1 For a discussion of the full nationalist-continentalist controversy as it relates to the development of Canada's manufacturing sector, see Williams, Glen, Not For Export: Towards a Political Economy of Canada's Arrested Industrialization (Toronto, 1982).
2 Urquhart, Mac C., “New Estimates of Gross National Product. Canada, 1870–1926: Some Implications for Canadian Development.” in Gallman, Robert and Engerman, Stanley, eds., Long Term Factors in American Economic Growth (Chicago, 1986).
3 Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, MA, 1977).
4 Canada, Dominion Bureau of Statistics, The Use of Electrical Power in the Mining and Manufacturing Industries in Canada (Ottawa, 1944).
5 Naylor, R. Thomas, The History of Canadian Business 1867–1914, 2 vols. (Toronto, 1975). See also Levitt, Kari, Silent Surrender: The Multinational Corporation in Canada (Toronto, 1970).
6 See Laureys, Henry, The Foreign Trade of Canada (Toronto, 1929); and Oliver, Peter, “Government, Science and Industry in Ontario: The Ontario Research Foundation,” in Oliver, Peter, Public and Private Persons: The Ontario Political Culture 1914–34 (Toronto, 1975).
7 Laureys, The Foreign Trade of Canada, p.77, also discusses the impressive U.S. manufacturing research capability headed by the Mellon Institute and the Rockefeller Foundation, and quotes President Herbert Hoover's remark in 1929 in regard to the research capacity that: We are reaping the benefit of some 600 industrial research laboratories, mostly established in the last 10 years. They are ceaselessly searching for inventions and for every economy in the use of materials and methods. Under the pressure of high wages we have ruthlessly revised our industry with every new invention. Beyond this there is a great and cooperative movement in American industry and commerce for cutting out waste in a thousand directions through improved business practice, through simplification of processes and methods.
8 Williams, Not For Export, p. 23.
9 Naylor, Canadian Business, pp. 38, 57.
10 SeeMarshall, Herbert, Southward, Frank, and Taylor, Kenneth W., Canadian-American Industry (Toronto, 1936); and Williams, Not For Export, p. 25.
11 See Brown, John J., Ideas in Exile: A History of Canadian Invention (Toronto, 1967);Firestone, Otto J., “Innovation and Economic Development: The Canadian Case,” Review of Income and Wealth, 18 (12 1972), pp. 399–420;Kilbourn, William, The Elements Combined: A History of the Steel Company of Canada (Toronto, 1960);Saxonhouse, Gary and Wright, Gavin, “New Evidence on the Stubborn English Mule in the Cotton Industry, 1878–1920,” Economic History Review, 37 (11 1984), pp. 507–19: and Warrington, Charles J. and Newbold, Brian T., Chemical Canada: Past and Present (New York, 1974). Three additional and more recent pieces of work demonstrate that there was a considerable amount of Canadian adaptation of transferred technology in the late nineteenth and early twentieth centuries. See Armstrong, Robert, “The Quebec Asbestos Industry:Technical Change 1878–1929,” in Cameron, Duncan, ed., Explorations in Canadian Economic History: Essays in Honor of Irene M. Spry (Ottawa, 1985);Dow, Alexander, “Prometheus in Canada: The Expansion of Metal Mining 1900–1950,” in Cameron, , ed., Explorations in Canadian Economic History;Newell, Dianne, “All in a Day's Work: Local Invention on the Ontario Mining Frontier,” Technology and Culture, 26 (10 1985), pp. 799–814.
12 For the importance of informed human interaction in the process of technical change in the nineteenth-century U.S. steel industry, see Robert Allen, “Collective Invention” (Discussion Paper 79–33, University of British Columbia, 1979).
13 Chambers, Edward and Gordon, Donald, “Primary Products and Economic Growth: An Empirical Measurement,” Journal of Political Economy, 74 (08 1966), pp. 327–28.
