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The Development of the Extractive Industries*

Published online by Cambridge University Press:  07 November 2014

Anthony Scott
Anthony Scott*
Affiliation:
University of British Columbia
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I wish to consider how industries exploiting natural resources may be expected to develop. It is not my purpose to consider their entire relation with the economy of which they form a part. Rather, I wish to examine the logic of their own changes in technology and technique in response to stimuli from the rest of the economy. In tracing this development, I shall stress the changing technology itself; the adjustment of property and tenure concepts; some aspects of location and transportation; and the impact of all these changes on industrial and market organization.

As an analytical technique for tracing these changes, I shall make use of a “stages of development” approach. It will be shown that most industries working natural resources may be said to be in one of three, roughly consecutive stages. The precise dating of the transitions between the stages is highly arbitrary, but this defect is unimportant since the chief function of the stages approach in its present context is to bring out the successive impacts on resource exploitation of two outside forces. The first of these is a mechanical, capital-using technology. The second is the application of science to “control” the resource, biological or mineral, in the same sense that agricultural and manufacturing industries have control over their processes.

In the model, stress is laid on the industries that today are still extracting raw materials from nature: fishing, hunting, logging, oil and gas, metals, and water. Agricultural activity also properly belongs with these industries. However, since agriculture has already passed well into the third stage, it is referred to chiefly for purposes of example and comparison. The farmer no longer “hunts” his cattle, nor “collects” wild rice or fruit.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 28 , Issue 1 , February 1962 , pp. 70 - 87
Copyright
Copyright © Canadian Political Science Association 1962

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Footnotes

*

This paper was presented at the annual meeting of the Canadian Political Science Association at Montreal, June 8, 1961. An earlier version of parts of it was presented to the economics seminar of the Department of Political Economy, University of Edinburgh, in January, 1960. Subsequently, I have discussed aspects of it with a departmental seminar at the University of British Columbia, with members of the Department of Applied Economics, Cambridge, and with Messrs. Peter Bauer and G. F. McGuigan. I have received substantial comments from Messrs. Basil Yamey and J. D. Pattison.

References

1 See Eucken, Walter, The Foundations of Economics (London, 1950), 64–102 Google Scholar; Popper, Karl, “The Poverty of Historicism,” Economica, XII, 1945, 70 Google Scholar; and Hayek, F. A., “Scientism and the Study of Society,” a series of articles in Economica, 1941–1945 Google Scholar, for some criticisms of more general application of the “stages” approach.

2 See the paper by Mr. J. H. Adler on the stages of economic development presented to the SSRC-RFF Conference on Natural Resources and Economic Growth, April, 1960, published as Natural Resources and Economic Growth (1961).

3 Wealth of Nations, ed. Cannan, E. (New York, 1937), 47.Google Scholar

4 This statement requires some modification. If there is no property, then people must attempt to forestall rivals in collecting or hunting. Even at this stage, therefore, property “rights” allow men to allot their hours and days between activities in a convenient (and efficient) manner. Hence there is an economic advantage in property even when there is no investment and no knowledge of the factors affecting the yield of the resource (i.e., no attempts are made to conserve or manage the resource). There are many examples of firststage property rights: mining claims, hunters' territories, exclusive fishing rights, and rights to wood in common forests.

5 Capital-output ratios, derived from national wealth estimates, usually show that the “resource industries” (metals, petroleum, coal, forestry, and water power) have ratios higher than other sectors, although, admittedly, estimation of these ratios is at best a tendentious business.

We may also consult the work of Leontief and his associates on American incremental capital-output ratios. Elsewhere I have calculated from Grosse's 1939 estimates that the ratio for the resource industries' sector was 2.1, exceeded only by the 2.6 requirement of the transport, storage, and communications sector. That other writers have noted this high ratio is shown by its use in their comments on Leontief's scarce-factor paradox. See: Goldsmith, Raymond and Saunders, Christopher, eds., Income and Wealth, Series VIII (London, 1960)Google Scholar, passim; Hood, Wm. C. and Scott, Anthony, Output, Labour and Capital in the Canadian Economy (Ottawa, 1957), 289–96Google Scholar, based on Grosse, R. N., Appendix I in Leontief, W., ed., Studies in the Structure of the American Economy (New York, 1953)Google Scholar; and Creamer, Daniel, Dobrovolsky, Sergei P., and Borenstein, Israel, Capital in Manufacturing and Mining: Its Formation and Financing (Princeton, 1961).Google Scholar

