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Economic Growth in Canadian Industry, 1870–1915: The Staple Model and the Take-off Hypothesis*

Published online by Cambridge University Press:  07 November 2014

Gordon W. Bertram
Gordon W. Bertram*
Affiliation:
Los Angeles State College
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Extract

In his widely discussed stage theory of economic growth Professor W. W. Rostow has attempted to reach a level of historical generalization somewhat similar to that essayed by the pioneers in the discipline of economic history. Herbert Heaton observed that early economic historians were interested in a search for “the laws of social development” and for conclusions “as to the character and sequence of stages through which the economic life of society has actually moved.” Their valiant attempts to put historical generalization in the place of economic theory, concluded Heaton, were not successful. One purpose of this paper is to show that Rostow's analysis, while relying more on economic theory than its predecessors, is no more successful in understanding specific cases of economic development and, more widely, contains many difficulties as a general theory of development.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 29 , Issue 2 , May 1963 , pp. 159 - 184
Copyright
Copyright © Canadian Political Science Association 1963

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Footnotes

*

The author wishes to express his appreciation to the Institute of Economic Research, Queen's University, Kingston, for financial and research assistance during the summer of 1960.

References

1 Rostow, W. W., “The Take-Off Into Self-Sustained Growth,” Economic Journal, 03, 1956, 25–47 CrossRefGoogle Scholar, and The Stages of Economic Growth (Cambridge, 1960).Google Scholar All page numbers shown in parenthesis refer to Rostow's article, “The Take-Off Into Self-Sustained Growth.”

2 Heaton, Herbert, “Criteria of Periodization in Economic History,” Journal of Economic History, 09, 1958, 268.Google Scholar

3 Cairncross, A. K., “Review of The Stages of Economic Growth ,” Economic History Review, Second Series, XIII, 1960–1961, 457–8.Google Scholar

4 Heaton, , “Criteria for Periodization,” 268.Google Scholar

5 Youngson, , Possibilities of Economic Progress (Cambridge, 1959), 269.Google Scholar

6 Although an American economist, Callender, G. S., made one of the earliest statements of the staple approach (Selections from the Economic History of the United States, 1765-1860 (Boston, 1909))Google Scholar, it has only been in recent years that American economic historians have apparently discovered the Canadian literature, rediscovered Callender, and begun some fruitful applications–particularly with respect to the American period 1790-1860. See particularly North, D. C., “A Note on Professor Rostow's Take-Off Into Self-Sustained Growth,” Manchester School of Economic and Social Studies, 01, 1958, 68–75.Google Scholar In this critical review of Rostow's article, North advocated a staple model interpretation of economic growth. He suggested that for the United States and Canada “… one could advance a hypothesis which is the reverse of Rostow's, namely, that the opening up and development of new areas capable of producing primary goods in demand in existing markets induced the growth of industrialization.” See also North, , “Location Theory and Regional Economic Growth,” Journal of Political Economy, 06, 1955, 243–58CrossRefGoogle Scholar, and The Economic Growth of the United States, 1790-1860 (Englewood Cliffs, NJ, 1961).Google Scholar In a later statement Youngson, , in Possibilities of Economic Progress, 284 Google Scholar, also noted in his discussion of case studies of economic progress in Sweden, 1850–80, and Denmark, 1865–1900, the tendency in economic history to neglect the interdependence between industry and agriculture.

7 Baldwin, R. E., “Patterns of Development in Newly Settled Regions,” Manchester School, XXIV, 05, 1956, 161–79CrossRefGoogle Scholar; and North, The Economic Growth of United States, 1790–1860.

8 Duesenberry, James S., “Some Aspects of the Theory of Economic Development,” Explorations in Entrepreneurial History, 12 15, 1950, 96–102.Google Scholar

9 The broad production possibilities of the new resources in the United States may have made the American frontier process unique. See Murphy, George G. S. and Zellner, Arnold, “Sequential Growth, the Labor Safety Valve Doctrine, and the Development of American Unionism,” Journal of Economic History, 09, 1959, 402–3CrossRefGoogle Scholar; and Higgins, Benjamin, Economic Development (New York, 1959), 192.Google Scholar

10 Firestone, O. J., Canada's Economic Development, 1867-1953 (London, 1958), 112.Google Scholar

11 Firestone's estimates of percentages that gross capital formation was of gross national product, computed from ibid., 66 and 112, were 11.8, 13.9, and 12.2 per cent in 1870, 1890, and 1900 respectively. The comparable percentages for Sweden given by Rostow (p. 34) during the period judged as the take-off decades 1861–1890 were 5.8, 8.8, and 10.8 per cent in 1861–70, 1871–80, and 1881–90 respectively.

