The staples theory was originally developed in the 1920s by historian Harold Innis to explain Canada's development as a provider of valuable raw resources - initially fish and fur - to the British Empire. It was later seized on by the economists on the left to explain Canada's failure to move into higher value-added industries. Canadians, they argued, had developed a "commodity mentality," resigned to sending unprocessed resources abroad, instead of building a modern economy at home. The small group of elites that got rich on these resources controlled the political levers to ensure nothing changed.
Indeed, it didn't for while. The U.S. eventually replaced Britain as our biggest export market. Though the destination was different, the dynamic was not. Each wave of economic growth in Canada was driven by U.S. demand for our lumber, newsprint, oil or hydro power. We did little, it seemed, to shake off our mantle as hewers of wood and drawers of water.
Though the staples theory seemed outdated as Nortel rose to prominence and Ontario's auto sector grew to overtake Michigan's, it has been revived recently by economists to explain the slide back into resource dependence. Raw or lightly processed resources declined steadily as a share of Canada's exports between 1960 and 2000, falling by half from 90 per cent to about 45 per cent. But since the beginning of this decade, their share of exports has risen dramatically to 65 per cent in 2008, according to new research by Canadian Auto Workers economist Jim Stanford.
"We thought Canada was moving beyond the simple extraction and export of resources, but I'm more tentative about that than I was two years ago," said Keith Brownsey, a professor of policy studies at Mount Royal College in Calgary, who co-edited a 2008 academic volume on the topic. "We are becoming more and more reliant on natural resources."
Does it matter? Can't we still get rich - or at least maintain our standard of living - as long as the U.S. and the rest of the world hunger often enough for our oil, gas, lumber, potash and coal?
Experts doubt it. Canada's resource sector has a poor record of innovation, depending almost entirely on equipment and processes developed abroad. Yet, innovation is the only sure way to create wealth. And, though the link is not always absolute, R&D spending is almost always a sine qua non of innovation.
Barring an extension of the workweek - Canadians already put in more hours than Americans and are virtual workaholics compared with Europeans - innovation is the only sure way for Canada to be more productive. It is the key to maintaining our standard of living and providing increasingly costly public services for an aging population.
The innovation imperative has struck home with particular urgency in Central Canada. The upward pressure exerted on the Canadian dollar when commodity prices rise - a phenomenon experienced before the recession and one that promises to return with a bang after it eases - leaves Ontario's manufacturing sector unable to cope as it earns less and less on its sales abroad. Long dependent on a cheap loonie to drive exports, manufacturers are now paying the price for having invested too little on productivity-enhancing equipment or the development of higher-value-added goods - in other words, for having failed to innovate.
Productivity grew at a rate of 1.8 per cent in Canada in the decade to 2006, compared with 2.8-per-cent annual growth in the U.S. The result is that the output of the average worker here fell to 76 per cent of the U.S. level in 2006, a precipitous plunge from 90 per cent in 1984. Recent data show the trend continued in 2007, as productivity rose 2.7 per cent south of the border, while falling 1.2 per cent in Canada.
