The Growing Localness of the Canadian City, or, On the Continued (Ir)relevance of Economic Base Theory

Abstract

The past 50 years have brought massive changes in the patterns of economic activity around the world. Not only has global trade increased, but, precisely because of this, many scholars suggest that local (and regional) networks of production and exchange have become more prevalent and important. The nature of local economic development has, as a result, changed quite substantially. And yet theoretical approaches to it largely have not. Fifty years after Douglass North introduced economic base theory – asserting that economies grow only through increased exports – it remains the familiar refrain, if not the basis, of local economic development theory. We think it is about time to reassess the merits of base theory as an approach to, and explanation of, local economic development. Accordingly, in this article, we review briefly North's argument for base theory and the debate it stirred up early on. Then we present two evaluations of its current relevance. The first is theoretical: we consider whether changes in the patterns of economic activity in the global north, including the emergence of local/regional networks of production and exchange and the growth of consumer services, have made it possible to achieve economic growth without increasing exports. The second is empirical: using the minimum requirements method, we examine whether the economies of Canada's cities have become more locally oriented and, if so, whether they have grown. Both evaluations indicate that economic development is indeed possible through increased local activity (although exports remain important). We conclude that it is time to consider more nuanced models of local economic development that accommodate the multiple ways in which development can be achieved.

Notes

¹ Economic base theory sometimes goes by the name ‘export base theory’ or simply ‘base theory’.

² Indeed, Innis warned that long-term dependence on staple exports would leave his country, Canada, in a subordinate position to the economic heartlands of Europe and the United States, cause leakages of capital, and lead to frequent periods of disequilibrium. Both Innis and Mackintosh recommended a temporary focus on staples exports as a means to develop a healthy, diversified economy (Weaver & Gunton, 1982). Watkins (1963) later concurred, adding that continued economic development would provide progressively greater opportunities to supply local needs through local production and, thus, reduce dependence on exports (and imports).

³ Higher average household incomes should not be confused with higher real wages; the latter have, in fact, fallen for the majority of workers (Porteous, 1994; Morris and Wester, 1999). Increasing social polarization under neoliberal globalization has been noted by many scholars (cf. Sassen, 1991).

⁴ We would like to thank one anonymous reviewer for this point.

⁵ What exactly constitutes an ‘integrated labour market’ is, of course, entirely debatable. We will provide our own entry into this debate in the next section.

⁶ Our categorization here owes much to the research of Coffey & Polese (1988; see also Polese & Shearmur, 2002) They too define ‘metropolitan’ as a CMA of 500,000 or more inhabitants and, more significantly, consider a city ‘peripheral’ if it is located more than one hour's driving time from the closest metropolis. We substitute a metric measurement of distance (100 km) for driving time, as the latter is dependent on traffic patterns that change by the hour. We also draw on the research of Garrett-Petts et al. (2005). In their work, and the conferences they have convened, they define the ‘small city’ as a CMA of 50,000 to 150,000 inhabitants. Other scholars include smaller cities, and the United Nations defines an ‘urban locality’ as a location with between 20,000 and 100,000 inhabitants. We consider a city ‘small’ if its population is between 20,000 and 150,000 because this categorization includes both Garrett-Petts’ ‘small city’ and the UN's ‘urban locality’.

⁷ We would like to thank an anonymous reviewer for emphasizing this point.