12 Ibid., 5. Firestone states that his GNP estimates for 1867–1925 “are definitely more tentative than those for the most recent period. The estimates appear to be satisfactory as an indication of broad trends, but are not based on firm enough records to allow precise measurement.” One indication of some inaccuracy in the decennial estimates of gross national product that has been noted by Kenneth Buckley is the low annual rate of growth of 0.18 per cent compounded recorded for gross national product per capita in the decade 1910–20 and a zero-rate of growth for per capita national income in the same period. In his review article of Firestone's volume ( American Economic Review, 06, 1959, 431–3Google Scholar) Buckley attributes this unlikely result, on the basis of an inspection of movements of real wages, to an overestimate of Firestone's benchmark estimate for 1910.

13 Cf. Meier, G. M., “Economic Development and the Transfer Mechanism: Canada, 1895–1913,” this Journal, XIX, 02, 1953, 8 Google Scholar; A. F. W. Plumptre, “The Nature of Political and Economic Development in the British Dominions,” ibid., III, Nov., 1937, 492.

14 Youngson, , Possibilities of Economic Progress, 279.Google Scholar

15 Acknowledgment is gratefully made here to the Dominion Bureau of Statistics and particularly to Mr. T. K. Rymes and the Central Research and Development staff for their assistance in the preparation of this manufacturing series. For a detailed report of the revised manufacturing series, a discussion of methods, and an appraisal of the reliability of the series, see Bertram, G. W., “Historical Statistics on Growth and Structure of Manufacturing in Canada, 1870–1957,” Canadian Political Science Association, Conference on Statistics, 06 10–11, 1962.Google Scholar

16 The distinction of primary and secondary manufacturing industries originated in the studies of the Royal Commission on Canada's Economic Prospects. Fullerton, D. H. and Hampson, H. A. in their Royal Commission study, Canadian Secondary Manufacturing (Ottawa, 1957), 3–4 Google Scholar, give the following characteristics of primary and secondary manufacturing. Primary manufacturing is distinguished by: 1) “operations which involve either relatively minor processing of domestic resources, i.e., in which the value added by manufactures is relatively low. [2] … those highly capital-intensive and often extremely complex industries which produce industrial materials from our basic natural resources for sale mainly in export markets. Flour milling, cheese factories and saw and planing mills are examples of the first type, while pulp and paper production (excluding finished paper goods) and smelting and refining are examples of the second. [3] … the primary industries … start out with resource, technical and other competitive advantages and generally have easy access to world markets; with few exceptions they have little or no tariff protection and their prosperity depends primarily on the strength of international demand for their products.” Secondary manufacturing is distinguished by: 1) “a rather higher degree of processing and by a much greater dependence on the domestic market. They tend to be located close to the centre of the market, while the primary industries are usually found at or near the resource on which they are based. [2] … generally produce end products rather than industrial materials. They draw on both foreign and domestic suppliers for raw materials and components and tend to be more labour-intensive than the basic resource industries. Examples of secondary manufacturing are textiles, clothing, transportation equipment and electrical apparatus and supplies. [3] [These industries] generally have no pronounced natural cost advantages and frequently are at a positive disadvantage relative to their main competitors; their main sales outlet is the comparatively small and scattered, although rapidly growing, domestic market in which they are confronted with considerable import competition.” The definitions of primary and secondary manufacturing have certain arbitrary properties which follow from the rather broad characterizations listed for the two industries. J. H. Dales has recently suggested a definition of primary industries which appears more precise, and future work in this area might profitably gain from this definition. See J. H. Dales, “A Suggested Definition of Primary Manufacturing,” a note appended to his paper, “A Classification of Canadian Manufacturing Statistics, 1870-1915,” Canadian Political Science Association, Conference on Statistics, 06 10–11, 1962.Google Scholar It would appear that Dales's definition would not change the conclusions reached here representing the role of staple industries, but might indicate that the proportion of primary manufacturing industries to total manufacturing had fallen to a lower level by 1957 than to the 30 per cent proportion noted here.

17 See n. 15.

18 Firestone, O. J., “Development of Canada's Economy, 1850-1900,” Trends in the American Economy in the 19th Century (Princeton, 1960).Google Scholar

19 Skelton, O. D., “General Economic History, 1867-1912,” in Shortt, A. and Doughty, A. G., eds., Canada and Its Provinces, IX (Toronto, 1914), 191.Google Scholar

20 (Toronto, 1955), 4, 5.

21 The paper indicated in n. 15 provides in Table III current dollar values of gross value of output for the twenty-three major industry groups. The constant dollar output plotted in Charts 2 and 3 was obtained by deflating these current values by DBS component price indexes. The 1913 = 100 index was mechanically linked to the 1935–39 = 100 index. The particular component indexes used to deflate a major industry group referred to the same group of commodities in most cases. However, in the absence of component indexes for transportation equipment and electrical products, the iron and steel products component index was used for deflating these series. The current value series for the food and beverage products major industry group were deflated by a weighted average of the vegetable component index and the animal products component index from weights in the 1913 = 100 wholesale price index.

