, 13, 164 Sweden, 9, 39, 42–3, 117, 136, 151, 156, 203, 205; manufacturing output, 203–5 Swift, Jaimie, 10, 13 Switzerland, 27, 39, 42–3, 149, 155, 198, 202, 205; exporting of unemployment statistics, through migrant labour force, 151–2;

unemployment rates, and government policy, 151 Teeple, Gary, 5, 7, 145 The Canadian Century. See Clemens, Jason; Crowley, Brian Lee; Veldhuis, Niels The Development of Capitalism in Russia. See Lenin, Vladimir The Other Macdonald Report. See Cameron, Duncan; Drache, Daniel Toronto, 3–4, 10, 12–13, 16, 41, 118, 127, 195, 200–1, 212, 219–21 trade, 36–9, 42–3, 64–5; Canada, 25, 53, 104, 149, 195–8; Canada, and the staple approach, 190–1; Canada, external trade profile, 110–40; Canada, fur, 84, 194–5, 201, 219; and Canadian Political Economy (CPE), 113–17; crude materials, 112, 112–14, 121, 123–6, 128–9; end products, 118–23, 127– 9, 134–6, 138, 162; export/import ratio, 39; exports, 39, 44–5, 53, 74, 104–5, 111–14, 117–31, 133–7, 146, 189–91, 193–4, 196–8; fabricated materials (inedible), 113, 123–4, 129, 135–9, 162; imports, 39, 112, 114, 121–2, 133–4, 146, 196. See also trade agreements trade agreements, 59, 64–5; CanadaEuropean Comprehensive Economic and Trade Agreement (CETA), 6; Canada-US Free Trade Agreement (CUFTA), 5, 79–80, 116, 133, 141, 145, 147, 213, 216, 225–6, 229n1; Central American Free Trade Agreement (CAFTA), 229n1; Free Trade Area of the Americas (FTAA), 5–6, 141–2, 213;

274 Index General Agreement on Tariffs and Trade (GATT), 146; North American Free Trade Agreement (NAFTA), 5, 28, 133, 141, 226; World Trade Organization (WTO), 46, 64–5, 141, 221 Trudeau, Pierre, 59–61, 79–80, 145, 212, 216, 224–5 Tunisia: as peripheral, 38 Turkey, 48, 149, 160 underdevelopment, 66, 83–4, 103, 112–14, 116–17, 121–4, 126–7, 137, 157, 167–9, 187, 190–1, 197, 226; dependency/underdevelopment, 57–9, 72, 74, 85, 164, 168, 208 unemployment: Canada and United States compared, 17–18; Canada, relative to OECD countries, 148–58; Harmonised unemployment rate (HUR), OECD, 150; and US prison system, 153–4 Unequal Beginnings. See McCallum, John unequal exchange, 38 Unequal Union. See Ryerson, Stanley unions, 131, 147, 177, 224; movement, Canada, 66; US, 6–7 United Arab Emirates, 111 United Kingdom (UK), 14, 36–9, 42–4, 43, 50–2, 63, 163, 163–4, 204–5; Bank of England, 56; employment growth, 158; employment in manufacturing and industry, 67–70; unemployment rates, 149–51; women’s employment compared to men’s, 159 United States, 43, 105–9, passim; and Canada compared, 204–9; development indicators, health,

31–2; employment in agriculture, 33; employment in manufacturing and industry, 67–70; hegemony, 6, 115; hidden unemployment, military and prison system, 153–4; and Iraq, 218; manufacturing output, 203–5; men and women, access to military, 153; neoliberalism and the welfare state, 31; post-war economy, 108–9; share of world manufacturing, 107; underdeveloped welfare state, 153; warfare state, 153, 227; women’s employment compared to men’s, 159. See also direct investment; manufacturing; mergers and acquisitions; trade; US control Uruguay, 13 Uruguay Round, 64 US: instead of “American,” xix US control, 6, 75–82, 86, 91, 95, 100, 105–9, 114–16, 164 Van Rossem, Ronan, 43 Veldhuis, Niels: The Canadian Century, 181 Venezuela: oil in, 9, 12, 111, 124, 140; Bolivarianism, 174; coup d’état against Hugo Chávez (2002), 174 Vietnam: and Canada, 183, 224; industrialization, 47–8 wages, 18, 43, 45, 101, 168–9 Wallerstein, Immanuel, 23–5, 36–7, 41, 59, 192; on semi-peripheral countries, 24, 32, 35, 46–7. See also World Systems Theory (WST) war, 142; “war on terror,” 153; addiction to, 21; Canada, 218, 224–5; Cold War, 109, 153; First Gulf War,

Index 275 21, 227; First World War, 37, 185, 192, 203; Korean War, 21; permanent arms economy (PAE), 108–9, 165; post-war economy, Canada, 119, 146; post-war economy, Canada and United States, 137; Second World War, 20, 39, 42, 47–8, 67–8, 72, 95, 108, 118, 186, 203, 225; War of 1812, 215. See also military; warfare state warfare state: Canada, 226–7; United States, 153. See also military; war Warnock, John, 149 Washington Consensus, 170, 175 Watkins, Mel, 6, 77, 80–1, 105, 133, 145, 193, 199, 225; on the “staple trap,” 6, 8; on Canada as dependency and neo-colony, 62; on Kari Levitt’s Silent Surrender, 59–61; on the staple approach, 190 welfare, 146–7; health care, 18, 31, 31–2, 222–3. See also welfare state welfare state: Canada, 146–7, 183, 226–7; neoliberal attack on, and decline in health care, 31; United States, 153, 221. See also welfare Wells, Debi, 115 West Germany, 36, 38, 42–3, 63, 162, 227; employment growth in, 158 Western, Bruce, 153–4 Whitaker, Reg, 60, 226 White, Douglas, 42–3 Williams, Glen, 13, 62, 67, 78–80, 84, 101–2, 104, 114–19, 121, 127–9, 136,

146, 149, 187–8; Not for Export, 112, 114, 117, 121 women: access to military, United States, 153; health and maternal mortality, as indicator of development, 31–2; in the workforce, G7 countries, 157, 159 workers: proletarian, 32, 34–5, 48; semi-proletarian, 32–5, 38, 47; working class, 16, 153, 192, 194, 228. See also unions World Bank, 31, 33, 160, 170, 221, xxii; Washington Consensus, 170 World Social Forum, and encuentro move to Brazil (1999), 143 World Systems Theory (WST), 7–8, 23–35, 43–4, 56, 165, passim; centre, 24–5, 36, 38, 116, 139; core, 23–56, 104, 126, 202; go-between state, 25, 46; hierarchy of nations, 10, 14, 65, 83, 116; periphery, 24–5, 27, 37–8, 41–4, 46, 48, 53, 83, 104–5, 139, 191, 202; semi-periphery, 7–8, 13–14, 19, 23–56, 59, 82–3, 85–6, 105–6, 109, 141–2, 164, 192, 201, 211; zonal boundary, 30, 41 Xstrata, 87–8 Zedong, Mao: on China, and comprador class, 171–2