Staples and Staple Theory

The staple theory of economic growth is most closely linked with the name of Harold Innis (1894–1952), a University of Toronto economist who argued that current theories failed to explain the economic evolution of countries such as Canada, which has a relative abundance of land and other natural resources. Innis's staple theory narrative, fleshed out in the 1930s and 1940s, is deeply imbedded in a detailed discourse of Canadian economic history, wherein Canadian economic evolution and development is explained through highly detailed historical analyses of the development of key commodities such as cod, furs, timber, and the transportation infrastructure which allowed for and facilitated the export of such products. The staple theory is now closely linked to export-led theories of economic growth wherein exports determine the growth process irrespective of whether these exports are raw materials or manufactured goods or services.

The staple theory has been used in efforts to explain the path and pattern of economic evolution of, for example, pre- and post confederation Canada, colonial and postcolonial United States, Australia, New Zealand, and Argentina. The staple thesis has also been applied to analyses of economies that rely on raw material exports such as cotton, cocoa, wood, oil, and sugar to drive their development process. The evidence as to whether staple exports has played and continues to play a critical and positive role in the development process is mixed. Canada, the United States, Australia, and New Zealand are nations where staples appear to have played a positive role in fostering economic development. Argentina is a classic example where staple exports have failed to foster sustained economic development. Although critics of the staple theory argue that failure of a staple economy is proof of failure of the staple theory, the staple theory was not designed to predict a particular successful course of development for regions where staple exports are important. Rather, the staple theory was developed as an analytical framework to help explain the economic evolution of economies where exports of raw materials or their processed by-products have been of some consequence, and to determine the conditions under which staple-related economic activity positively contributes to economic development.

EARLY STAPLE THEORY

The staple theory was first articulated prior in 1923 by Queen's University (Canada) economist W. A. Mackintosh (1895–1971), who argued that explaining a nation's economic evolution requires incorporating economic and geographical factors into one's analysis, going beyond a narrative which relies largely upon individuals and politics as the main or only causal variables. Mackintosh maintained that critical to the economic development of Canada and the United States in the nineteenth and early twentieth centuries were markets for staple products and the ability of people to overcome or take advantage of geographical factors to bring the staples to these markets competitively. Staple exports drove the development process by spurring investments and consumption in other domains, outside of the staple sectors. This raises the notion of linkages, largely overlooked by Innis, but critical to later refinements of staple theory. Mackintosh acknowledges the influence of the work of U.S. scholar Guy Callender, who posits a clear connection between staples and U.S. economic development.

A critical underlying assumption of the staple theory, as articulated by Innis and Mackintosh, is that not all output is created equal with regards to their productivity-generating capacities. Exporting staple products—products that can be produced in surplus or excess relative to domestic demand—potentially yields a higher per person level of output than focusing on a less export-oriented process and treating staple products like any other product. Another critical attribute of Innis's staple theory is that a region endowed with staples does not depend for its economic development upon the demand side alone—that is, upon the existence of ever-growing markets for its staple products. Rather, given the demand for its staple products, the ability of a region to engage in staple exports depends upon its capacity to reduce the unit costs of its staples. This supply-side issue resides in the hands of the staple producers, and Innis pays particular attention to transportation costs as an important cost variable which staple producers can significantly affect to make their staples cost competitive, thus spurring a region's capacity to develop through staple exports. Thus, whether or not economic development is fostered by the presence of staple products depends not simply on the demand side, over which the staple producers have little effect, but also by staple producers' ability to reduce their relative production costs.

Much confusion surrounding the staple theory relates directly to the view that it is a demand-side theory wherein staple-rich regions can do little to affect their economic destinies and are largely subject to the ebbs and flows of variables over which they have little control. When staple exports depend on both the demand and supply sides, staple theory suggests that the path of economic evolution taken by a region is very much contingent upon the supply-side initiatives taken by individuals in staple-rich regions. Both the supply and the demand sides are important to an understanding of the economic evolution of staple-producing economies, with the supply side playing a preeminent role given that staple economies have the most direct control or influence over the supply side.

RECENT DEVELOPMENTS IN STAPLE THEORY

This early emphasis on the supply side, all too often ignored by critics of staple and export-led theories of economic growth and development, was reiterated and elaborated upon by Douglass North (1920–) in his articulation of models of economic development and of U.S. economic history. Focusing upon the demand side paints a distorted picture of the growth process and distorts the analyses of the role, which exports play in this process. More recently (1970s) Irving Kravis (1916–1992) argued that domestic supply-side variables were of overriding importance in the determination of export-led growth in the nineteenth and twentieth centuries. The heart and soul of economic growth are internal to the economy (supply side) and relate to how the economy and its endowments are managed economically, socially, and politically. Thus, exports and trade expansion are the "handmaidens" of growth, not the true engines of the export-led growth process. Most recent empirical work by Reynolds and by Rodriguez and Rodrik reiterates the importance of the supply side to the export-led growth process—causality runs from supply-side improvement to exports, not vice versa.