14 Dales, John, The Protective Tariff in Canada's Development (Toronto, 1966), p. 87. Adjusting the nominal indices of labor costs of Figure 1 for inflation serves to widen the difference in trend rates of growth between Canada and the United States. Wholesale prices rose at an average annual rate of 3.13 percent in Canada and 2.64 percent in the United States between 1900 and 1929; real wages thus rose at an average annual rate of 0.85 percent in Canada and 2.02 percent in the United States. See, for Canada, Wholesale price index for all commodities, Historical Statistics of Canada, 1st ed., series K34; and for the United States, Wholesale price index for all commodities, Historical Statistics of the United States, series E34.
15 Dales, The Protective Tariff, pp. 80–81, discusses this fundamental distinction between the relative protective effects of Canadian and American tariffs.
16 See Figure I notes for a description of the method used to calculate the costs of capital in the two countries.
17 Dales, John, Hydroelectricity and Industrial Development: Quebec 1898–1940 (Cambridge, MA, 1957), pp. 44–48.
18 Dales, John, “Fuel, Power and Industrial Development in Central Canada,” American Economic Review, Papers and Proceedings, 43 (05 1953), pp. 181–98.
19 Hicks, John, The Theory of Wages (London, 1932);Salter, Wilfred E. G., Productivity and Technical Change (2nd edn., Cambridge, 1966);Ahmad, Syed, “On The Theory of Induced Invention,” Economic Journal, 76 (06 1966), pp. 344–57:Binswanger, Hans, “A Microeconomic Approach to Induced Innovation,” Economic Journal, 84 (12 1974), pp. 940–56;Hayami, Yujiro and Ruttan, Vernon W., Agricultural Development: An International Perspective (Baltimore, 1971); and Binswanger, Hans et al. ,, Induced Innovation: Technology, Institutions and Development (Baltimore, 1978).
20 This is when there are continuous decreasing returns and increasing costs to adaptation. If any discontinuities exist, such as high start-up costs for indigenous adaptation or discontinuous payoff, those marginal conditions would not hold.
21 Salter, Productivity, p. 43.
22 David, Paul, “Labor Scarcity and the Problem of Technical. Practice and Progress in Nineteenth-Century America,” in David, Paul, ed. Technical Choice, Innovation and Economic Growth (Cambridge, 1975);Rosenberg, Nathan, Perspectives on Technology (Cambridge, 1976);Rosenberg, Nathan, Inside the Black Box: Technology and Economics (Cambridge, 1982); and Nelson, Richard R., “Production Sets, Technological Knowledge and R&D: Fragile and Overworked Constructs for Analysis of Productivity Growth?” American Economic Review, Papers and Proceedings, 70 (05 1980), pp. 62–67.
23 Fellner, William, “Two Propositions in the Theory of Induced Innovation,” Economic Journal, 71 (06 1961), pp. 305–8.
24 Alchian, Armian, “Uncertainty, Evolution and Economic Theory,” Journal of Political Economy, 58 (06 1950), pp. 211–21;Friedman, Milton, Essays in Positive Economics (Chicago, 1953); and Nelson, Richard R. and Winter, Sidney G., An Evolutionary Theory of Economic Change (Cambridge, MA, 1982).
25 In order to draw this figure, I assume separability between the primary inputs (labor and capital) and the energy inputs (electricity and coal). Separability implies that the marginal rate of substitution between labor and capital is unaffected by changes in the usage of electricity or coal and vice versa. This is not an assumption employed in the later empirical work in this article.
26 An economically viable cost reduction is one that saves more in total cost than it costs, in terms of expenditures on resources, time, and effort, to effect. See Binswanger, et al., Induced Innovation, chap. 4.
27 If these innovations did reduce costs at American prices and were economically viable, then by assumption they would already have been developed and in use in the United States.
