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Regionalism and the Future of Research and Development in Resource Based Economies
Marion Wrobel

At the time this article was published Marion Wrobel was a member of the Economics Division of the Research Branch of the Library of Parliament.

The term regionalism tends to be bandied about, often without any apparent concern for precision which leads to confusion as to the economic consequences as well as a lack of consensus as to whether it is good or bad for the regions of Canada or for the nation as a whole. In this article the author sets regionalism in a context of a general economic theory of nationalism. He then applies the theory to the specific issue of research and development.

Regionalism is here defined as the tendency of provincial governments to engage in the practice of province-building, which is itself merely an attempt to redirect the economic development of the particular province along certain lines. The problem of defining appropriate Canadian regions may be ignored since this issue is not important to the discussion which follows. The provinces will be treated as synonymous with regions since such a simplification allows us to regard provincial governments as representing regional interests. Again this is a gross oversimplification of reality. Generally regionalism is characterized by an attempt to industrialize the economy as a means of reducing the reliance upon primary production in a particular area. One prerequisite of such a definition is the recognition that Canada is made up of a number of communities. The preferences of various communities are such that certain public goods have a definite locational element. To illustrate the point consider the case where Albertans want provincial public ownership of their natural resource industries. To the extent that natural resources comprise a public good element, Albertans will desire public ownership of resources because it provides benefits to individuals over and above any tangible economic benefits derived from such ownership. These intangible goods are consumed collectively rather than individually. Furthermore because of the locational element in their preferences, this psychic income is generated only if the ownership is via the Alberta government. Public ownership through the federal government or some amalgamation of western provinces does not generate this psychic income. Moreover since such a locational element exists in the other regions, spill-over effects are negligible. In other words if the Alberta government does institute public ownership over those industries, Canadians in the other provinces receive no psychic benefits from the fact that public ownership or Canadian ownership in these sectors has been increased. Thus province-building may be a public good distinct from nation building.

This presents a narrow view of regionalism which may well be inappropriate for a more general discussion of the issue. However it does lead to some interesting implications. In many respects such an approach leads to a definition of regionalism which is no different from the economic nationalism experienced in Canada today, only on a smaller scale and with a narrower view of what constitutes the relevant community. As such it generates a set of preferences on the part of provincial residents, governments and bureaucracies which many Canadians have empathy for at least on the national level. And because it does require the recognition that Canada is composed of several distinct communities for the provision of certain specific commodities, this approach to regionalism can illuminate some of the conflicts now confronting the federal and provincial governments.

Because of the manner in which this subject has been framed one can apply the models of economic nationalism to this issue'. The implications of this theory on economic policy include the following: a tendency to direct economic development along specific lines, often moving the economy away from a dependence upon primary production; a pre-eminent weight placed on the redistribution of income as opposed to creation of more income, by offering the educated and middle class-jobs as managers, professionals, or bureaucrats at the expense of blue-collar jobs; and the production of psychic income to the detriment of material income. Due to the redistributive aspect of such policies one must ask how they will be paid for. A conclusion of the theory of economic nationalism is that societies with poor working classes will resort to expropriation or nationalization of firms, while richer societies use tools such as tariffs, taxes, and restrictions on capital ownership.

This application of the theory of economic nationalism differs from the original in two very important respects. Nation states are constrained in their behaviour only to the extent that they deal with the global economy they enjoy full legislative autonomy. The Canadian provinces in contrast possess jurisdiction in a select number of fields and even here they do not enjoy full autonomy. Therefore their actions are limited. On the other hand, these provinces do not pay the full cost of their actions because of the nature of the Canadian fiscal transfer system. The poorer regions of Canada will as a result not have to resort to expropriation as a means of providing such psychic income. Both of these elements work in opposite directions so that overall it is not obvious whether the provinces of Canada pursue policies which are directed towards province-building to a greater extent at present than they would under independence. However we can expect provinces to engage in such activity in those areas where their jurisdiction is clear, or at least federal jurisdiction is not so clear provided that such sectors possess the appropriate symbolic value.

An Application to Research and Development

The types of activities to which symbolic value or psychic income can be attributed are quite limited, and generally these are activities in which the region or nation are particularly lacking. Besides such culturally-related sectors as broadcasting or publishing, industrial activity has always been important. Now the focus is shifting to specifically high technology activities of which research and development is one part. R&D is performed not only by industry itself, but also by governments and educational institutions. These last two are in themselves important components in the pursuit of economic nationalism/ regionalism.

Furthermore R&D is viewed as a means by which the nation or region can assert its sovereignty and sense of community. These views are summarized by the Science Council of Canada's recommendation that Canada achieve technological sovereignty although their use of sovereignty involves a misnomer, since the Council is not advocating technological independence. Even though the Council argues that research should be based on excellence rather than regional distribution, thereby showing their concern with nation-building rather than province-building, the arguments they make can be used by those who promote regionalism. Research and development also has the added quality that it is a scarce commodity in Canada, especially in the peripheral regions which are highly resource based. To the extent that such activity is a public good and therefore generates psychic income. this scarcity is believed to generate high marginal utility.

To demonstrate why the regions of Canada may possess less R&D activity than they desire, consider those regions which possess their comparative advantage in the production or extraction of resource products. Does that imply a comparative advantage in R&D associated with such products? This question requires a breakdown of R&D among the various types of scientific activity and once this is done the answer appears to be, in general, no.

