Paper: Technological Adaptation in
Canadian Manufacturing, 1900-1929
Author: Peter J. Wylie
Kimaya Gill and Aine Donnelly
BACKGROUND ON CANADA
• Canada was a small economy and a late
industrializer, it was largely bypassed by the first
industrial revolution with the emergence of
Canada into the industrial age coming during the
second IR.
• Canada’s economic development was founded on
the use of technology to give value to abundant
natural resources, including trees for wood pulp
and rocks for minerals and valuable metals.
PURPOSE OF PAPER
• The main question posed in Wiley’s paper is how much
Canadian technological adaptation occurred and he
looks in detail at the fundamental debate between
historians about Canada’s ability to adapt technology
for Canadian market conditions.
• Canada relied heavily on imported technology, mainly
from the USA and Wiley estimates biases to technical
change in Canadian manufacturing compared to
estimates of biased technical change in US
manufacturing.
INDUSTRIALIZATION AND THE NATIONALISTCONTINENTALIST CONTROVERSY (how Canada’s
industrialization occurred)
•
The second IR was heavily based on commercial application of science and new
energy forms overtaking iron and steel. Canada’s abundant supplies of falling
water resulted in hydroelectric power dominating industry and as previously
mentioned Canada had the natural resources to industrialise.
•
A combination of the above and a significant amount of immigrant labour
fashioned these materials into manufactured goods for not only the growing
domestic market but also foreign markets as Canada’s exporting market grew.
•
Wiley includes statistics to support this combination of factors leading to the
growth of manufacturing, as in 1900 manufacturing accounted for 21% of
Canadian GNP and this had grown to 24% by 1940.
•
When looking at this Wiley discounts agricultural and other growths in favour of
manufacturing growth being the most prominent. He argues growth was
concentrated in technologically sophisticated markets such as chemicals, mineral
products and machinery. It is in these industries where Canada gained a chemical
advantage
• Wiley emphasizes that electric power was key
to the development of these industries
because it offered significant productivity
advances in three ways:
1. It allowed a moving assembly line. Wiley quotes
Alfred Chandler here “economies of speed were
reaped by high volume throughput”
2. Purchased power reduced overall capital
requirements in manufacturing
3. It brought about investment in new plants and
equipment designed to run on purchased power
which in turn led to new technology such as
furnaces, lighting, electric welding etc.
• Electrification in general altered the optimal mix of
inputs and it improved efficiency greatly, by 1929 62%
of all primary power was purchased rather than selfgenerated.
• These points show that the basis for industrialization
was there, between the resources and labour via
immigration but as Wiley argues the most significant
aspect was technological development. There are two
views of the role of technology in Canada’s
development, nationalist and continentalist.
Nationalist:
• Canadian industrialization relied on foreign technologies,
which were inappropriate and not adapted to local
conditions, this held back productivity advances in an
otherwise dynamic economy.
• Institutional conditions stifled development of indigenous
innovation and fostered dependence on imported
technology.
• Problems arose from deficiencies in the flow of information
between industrialists, technical suppliers and government
departments.
• Evidence of this view is high level of foreign ownership in
Canadian manufacturing mainly US.
• The main effect of this view is that it ignores manufacturing
as a course of economic growth and prosperity in Canada.
Continentalist:
• Industrialization in Canada was successful because there was the early
emergence of indigenous technological capability. Meaning there was
successful application and adaptation of imported technology to local
economic conditions, exactly the opposite of the nationalist view.
• This allowed attainment and maintenance of Canadian comparative
advantage. It was dependant on technical information which was
informally disseminated by scientific and trade associations and
government research agencies.
• The resulting conclusion is that manufacturing succeeded in raising its
own productivity and that of the entire economy.
The article goes on to explore changes in the shares of value
added going to labour, capital, electricity and coal in
important sectors of Canadian and US manufacturing.
FACTOR PRICE TRENDS AND THE NEED
FOR ADAPTATION
• Because Canadian industrialisation occurred in a time
where there was significant technical and
organizational change happening, relative factor prices
also underwent significant change.
• Canada was relying on the US to provide it’s
manufacturing infrastructure and conditions in the
factor markets in the US were significantly different.
• It’s therefore likely that since the technology was
developed under specific US conditions, the
transferred versions were economically inappropriate
for Canada.
• Wiley emphasizes the difference in labour market
conditions. Price of labour rose less in Canada than US due
primarily to divergent stances of both countries on
immigration policy, Canada let people in, US didn’t.
• Average wages and earnings were absolutely lower.
