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GGR221 Lecture 2.docx

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University of Toronto St. George
Deborah Leslie

th GGR221 New Economic Spaces Lecture 2, Jan 13 Staples Theory and Canadian Resource Sectors -Resource industry , Dutch industry “Canada is a nation created in defiance of geography”. - expected flow from north to south, hard to ship from east to west, John A. Macdonald’s National Policy of 1870s designed to strengthen east-west linkages a) Tariff barrier – protect Canadian industry b) Transcontinental railroad- fosters trade - Supplies raw materials to the United States Harold Innis – Canada’s role as a material provider to the U.S Professor at the University of Toronto - Need theory sensitive to historical and geographical context, a “dirt economics” – unique economy that has emerged in a place, theory should be adopted to a specific place, economy must be embedded in empirical, local level - Canada’s history can be understood in terms of a series of staples: fur, fish, timber, grain, minerals, oil and gas – whole history may be explained by staple export - Staple: a principal item of trade or consumption produced and consumed by a society - Unprocessed or semi-processed primary resources. E.g., banana, lumber - Staple production: primary resources activities and primary manufacturing activities in which resources are major inputs to the production process. Minimally processed. Extractions of resources - Staples economy: “a region that depends primarily on the export of raw and semi- processed materials to a more advanced manufacturing economy” (Pat Marchak). - Resource is the leading sector of the growth of economy. - Economic development is a process of diversification around this resource base. - In conventional accounts, spread effect of sector realized through four types of linkages - A) backward linkages – bound to stimulate inputs to that industry – equipment, machinery to the industry. Expertise, human resources for e.g., forest industry, GIS, engineering firms. Connections back that help industry to extract the needs - B) forward linkages – continually add values – firms that buy resources into high value added materials. E.g., furniture industry - C) final demand – these are industries that provide services and goods. Linkages – help to diversify local industries - D) fiscal linkages - to develop social programs, social infrastructure, facilitate local economy - However, two basic impediments stem from staples production - A) Export mentalities – thinking is to extract raw materials and then, ship them abroad immediately. Disincentives to add values, hinders forward economy - B) firms are often large, oligopolistic, foreign, - too costly, expensive machinery – disadvantaged in a small economy, large domestic capital needed, e.g., oil and gas in Canada is extracted by U.S. companies - Mel Watkins: staples trap: once a region specializes in producing staples, it finds it very difficult to reconfigure production around other sectors – you can earn a lot of money by oil and gas – hinders other sectors – not diversified high value added production, manufacturing industries – trapped in resource mentality - Cyclonics: resource economy prone to boom and bust – dependent on world price – dependent on fortunes of other economies who buy them, vulnerable economy – foreign companies may leave - Result is susceptibility to volatile resource prices and market demand, crisis – e.g., U.S. recession in 2008, nobody there to buy oil and gas - Sucks up all of the resources and leave - More Vulnerable than diversified industries - Metaphor of cyclone – boom-bust dynamics - Each staple has own rhythm, timing – fishing temporal, seasonal, spacially – - Resource economy tend to focus in a regional towns – e.g., fishing, mining, forest – characteristics of the industry may govern the town - Local staples region locked into set of global relations producing dependency- dependent of other places to buy those products e.g., fish - If they stop buying then the community would be severely affected – job loss - Power and decision-making vested in metropole – growth tends to concentrate in a space and the magnitude only deepens – uneven, unequal development - Instead of global integration – Innis saw a vortex – metropole gets richer and periphery gets marginalized - rich gets richer, poor gets poorer Marginal/local theory: - Innis’ marginal theory is embedded in institutional economics and its critique of orthodox/neoclassical economics - Neoclassical economics: shape our world by major institution, government – models of supply and demand - Orthodox economics grounded in modeling: logics? General laws? - Develop general models - Paul Krugman “To be taken seriously an idea has to be something you can model” 1995 - Such theories draw upon universal concepts such as rationality, inherent laws of markets, equilibrium - They have a formal vocab, precise definition, rules and assumptions that are universal and invariant, and ideas of rigorous correspondence model and reality – high correspondence, - Formal universal models can be useful, but there are other styles of theorizing - Innis skeptical of definitions and procedures that claim to go beyond the local – not universal he believes - Recognizes models always constructed and deployed in particular settings - Influenced by institutional economics of: - Thorstein Veblen: concern was not to construct a model to explain everything, but to understand the strange customs of his town own time and place – has to know norm, and culture important institutions in a particular space - Institutions shape the life with models – economic life, development - Critiqued notion of ‘rational economic man’ – the context which the particular economy takes place – e.g., a man smoking a cigar wrapped with a 100 bill - Stressed role of institutions : systems of rules, norms, procedures, conventions, organizations - Innis: orthodox theories justify staples production in terms of law of comparative advantage - Comparative advantage – theorist Ricardo - countries are prosper when they specialize – e.g., banana – specialize – country should specialize in what they have in advantage – human resource in China - Conceit o
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