Think of R&D as being related to the process by which a commodity is produced, the creation of new products or the application of the product to new uses. An example of process-related R&D is the experiments designed to extract petroleum from non-conventional sources such as the tar sands of Alberta. One would expect to find such activity centered around these tar sand deposits and that is precisely the case. However since natural resource products tend to be used as intermediate inputs, much of the R&D will involve the ultimate use of such goods, and this tends to be carried out by the users, not producers of the resource products. The scope and level of scientific activity one would expect to see in the peripheral areas of Canada, therefore, is not large and does not correspond to the activities generally thought of as constituting province-building.

One common error made by advocates of these types of policies is that R&D activity can lead to greater industrialization. But just as a comparative advantage in production does not necessarily lead to local R&D in the field, local R&D does not lead to local production. The costs of transporting information are minimal at most and except for the early stages of production when we are really dealing with demonstration projects, the locational decisions of the two activities are quite independent.

Research and development has here been treated as one of those activities which generates psychic income to individuals when it is carried out within the relevant community. If that relevant community for R&D is the province, or if industrialization – to which R&D is often associated – is a provincial public good, then this activity will be one of those used to promote regionalism. However it should be remembered that the product of research, such as new information or knowledge. is itself a public good since the use of information by. one individual does not reduce the supply available to others. As a result the cost at the margin to the owner of this information is zero, which leads to a wide dispersion of its use, especially since modern corporations have evolved into multi-plant, multi-product and multinational firms specifically to take advantage of' this feature of information.

When considering the tangible economic benefit of R&D the ownership of the information and geographical location of the owner is often confused with access to the information. This confusion is further compounded by the lack of recognition that this type of information is only an intermediate good in the production of other commodities. Thus the real economic benefit comes from the ability to consume industrial or scientifically related goods. To increase the amount of information production in the region requires more than restrictions on the importation of the products which embody this information, it requires restrictions on the importation of the information itself. This is not only difficult, it is incredibly wasteful.

Conclusion

As provincial governments demand greater control over the development of their respective economies it is inevitable that a certain amount of conflict with the federal government as well as other provincial governments will arise : This is due to the fact that different regions have varying amounts and types of resources and their economic aspirations are not identical. Such economic conflict is not necessarily undesirable since It is these differences which generate specialization in production and interregional trade which tend to benefit all parties. If this is what constitutes regionalism then no real economic argument can be made against it.

Regionalism can also be considered a beneficial phenomenon if the demand for greater economic responsibilities on the part of provincial governments reflects their ability to provide public goods which are more closely linked to the preferences of their citizens and/ or if provincial production represents the least cost method of supplying these goods.

However regionalism was here discussed in a more restrictive manner which highlighted its negative aspects. Thus we looked at the subject as a concern with the redistribution of material wealth from one group of individuals to another, where the beneficiaries tend to be better off materially than the losers. This redistribution tends to be at the cost of an overall reduction of material well being. To the extent that such behaviour is tolerated or even applauded on the national level by economic nationalists it appears odd that it would be condemned on a regional basis. Presumably the Canadian community has more validity than regional ones national boundaries are more than administrative conveniences while provincial ones are not.

Looking at the types of policies used to promote nation-building such as tariffs, restrictions of foreign ownership, government purchasing preferences, etc., one can see that their application to province-building can be made with some modifications. If such policies are harmful in the Canadian context they will be even more so in the regional context. Like it or not, Canada is a small economy in the world context and this is even more true of the Canadian regions. It may be worthwhile to note at this point that "nation-building" policies have tended to exacerbate regional conflicts in recent years. Examples include the hostility of the west to the national tariff. of the Atlantic region to FIRA and of all regions to the CRTC.

As was mentioned above those who support Canadian nationalism generally are unsympathetic to regionalism. Such inconsistency often works both ways. Many provincial governments oppose manifestations of nationalism because it is not to their advantage. However these same governments often pursue policies which can definitely be labelled as regionalistic. The danger that this poses is that their complaints about inappropriate federal policies are not complaints about the policies themselves but about the national level at which they are implemented because it may result in a concentration of the beneficiaries in a particular region of Canada, mainly Ontario. To achieve a more desirable geographical distribution of beneficiaries requires tile implementation of such policies at the provincial level. Canada already suffers from a plethora of policies designed to hinder capital, labour and product mobility. Regionalism promises even more.

So just what is this problem called regionalism which we apparently suffer from? First of all it is not regional complaints about inappropriate federal policies which distort economic decisions and create inefficiencies. That is a problem which in the long run cannot persist because it reduces the wealth of all Canadians in the aggregate and should therefore be condemned in the aggregate. Regionalism is also not the desire on the part of Canadians in particular regions to live in societies which may differ somewhat from those in the rest of Canada. The accommodation of such differences is perfectly consistent with the federal system we live under as well as a market oriented economy. Regionalism is the process by which province-building can create regional economies inconsistent with the particular province's position as a small market. Such an altered economy is approved by those who gain materially from such a change. Those who pay for the change are initially persuaded that they will also gain in material terms. Greater industrialization supposedly creates jobs and economic stability. Research and development activity in turn creates industrialization. Furthermore larger government bureaucracies and intervention can encourage such change despite the unfair competition of larger economics. Once these allegations are disproven the public goods aspect of such a change is presented. In this respect it is interesting to note that this last argument is always held in reserve and never presented too loudly. It may very well be that industrialization is a public good which the public is not willing to pay very much for.

Notes

1. The economic theory of nationalism owes much to the work of two Canadian economists. See: A. Breton, "The Economics of Nationalism", Journal of Political Economy, Vol. 72 (August 1964), pp. 376-386, and H.G. Johnson (ed.) Economic Nationalism in Old and New States, University of Chicago Press, Chicago, 1967.


Canadian Parliamentary Review Cover
Vol 3 no 3
1980






Last Updated: 2019-11-29