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The Staple Theory at 50: Watkins, Innis and Canadian economics

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Photo: Mel Watkins

We are nearing the end of our series of special commentaries celebrating the 50th anniversary of the 1963 publication of Mel Watkins' classic article, "A Staple Theory of Economic Growth." Here is a fascinating historical retrospective on the influence of Innis and Watkins on Canadian political economy by Duncan Cameron, president of rabble.ca, former president of the Canadian Centre for Policy Alternatives, and former professor of political science at the University of Ottawa.

When economic historian and theorist Harold Adams Innis died in 1952 at the age of 58, Prime Minister Louis St. Laurent sent his wife Mary a telegram.

While Innis was not a public figure, he was widely respected for his academic work on the cod fishery, the fur trade, rail transport, and communications. And Innisian ideas about how Canada developed as a country were influential in universities, and in wider discussions of public affairs.

Mel Watkins was a student of Innis, and remains engaged with his work today. Interestingly, at MIT, Mel also studied under Paul A. Samuelson: another economic sciences giant, though of another theoretical persuasion altogether.

With Samuelson, Mel co-authored the Fourth Edition of the Instructors Guide to the legendary introductory textbook by Samuelson (entitled simply Economics) that cemented the link between mathematical representations of the economy and contemporary economics.

Economics was first published in 1948, went through 19 editions, was translated into 41 languages, and sold over 4 million copies. Through the Samuelson text, what he called the neo-classical approach to economics became the dominant framework of economic analysis in the U.S., and much of the world.

Though primarily an economic historian, Watkins always retained a focus on the issues of his times, and he still does today. The 1960s were the declared the "Development Decade" by the United Nations. Watkins was the first recipient of an MIT doctoral fellowship in development economics (Jagdish Bhagwati was the second). Canadian economic development was a public issue to be addressed.

Reading the 1963 article justly celebrated in this Staples@50 series suggests that in his approach to economics, Watkins leaned more to Innis than Samuelson. However, the article is about a staples "model" of economic development, and like the Samuelson textbook, it has Keynesian bones.

Much more than a discursive history of the staples, Watkins put together the useful ideas of Albert O. Hirschman about forward, backward and final demand linkages with the Innisian focus on staples production, and offered a valuable theoretical perspective on Canadian economics. The article offers a model, but not a mathematical model. It is a work of theory, but the theory is broader than neo-classical economics as generally theorized.

As a historian, Watkins was looking for ways to describe and explain how the Canadian economy evolved. Could there be laws of motion connecting staples production and the Canadian economy? Could Innisian thought provide them?

Though it has been argued there is a staples approach, but not a staples theory, it is quite appropriate to point to a staples theory in the work of Innis. In the Canadian economy, Innis argued, abundant natural resources attracted capital and labour in quantity because of the opportunity for good profit margins. Capital and labour remained engaged in staples production, even without adopting technological changes, because there was insufficient profit incentive to leave. This also meant there was little incentive to update production techniques.

So long as profit margins were higher in a staple than elsewhere (say manufacturing) the less profitable sectors had difficulty attracting capital and labour. But the staples sector was vulnerable to a market collapse, with dire consequences for the society developed around its previous high returns on investment. This was the dreaded "staples trap."

The seminal contribution of Watkins to staples economics was to show that staples could be linked backward (through technological improvements say) or forward (by transforming the staple into a manufactured product), but that this required government policy and a commitment to Canadian economic development. Ultimately it required political action by a government.

Watkins' study pointed to a conclusion: those who want to see changes in public policy have to recognize the role of political parties: they form governments, or pressure governments from inside parliament. Watkins worked with both Walter Gordon and the Liberal party, and then, twice, jumped into NDP politics (along with his Waffle colleagues he was expelled after his first venture). When Watkins entered the second time (he supported the leadership bid of Audrey McLaughlin) it was for the long haul, including two runs at elected office alongside Jack Layton, who Watkins had promoted for the NDP leadership.

On politics Innis and Watkins traveled different paths. Though he had advised government, fought for his country in World War I, and believed scholars should focus on public problems, Harold Innis soured on partisan debate, and became aloof from party politics.

Not fearful of controversy, Innis risked his standing in the university to defend historian and CCF activist Frank Underhill from a socialist witch hunt by some members of the Board of Governors at U of T. However, Innis believed academic research, though publicly spirited, should be kept separate from public engagement.

Where Watkins joined with Innis and extended his intellectual project, was Innis' assumption that Canada needed to be studied with a scholarly apparatus appropriate to the Canadian context. Simply taking economic models developed in Britain, or the U.S. and applying them to Canada was not good enough.

Though both Innis and Watkins were surely right about this, their invitation to study Canada as if the country mattered more than the dominant methodology has been widely ignored in Canadian university departments of economics.

Watkins, along with Abraham Rotstein and Stephen Clarkson, all colleagues (in the once proudly named Political Economy Department) at the University of Toronto, made the Innisian assumption their own, and they were joined by others across Canada, primarily scholarly activists of the left.

Innis had a wide range of intellectual interests, and his reputation spread beyond political economy, largely owing to University of Toronto English scholar Marshall McLuhan who widely proclaimed his debt to Innis, and whose communications writings became world famous.

Innis the economic historian was, as it were, "rescued" by departments of Communication, Sociology, Geography, History, and Political Science. The inattention given economic thought, and history, by neo-classical economics meant Innis as economist was relatively ignored.

Along with W.A. McIntonish, Irene Spry, Mable Timlin, and others, Harold Innis is considered the precursor of the Canadian political economy approach, practiced today by independently minded academics, and the inspiration for much of the policy research done by the Canadian Centre for Policy Alternatives, trade unions, NGOs, social agencies, and left scholars and activists with a policy bent. Along with Mel Watkins, the late Stephen Hymer, and Kari Levitt featured prominently in debates around foreign ownership (not investment) in Canada that animated the New Canadian Political Economy practiced by R.T. Naylor, Daniel Drache, James Laxer, and Wallace Clement. These debates widened and deepened in the scholarly journal Studies in Political Economy incubated at Carleton University by Leo Panitch, Rianne Mahon, and others, that attracted scholars across Canada, and remains a lively outlet for research today.

Knowledge of Innis helps in seeing what is glaringly wrong with Canadian economic policy, particularly in the dark decades since the 1981-82 recession. Despite the efforts deployed by the 1985 Macdonald Royal Commission to claim Innis as a proponent for trade enhancement, the presumption that the export trade is somehow the source of Canadian prosperity, and that export promotion (mercantilism) is what is needed to assure Canada's economic future, is hardly what Innis, Watkins or Canadian political economy is about.

What separates Innis from everyday social science is not just that he brilliantly studied staples in a succession of scholarly volumes. Innis showed that what he called staples production was what shaped Canadian society; production techniques, and associated technology were all pervasive in the pattern of human settlement of the country, and its social fabric. Canadians became what Canada produced as it were. Innis entitled his 1938 presidential address to the Canadian Political Science Association "The Penetrative Powers of the Price System."

The conclusions Innis reached are what make his work so important. At the heart of his Canadian political economy is the proposition that the export of staple products creates uncertainty, and havoc when markets turn against Canadian products. The work of Innis helped to understand how when the world economy collapsed, producing the Great Depression, it took the Canadian wheat-based economy with it.

The staples story is a cautionary tale Canadians ignore at their peril. As presented by Mel Watkins, the staples model of economic development remains central to understanding questions of public policy in Canada, from resource development to industrial policy, from transport to monetary, fiscal and social policy, and beyond to links with the continental and global economies.

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