22 In estimating the total export importance of all primary manufacturing, the industry major groups cannot be conveniently related to exports, item for item in some cases, but a substantial part of export commodities can be identified from K. W. Taylor's export series as of either primary or secondary origin. It would appear by conservative computation, without allowance for items which are classified so as to include both primary and secondary items, that some 30 per cent of exports in 1870 and some 40 per cent in the remaining period through 1915 were products of primary manufacturing. In 1910 and 1915 the proportion of exports from manufacturing production would probably be well above 40 per cent if account could be taken of other items where classification is unclear. In some cases exports were in excess of 50 per cent of total production, i.e., cheese production and paper and pulp in 1910 and 1915. Lumber exports were from about 50 per cent of the production of sawmills in 1870 and around 40 per cent in the remaining decades through 1900. See Taylor, K. W., “Statistics of Foreign Trade,” in Taylor, and Micheli, H., eds., Statistical Contributions to Canadian Economic History, I (Toronto, 1931), 12.Google Scholar

23 Ibid.

24 Cheese, meat products, wheat flour, and canned or cured fish were all important production items with significant export markets. Flour and grist mill domestic production accounted for about one-third of primary food products in 1900, rose to 43 per cent in 1910 and continued near 40 per cent in 1915.

25 Canada Year Book (Ottawa, 1960), 1262 and 1268.Google Scholar

26 See Meier, G. M. and Baldwin, R. E., Economic Development (New York, 1959), 224.Google Scholar

27 “Review of The Stages of Economic Growth,” 455.

28 (New York, 1952 ), 102–3.

29 Rostow, W. W., “Trends in the Allocation of Resources in Secular Growth” in Dupriez, Leon H., ed., Economic Progress (Louvain: Institut de Recherches Economiques et Sociales, 1955), 371.Google Scholar

30 21–2.

31 North, The Economic Growth of the United States, 1790-1860.

32 The average size of Canadian sawmills measured in constant 1935–39 dollars of gross value of output was $7,200 in 1870 and $17,000 in 1890. Approximately half the production of sawmills was located in Ontario in the years 1870–90 and during this period their gross value of real output in this province increased about two and one-half times. Some of the growth of Ontario's large iron and steel products industry by 1890 can be traced to the expansion of the lumber industry directly and indirectly. In 1890, the gross value of output for several related industries in current dollars was as follows: saw and file cutting, $456,000; boilers and engines, $2,085,000; foundry and machine shops, $8,460,000.

33 The electrical products and petroleum products industry groups showed great advances in growth rates comparable to a number of industry groups in the primary manufacturing sector, particularly after 1915. The expansion in electrical products could be considered an example of industrial growth dependent mainly upon major technological innovation rather than an industry responding to linkages with a primary industry involved in export activity. The classification of petroleum and coal products as a secondary industry was made by the Royal Commission only after some hesitation.

34 In the three periods 1870–79, 1880–89, and 1890–99, respective average annual imports in constant dollars of pig iron, billets, and blooms were $.4 million, $1.3 million and $1.5 million. Imports of rolling mill products in the same periods in constant dollars average respectively, $1.6 million, $4.6 million, and $5.0 million per year. See Taylor, , “Statistics of Foreign Trade,” 22–7.Google Scholar In 1870, six firms (five in Quebec and one in Nova Scotia) were operating iron-smelting furnaces and making steel with a total value of output of $.3 million, and the five rolling mills reported an output of $1.7 million. In 1880, thirteen iron-smelting and steel-making firms (three now in Ontario) produced an output of $1.2 million, while in 1890 rolling mills had an output of $3.2 million. Foundry and machine shop output rose from $8.9 million in 1880 to $17.2 million in 1890. The diversity and growth of iron and steel products output is illustrated by the fact that agricultural implements, boilers and engines, cutting and edge tools, pumps and windmills, sewing machines and wire were all important industries ranging in 1870 from $.2 million (pumps) to $2.7 million (agricultural implements). By 1890 the range of output for this group of industries was $.6 million for pumps to $7.5 million for agricultural implements.

35 See n. 15.

36 Some examples of large and growing manufacturing firms in the period 1870–90 are the following. Rolling mills: 1870, five firms, average size $336,000; 1890, six firms, average size $527,000. Railroad rolling stock: 1870, five firms, average size of firm $102,000; 1890, nineteen firms, average size $498,000. Cotton factories: 1870, eight firms, average size of firms $98,000; 1890, twenty firms, average size of firm $384,000.

37 See Department of Agriculture, Bulletin no. 12, Census of Canada (Ottawa, 1892), 4 and 20–24.Google Scholar