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Basis for an essay on the evolution of the Maritimes economy.
1. Goal of the project is to study the importance of mixed agriculture in
determining the likelihood of a region's becoming a manufacturing heartland.
More specifically, the goal is to determine the role of poor agricultural
resources as the cause of the hinterland position of the Maritimes in the
Canadian economy.
a. Studies such as Gilmour and MacCalla which used as staples framework
to explain Ontario's success found the positive association between
agricultural and economic development. However the superiority of
agriculture as a source of exports was not the issue. Agriculture was
beneficial for development whether or not its output was exported, so that
the content of their work is valuable even if the analytical framework is
rejected.
b. The role of agglomeration economies has long been obvious, as in
Gilmour, but recent advances in economic analysis (Krugman, Arthur)
have given a better theoretical foundation for the analysis.
2. Manufacturing (or non-primary production) is more than proportionately
stimulated by agricultural development.
a. Much of the benefit of agriculture stemmed from its role in creating
agglomeration economies. Agriculture resulted in higher population and
income densities than other resource based production. This role for
agriculture is based empirical observations of production in the 19th
century, not on theoretical analysis.
b. A secondary benefit stemmed from reduction in costs created by an
abundance of agricultural products. The real cost of labour and the cost of
many raw materials for manufacturing were reduced by the low cost
availability of cheap agricultural produce. In the 19th century food was a
very substantial portion of the average person's consumption. The raw
materials for a large portion of non-food consumption were also produced
by temperate climate agriculture. Clothing, footwear and transportation
could be produced from wool manufactured into cloth, hides
manufactured into leather for shoes and harness. Horses were an
agricultural product of great importance to transportation as well as
productive motive power.
3. Manufacturing clusters in favoured locations: locations are favoured by
a. Geographic factors reducing costs of production or transport costs. For
example, locations on a good harbour, or locations near a low value high
bulk raw material were geographically favoured.
b. Scale advantages resulting from agricultural and other development in the
hinterland. These scale advantages may stem primarily from the
availability of a local market, but reduced real cost of labour and of raw
materials due to productive agriculture also played a role. Political
decisions may create scale advantages of particular locations, as when a
city is chosen as a capital or as a military base.
c. Superior transportation facilities due to improvements
i.
resulting from policy decisions or other 'economic accidents'
ii.
resulting from the larger scale of the economy which makes
improved transportation profitable. That is, more transportation
improvements can be profitably financed the higher the level of
economic activity. The scale may be in effect or anticipated, in
which case growth becomes a self-fulfilling prophecy.
4. The geographic areas to be studied need to be ordered into hierarchical
categories.
Use 1870 census divisions as units…
a. Districts are the smallest unit of analysis. Each district may or may not
develop significant amounts of manufacturing. A county would be a
suitable political unit to define as a district. Census sub-districts or groups of
such divisions could form a district.
b. Areas are defined as a manufacturing centre, that is a town or city, and its
hinterland. The hinterland consists of those districts with lower
transportation costs to that centre than to other centres. An area may
include one or more counties or parts of counties. The basic census districts
of 1870 are the units here. -- half counties etc.
c. Sub-regions contain one or more areas. A sub-region might be a province
or only a portion of a province. This is a grouping of census districts.
d. Some regions contain one or more sub-regions. Some regions contain
provinces, others contain only one province. All will contain a number of
areas.
5. Because manufacturing tends to cluster in favoured locations, cities will
emerge within well favoured districts, becoming the centres for areas. Some
areas within a province or region will be more attractive than other areas,
resulting in larger cities with more manufacturing.
i.
Cities with their areas can be ranked in a hierarchy by population size and
by extent and type of manufacturing.
ii.
Geographic factors, scale advantages or superior transportation facilities
as outlined about make one area more attractive than another.
iii.
Because scale economies play a large role in making a city attractive, those
cities which grow earliest will likely remain the most attractive. Once a
city has gained a significant scale, it may well be more attractive to
manufacturing than cities with lower costs resulting from geographic
conditions. Scale economies from rich agriculture will become
unimportant, once urban growth has become sufficiently large.
iv.
Some industries will cluster more than others. Cost factors can overcome
the tendency to cluster, and the relative importance of cost factors, such as
low cost water power, versus the advantages of location near other firms,
near output markets or near labour markets will vary from industry to
industry.
v.
Agglomeration economies are likely to have an upward bound. After that
bound is reached, diseconomies of scale such as high rents, high cost of
water power, congested urban transportation may make the centre
unattractive for some industries.
vi.
The upward bound of agglomeration economies varies from industry to
industry. A city may become unattractive for one industry while a
continuing rise in size will increase its attractiveness for another industry.
vii.
An important hypothesis of this study is that areas with rich agricultural
resources will generate larger cities than others, ceteris paribus.