Of the various extensions and amendments to the staple theory, of particular importance has been the explicit introduction of linkages into analytical framework (although Mackintosh himself highlighted in the 1920s what has come to be referred to as linkages). Albert Hirschman (1915–) introduced the notion of backward, forward, demand, and fiscal linkages. Backward and forward linkages relate to economic activities or industries associated with the production and servicing of the staple and to the further processing of the staple, respectively. Backward linkages refer not simply to activities related to the immediate production of the staple product, but also to the production of the infrastructure, such as transportation, necessary to make staple production economically viable. Demand linkages refer to the manner in which staple-related income is distributed and spent and how this affects the economy. Fiscal linkages relate to how government income accruing from staple production is spent. Melvin Watkins argued that key to staple theory is the extent to which staple production links positively with the rest of the economy. In other words, the extent and strength of spread effects is critically important in determining the ultimate effect of staple exports upon per-person output growth.

Douglass North pays particular heed to demand linkages with respect to what he refers to as residentiary industries in the secondary or tertiary sectors of the economy, which develop to meet the needs of the local staple-producing population. Such staple-related industries can generate cost savings or economies to other unrelated industries in the region, thereby fostering the growth of these industries and attracting new industries to the region. These non-staple industries can, in time, become export oriented given their low production costs, which are partially attributed to the development of the staple-related residentiary industries. North also finds that staple production and the economic linkages that they generate can give rise to the growth of nodal centers that are home to staple and related industries. These nodal centers can themselves become export centers not simply or even largely of staples, but of nonstaple outputs, wherein the latter's base is the staple sector. In time, a vibrant nonstaple sector may become delinked from the staple sector, fostering economic growth on its own. Thus, North further emphasizes the significance of linkages and related spread effects as critical dimension of staple theory and staple growth.

This discourse on linkages speaks directly to one of the basic critiques of staple theory: that staple exports or their growth appear to be of little or diminishing importance to so-called staple regions as a percentage of exports, output (GDP), employment, or the growth in these variables. But, as North points out, even if staple production does not dominate an economy directly, this does not mean that staple production is not the dominant force in the economy by way of its complex linkages with the rest of economy. Staple exports can be important to the growth process through their direct and indirect (linkage) effects on the economy, even if staple exports themselves constitute a small percentage of GDP.

Staple theorists including Innis have long recognized that staple economies need not prosper, and might even fall into what has been dubbed as a "staple trap." The staple trap is largely a product of economies failing to develop the potential linkages embedded in the production of staple products. This can be related to the underdevelopment of requisite economic, social, and political infrastructure. And this can be associated with a very unequal distribution of income, which biases the structure of production towards luxuries or relatively low-productivity growth industries. Thus, economic performance can be affected by forms of labor organization adopted in the staple economy: for example, free labor versus slavery or serfdom, or unionized labor versus nonunionized labor. For this reason, it is possible for a staple economy to evolve into a relatively low per-capita income economy. Moreover, narrow staple economies that fail to develop linked and related residentiary industries become subject to relatively substantial and independently determined volatility determined by the ebbs and flows of the demand for staple products. But the staple trap is not an inevitable by-product of staple production; rather, it is largely a function of supply-side decisions made by decision makers within the erstwhile staple economy.

A more fundamental critique of staple theory was one put forth in the mid-1960s by Edward Chambers and Donald Gordon. It focuses on the case of Canadian growth during its wheat boom of 1896 to 1913, an era said to exemplify successful staple-led economic development and proof of the success of staple theory. Chambers and Gordon challenged the received view that staple exports played an important role in Canadian economic development. They argued that the evidence suggests that it would have made little difference to Canada's economic performance had it been completely unable to produce wheat.

Chambers's and Gordon's results were entirely assumption-driven because they measured the effect of staple exports within the framework of what they referred to as conventional economic theory. They assumed as nonexistent each and every causal connection that staple theorists either implicitly or explicitly assumed to be important. For example, staple exports are said to have no differential effect on the rate of technological change, unit production costs in other industries (related to economies of scale), or in attracting higher-productivity industries to the country. They argued that such assumptions should be applied to the analyses of any staple economy. However, the evidence suggests that linkages assumed to be nonexistent by Chambers and Gordon were, indeed, of considerable importance in Canada and in other successful staple economies.

To determine the importance of staples to the per-person growth process, one cannot simply assume away linkage or spread effects. Rather, determining the veracity of the causal assumptions made by staple theorists is at the heart of any determination of the role played by staple exports in the development or growth process. Moreover, proof of the analytical value of the staple theory is unrelated to the successful staple-related development. Staple theory is meant to facilitate an explanation of successful and failed staple-related development by determining the extent to which staple exports were able realize their growth potential for an economy. Success and failure are equally possible according to staple theory. However, success requires that important supply-side decisions are made within staple economies such that linkages at every level are maximized, a point made some time ago by Innis, Mackintosh, and North. Staple economies are in no way largely dependent upon the wiles of the market for their economic development. Instead, staple theory underlies the importance of human agency in the development process through the supply side, given the demand for staples and related products.

SEE ALSO Agriculture; Canada.

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Morris Altman