6 Usher, A. P., A History of Mechanical Inventions (revised ed., Harvard, 1954), 56.Google Scholar See also Singer, Charles et al., A History of Technology (London, 1958), II, chapters on primary industries.Google Scholar

7 See Nef, J. U., The Rise of the British Coal Industry (London, 1932), I, 350–80.Google Scholar

8 There is, of course, a large literature on this whole subject. Some useful recent works are Herfindahl, Orris C., Copper Costs and Prices: 1870–1957 (Baltimore, 1959), esp. chap. 8Google Scholar; Main, O. W., Canadian Nickel Industry (Toronto, 1955)Google Scholar; McLean, J. G. and Haigh, R. W., Growth of Integrated Oil Companies (New York, 1954).Google Scholar

9 See Myint, Hla, “An Interpretation of Economic Backwardness,” Oxford Economic Papers, 1954, 153 Google Scholar; and Higgins, Benjamin, Economic Development (New York, 1959), chap, XII, for a review of the literature.Google Scholar

10 The opposite view about scale is held by Brown, Harrison, The Challenge of Man's Future (New York, 1956), 218.Google Scholar See also Thomson, George Sir, The Foreseeable Future (Cambridge, 1955)Google Scholar, esp. chap. m. An earlier, useful discussion is Tryon, F. G., et al., “The Mineral Industries,” in Ogburn, W. F. et al., Technological Trends and their Social Implications (Washington, 1937), 145–76.Google Scholar

11 See, however, Robinson, Joan, The Accumulation of Capital (London, 1958), VI.Google Scholar

12 For example, see Sinclair, Sol, Licence Limitation, British Columbia (Ottawa, 1960).Google Scholar

13 In connection with the following paragraphs, consult the excellent papers by Stevenson, Earl P., Moore, Frederick T., and Adams, John A. S. in Jarrett, Henry, ed., Science and Resources (Baltimore, 1959).Google Scholar See also Nolan, Thomas B., in The Nation Looks at its Resources, Report of the Mid-Century Conference on Resources for the Future (Washington, DC, 1953), 315.Google Scholar

14 This sketch of the manner in which the mineral industries might be brought under control is quite consistent with the view taken by Harrison Brown and others. These latterday Malthusians have examined the ability of natural resources to sustain the expected population of the coming centuries. They too have emphasized the functions performed by minerals rather than the minerals themselves (for example, in their discussion of the possibility of a shortage of “hard” minerals, or of fuels). They have also taken some care to extrapolate technology into the future (instead of, as frequently happens, assuming that only population will increase). It is interesting that, as engineers and scientists, they expect that although the reaction of the mineral industries to increased demand will be something like the “third stage” of my scheme, this reaction will be in vain: it will not succeed in supplying enough energy and raw material for the population increase. It certainly is not inconsistent with the “stages of development” approach to argue thus. Bringing nature under control is no guarantee that she will be infinitely bountiful. Personally, I am more optimistic than these writers, but I have no special competence to defend this attitude (see Harrison Brown, Challenge of Man's Future, chap. vi).

15 See, for example, Glesinger, Egon, The Coming Age of Wood (New York, 1950).Google Scholar

16 It is true that some of the examples in these industries are also consistent with a theory that primary producers have integrated forward to get access to markets which are oligopolistically supplied. In any given situation, of course, more than one motive may be present. However, I believe these examples are at least free of another possible motive, that the primary producers were threatened with new backward integration by using industries.

17 One application is in the oil industry. Many writers have commented on the new surpluses of oil, and their effects on the willingness of the industry to take on the development of new fields wherever they are found. There are signs that the industry is becoming increasingly unhappy about oil discoveries that are far afield. Only oligopolistic jockeying for strength, it seems to me, keeps them seeking to maintain their relative shares of the world's reserves. But this inter-firm jealousy is dying, as the industry begins to realize that energy resources are widespread, and that the ability of geological science to spot likely deposits is increasing at least as rapidly as old fields are wasting. Indeed, the chief factor that keeps some companies exploring is the desire to satisfy local governments who are unwilling to allow these firms to market oil unless they also explore for it.

18 I have discussed these applications of the problems of stage three in “Policy for Crude Oil,” this Journal, May, 1961, and in “Government Policy and the Public Lands,” in Clark, R. M., ed., Canadian Issues: Essays in Honour of Henry Angus (Toronto, 1961), 166–8.CrossRefGoogle Scholar

19 See the forthcoming Proceedings of the FAO Expert Meeting on the Economic Effects of Fishery Regulation, Ottawa, 1961, where the management of six different types of fishery is discussed.