6. Clustering of manufacturing is limited by the costs of transporting output to
the market.
a. When goods were produced for the local market, a city could grow so
long as the increasing benefits of agglomeration economies overcame the
increasing costs of transporting output to more distant purchasers.
b. The balance of geographic costs, agglomeration economies and
transportation costs would have allowed some cities to produce goods for
the market in the sub-region or region, or even to export manufactured
goods to international markets. The size of its own hinterland and its
ability to encroach on the hinterland of neighbouring cities would not
influence the extent of agglomeration economies in these cities. These
cities would further reap the benefits of increased agglomeration
economies, ceteris paribus.
7. As time passed, manufacturing became less dispersed due to changes in
transportation costs and in agglomeration economies.
a. Transportation costs fell with technological change and with
investment in transportation networks.
b. As transportation costs fell, cities with larger agglomeration economies
could displace neighbouring cities with smaller agglomeration
economies. Each city had a transportation advantage in its own
hinterland. If it became larger than a neighbouring city, reduced costs
due to agglomeration economies would allow it to encroach on the
neighbouring cities hinterland.
c. The economies of scale of individual enterprises in established
industries increased, so that firms required larger markets for their
output. Industries with large economies of scale became viable as the
Canadian market grew. Therefore districts and small cities became less
attractive to manufacturing establishments, and larger cities became
more attractive.
d. The reduction of dispersion of manufacturing proceeded first by the
movement of manufacturing from the countryside to towns, secondly
by the movement from small towns to larger cities. Different industries
moved at different rates.
e. Eventually, the reduction in dispersion of manufacturing influenced
the balance between regions. Transportation costs became low enough
and agglomeration economies (including the economy of scale of
individual plants) became large enough that firms in more favoured
regions were able take over the markets of firms in less favoured
regions.
The Maritimes evolved as follows.
The story of the Maritimes, according to this framework proceeds as follows:
1. In the early 19th century, the industrial structure of the Maritimes was similar
to that of central Canada.
a. A hierarchy of cities emerged producing a range of manufactured goods
for local markets. Cost factors permitted lumber and ships to be produced
for external markets.
b. Lower overall incomes and access to the sea reduced the potential
profitability of railroads, so that the hinterlands of individual cities did
not grow as rapidly as in Ontario. That is, investors did not anticipate that
the market for transportation services would be large enough to make
investment in railroads profitable, even after markets grew in response to
transportation improvements. Therefore a rationale decision to limit
investment in railroads was made.
c. Cities in the Maritimes found that transportation costs to external markets
were lower and transportation costs to local markets were higher than in
central Canada. This balance favoured the export of manufactures such as
lumber, but increased competition from imports for goods such as
clothing.
d. Lower agricultural incomes in individual districts and areas, lesser
development of internal transportation and lower transportation costs in
imports meant that cities and the scale of manufacturing were smaller
than in Central Canada.
e. The ability to export some manufactures offset the scale problems.
However, new world manufacturing could only compete with old world
manufacturing in a narrow range of goods due to the higher cost of labour
and capital in the new world.
2. Completion of the ICR and increasing tariffs altered conditions for the
Maritimes.
a. Lower transportation costs permitted firms in many cities to expand
production through the region and into Montreal. Heavy industry based
on coal was at an advantage in Quebec where coal was relative expensive
and water power relative cheap. Ontario's access to mid Western coal
gave it similar advantages. Therefore the two regions could compete in
Quebec. The growth of the steel industry under the protective structure
implemented in the 1890s illustrates this process.
b. Exclusion of foreign imports and improvement in internal transportation
allowed production for the regional market to expand. Investment in
textile mills illustrates this process.
c. At the same time production for foreign markets became less attractive.
i.
The increased profitability of production for the Canadian and local
market drew capital out of industries geared to international
markets.
ii.
As imports fell due to increased tariff protection, balance of
payments forces make exports less attractive, reducing the
profitability of export oriented industries. The decline in
shipbuilding and hsipping likely resulted from these factors.
d. Industry expanded rapidly, but shifted from foreign to Canadian markets.
3. In the 1920's manufacturing collapsed in the mARITIMES
a. The rise of petroleum and hydroelectricity and the reduction in importance of
coal reduced the geography cost advantages of the Maritimes.
b. The West increased Central Canada's regional hinterland, giving if far larger
agglomeration economies than could be captured by the Maritimes.
c. Natural freight rate advantages in the Maritimes caused by the highly
competitive nature of competition (a la Cruikshank) rather than by policy of
the ICR (a la Forbes) were removed by a policy decision from Central
Canada.
d. Declining transportation costs and rising agglomeration economies reduced
the viability of much of the Maritimes manufacturing.
4. Policy decisions during World War II reinforced the process. The maritims
were deemed unsuitable for manufacturing by C.D. Howe, and additional
advantages of investment in manufacturing were given to central Canada. The
advantage of the centre over the region was solidified.
Little manufacturing is competitive in the region because it lacks necessary
agglomeration economies.