28 Points like A and CA can be said to lie on some production frontier, defined by Salter, Productivity, p. 15, as depicting “a range of techniques which could be designed with the current stock of existing knowledge,” but that may or may not be in developed or blueprint form. They become designed and developed by cognitive innovators for existing sets of factor prices, but remained undeveloped at other possible but presently nonexisting sets of factor prices. Salter refers to this as a fundamental production function. Hayami and Ruttan, Agricultural Development, call it a metaproduction function. Ahmad, “Induced Innovation,” refers to it as an innovation possibilities curve. Despite the proliferation of terms the concept is basically the same.
29 Salter, Productivity, p. 43.
30 Salter and Hicks differ on whether the second stage of this adjustment should be called induced long-run factor substitution or induced innovation, but they do not differ on the fundamental mechanism, which might be termed a Salter long-run factor substitution mechanism or a Hicksian-induced innovation mechanism. In the Hicksian definition, costs are reduced by undertaking Hicksian-induced innovation; that is, initiating a process of technical adjustment which goes beyond simple substitution within existing technology and involves innovation (redesigning existing technology) which probably saves on factors whose relative prices have risen or uses factors whose relative prices have fallen (as would be the case in the greater part of the segment xyz in Figure 3). In the Salter definition, such technological adjustment if taken at all factor prices will trace out the isoquant available for long-run factor substitution: that of the fundamental production function. The isoquant of the existing available production function defining existing developed technology will lie inside this, but will be tangent to it at the factor prices by innovating countries or firms.
31 For example, Levitt, The Multinational Corporation, p. 108, argues that in Canadian manufacturing “imitative technology is reflected in a high cost structure and lagging productivity,” due to the high imposed costs of technical adaptation in Canadian manufacturing that stem from being locked into foreign technology.
32 Or, to put it more elegantly, a lack of cognition, in the sense used by Solo, Robert A., “The Capacity to Assimilate an Advanced Technology,” in Rosenberg, Nathan, ed., The Economics of Technological Change (Harmondsworth, Eng., 1971). pp. 486–87. who states: “A society's capacity to adapt itself to the requisites of advanced technology and to adapt the advanced technology to its own circumstances and objectives, as well as its capacity to innovate, will depend in part on the problem solving competences, in a word, on the cognitions possessed by those who constitute that society.”
33 Woolf, Arthur, “Energy and Technology in American Manufacturing, 1900–1929” (Ph.D. diss., University of Wisconsin, 1980); and Woolf, Arthur, “Electricity, Productivity and Labor Saving: American Manufacturing, 1900–1929,” Explorations in Economic History, 21 (04 1984), pp. 179–91.
34 The empirical methods are explained in detail in the Appendix. Canadian factor share and factor input data for each manufacturing sector and their sources are explained in a data appendix available on request from the author.
35 The seven industries I consider are those for which I was able to obtain the necessary data but are also those most closely associated with the second industrial revolution in Canada. These industries were a large and growing proportion of the Canadian manufacturing sector, accounting for 24.6 percent of manufacturing output in 1910 and 35.5 percent in 1929.
36 The results rest on the same assumption that the factor substitution possibilities estimated by Woolf for U.S. industries were also available to Canada. Woolf estimated factor demand in these industries to be, predominantly, elastic with respect to own-price change. He also found factors to be, in general, elastically substitutable for each other rather than complementary. For his estimates of translog substitution parameters and elasticities of factor substitution in U.S. manufacturing from 1909 to 1929, see Woolf, “Energy and Technology,” pp. 142–48.
37 Dales, The Protective Tariff, p. 120.
38 Woolf, “Energy and Technology,” p. 185.
39 Field, Alexander James, “Land Abundance, Interest/Profit Rates, and Nineteenth-Century American and British Technology,” this Journal, 43 (06 1983), pp. 405–31; and Field, Alexander J., “Modern Business Enterprise as a Capital-Saving Innovation,” this Journal, 47 (06 1987), pp. 473–85.
40 DuBoff, Richard, Electric Power in American Manufacturing 1899–1958 (New York, 1979).
41 Woolf, “Energy and Technology,” p. 217.
42 Note, however, that Field, “Modern Business Enterprise,” argues that the new technologies of the period were relatively labor-using, not labor-saving.