• Cost of capital was higher in Canada due to the differential
effect of tariffs on national capital goods. Canadian tariffs
protected domestic capital goods producers and raised
capital goods prices to domestic consumers. In US capital
goods exporters to the US had to pay the tariff by accepting
lower export prices.
• The interest rate was higher in Canada so was overall cost
of capital. However Canadian tariffs fell more than US
tariffs (Wiley suggests no reason) so over 1900-29 period
rate of increase of cost of capital was lower in Canada.
• Fall in Canada’s price of electricity can be
attributed to its predominant use of largescale hydroelectric power; US relied on
smaller thermal power plants.
• Canadian utilities could supply electricity at
lower overall cost and marketed aggressively
to benefit from economies of scale.
• US prices were tied to rising coal prices, the
plants offered fewer economies of scale in
production so couldn’t reduce prices as they
increased output.
• As a whole this all means that Canadian
manufacturers were provided with a new
competitive edge in the early 20th century that
manifested itself in factor prices that generally
fell relative to US prices.
• From this Wiley states that significant differences
are found between similar industries in the two
countries which indicates that Canadian
manufacturers didn’t use US tech in an unaltered
fashion but adapted it to be more cost efficient
under Canadian factor market conditions.
A MODEL OF CANADIAN
TECHNOLOGICAL ADAPTATION
Many models of technological change argue that
technology will be adapted in ways that make it more cost
effective under local conditions, some explaining why
technological change will reflect local factor prices:
1. Exploitation of factor substitution possibilities using
existing technology simultaneously with stimulated
innovation
2. Technological change is localised and takes the form of
“learning-by-doing”
3. Capital-saving, labour using technological change when
wage rates are rising and cost of capital falling is not
viable
Figure 3 demonstrates Canada’s
situation in the early 20th
century.
The isoquants represent the
tradeoff between capital and
labour, and coal and electricity.
The isoquants are a
characterization of readily
available US manufacturing
technology.
• One way that Canadians could have adapted this
technology to their resource scarcity would be for
them to costlessly substitute for inputs using the
blueprints of developed and available American
technology that symbolized these substitutions.
• As the relative price of labour to capital and of
electricity to coal fell in Canada compared to the US up
til 1929, a transfer and use of American technology
would have resulted in Canadians using blueprints
embodying the use of more labour and less capital, and
more electricity and less coal.
• Therefore, Canadians would have operated at point C
with US technology rather than at point A.
• It was assumed that American industrialists endeavored for
inventions that reduced factor prices, and that at point A all
economically viable cost reductions had been exploited by
American engineers.
• With this view, American engineers would not have
exploited cost reductions around point C because they
were not employing those factor amounts; however these
proportions were suitable at Canadian factor prices.
• If Canadian engineers had acted similarly to those in the
US, Canadian cost reductions would have been exploited at
factor prices, reducing Canadian costs and prices.
• Hence, methods may have existed within the segment xyz
where Canadians could have developed and used e.g. point
CA.
• Moving from point C to CA involves the
application of existing knowledge, rather than a
new scientific breakthrough, leading to the
disagreement over whether this movement
involves innovation or encouraged factor
substitution.
• Encouraged technological adjustment to changing
factor prices takes place in 2 stages:
1. The existing method which is the most cost efficient
at different or new factor prices is chosen
2. The existing technical knowledge is applied to adjust
this method and make it more cost efficient at these
new factor prices.
• The issue of whether Canadians moved to
points such as CA can be determined by
seeing whether they used production
technologies described by the US isoquants.
Examining factor share movements over time
in Canadian and American manufacturing can
do this.
• Given the elasticity of substitution (curve of
the isoquant), a factor share can change over
time due to a change in relative factor prices
or biased technological change.
• If Canadians followed American production
methods, then factor substitution opportunities
in Canada would be the same as in the US. This
would demonstrate a Canadian dependence on
American technology and inability to develop
alternatives – the nationalist view of Canadian
technology development.
• If, however, factor share movement differed from
the US over time in ways unexplainable by the
substitution opportunities, different technologies
must have been in use such as that at the point
CA. This would imply there was induced
technological innovation – the continentalist
view.
CONCLUSION
• In the early 20th century there was a large
amount of technological adaptation to
domestic factor prices in Canada.
• The continentalist view is successful in
explaining the technological development.
• Successful application and adaptation of new
and advanced foreign technology to local
economic conditions.
• They were reshaped, when transferred to
Canada, through time by a series of adaptive
changes.
• This allowed the attainment and maintenance
of Canadian comparative advantage in the
long run and manufacturing made a healthy
contribution to development.
• Canadian technological adaptation depended
on absorption of technical information.