University of Alberta the Political Economy of Canadian Oil Export
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University of Alberta The Political Economy of Canadian Oil Export Policy, 1949-2002 by Tanya Whyte A thesis submitted to the Faculty of Graduate Studies and Research in partial fulfillment of the requirements for the degree of Master of Arts Political Science ©Tanya Whyte Spring 2010 Edmonton, Alberta Permission is hereby granted to the University of Alberta Libraries to reproduce single copies of this thesis and to lend or sell such copies for private, scholarly or scientific research purposes only. Where the thesis is converted to, or otherwise made available in digital form, the University of Alberta will advise potential users of the thesis of these terms. The author reserves all other publication and other rights in association with the copyright in the thesis and, except as herein before provided, neither the thesis nor any substantial portion thereof may be printed or otherwise reproduced in any material form whatsoever without the author's prior written permission. Examining Committee Dr. Ian Urquhart, Political Science Dr. Gordon Laxer, Sociology Dr. Rob Aitken, Political Science Abstract This thesis uses a staples-based political economy approach, supplemented with regulation theory, to investigate why Canadian governments pursued interventionist or non-interventionist approaches to oil export policies over the years 1949-2002. Three distinct paradigms over this time period are identified and examined at multiple levels of analysis, with a focus on power relations as causal factors. Structural biases of the Canadian economy, namely staples dependence and continentalism, combined with entrenched political cleavages of national identity and federalism to influence the success or failure of paradigms of oil export policy. External crises and power shifts precipitated the creation and destruction of these paradigms. In between these transformations, hegemonies formed based upon social, political, and economic arrangements that mutually supported the negotiation of major structural cleavages. Finally, conclusions are drawn about the role of labour as a catalyst for the development of a new interventionist, anti-continentalist paradigm in oil policy. Table of Contents Chapter 1: Introduction 1 Theoretical Discussion 3 Organization: Simeon’s Funnel of Causality Framework 5 Foundations: Canadian Political Economy 6 Change: Regulation Theory 9 Institutions: Accounting for the Unique Role of the NEB 12 A Plan of the Thesis 13 Chapter 2: 1949-1969 15 Historical Overview 15 Analysis 19 Environment 19 Power 24 Ideas 31 Institutions 37 Trends and Conclusions 42 Chapter 3: 1970-1983 44 Historical Overview 44 Analysis 52 Environment 52 Power 58 Ideas 71 Institutions 77 Trends and Conclusions 84 Chapter 4: 1984-2002 89 Historical Overview 89 Analysis 100 Environment 100 Power 109 Ideas 128 Institutions 135 Trends and Conclusions 141 Chapter 5: Conclusions and Future Directions 148 Bibliography 159 Chapter 1: Introduction An understanding of modern capitalism and its social and political support structures is, in many ways, tied to the business of oil. As Daniel Yergin points out in his seminal history of the industry, The Prize, oil has shaped history in three significant ways. As a commodity, oil has spawned the largest and most successful capitalist corporations on the planet, and generates massive amounts of wealth for businesses capable of handling the risk. As a strategic resource, oil shapes international politics through its necessity to modern warfare, its role in national development, and the power and influence that flows from controlling its value. Finally, as a social need, oil is a fundamental of modern life. Not just luxuries like car transportation and plastic consumer goods, but necessities like the transportation of food and the construction of houses, are dependent upon hydrocarbon products.1 The ability to supplant human labour with chemical energy has been fundamental to the global political economy. Closer to home, Canada’s economic and political development has been tied in unique ways to basic commodity extraction. The dependence of Canada’s economy throughout history of the export of basic “staple” products—furs, fish, lumber, wheat, and oil and gas—has spurred the development of a Canadian tradition of political economy, beginning with Harold Innis’ 1930 study, The Fur Trade in Canada: An Introduction to Canadian Economic History. Innis’ work also questioned the power relationships maintained through these dependency relationships, first with Britain, then later the United States. These kinds of questions, further pursued by Canadian political economists in the 1970s-80s, remain extremely relevant today. Canada’s trade surplus has been single- handedly carried by the energy sector in recent years, accounting for $90 billion in exports in 2007 (crude oil alone made up $41.8 billion, representing almost a four-fold increase over the last decade).2 99% of Canada’s energy exports go to the United States. Considering the political importance of oil—and the legacies of Canadian development that oil exports transform or perpetuate—these economic facts and their implications for Canada’s future are worth careful analysis. 1 Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Free Press, 1991), 14-15. 2 Statistics Canada, “Canada Year Book 2008: Energy,” available http://www41.statcan.gc.ca/2008/1741/ceb1741_000-eng.htm, January 20, 2009. 1 Fundamentally, public policy can be thought of as “what the state chooses to do or not do;”3 however, in the case of oil export policy, the “state” is fundamentally divided. Since 1959, the National Energy Board Act has delegated power over the regulation and approval of oil exports to the National Energy Board (NEB), an independent, quasi-judicial hearings board acting “in the public interest.”4 The NEB is empowered to set and enforce rules in areas mandated by the Act based on its technical competence, and is required to hold public hearings (as well as consult with involved parties like oil and pipeline companies) when reaching decisions.5 Even more confusingly, the Board is mandated to advise Parliament on energy policy issues “over which Parliament has jurisdiction.”6 The NEB is not entirely independent in its powers; the government can influence its decisions through active two-way consultation, and formal approval and Cabinet appeals of major decisions (like export pipeline approvals). Of course, government also sets the policy framework within which the NEB must make and enforce rules. The 1961 National Oil Policy and the 1981 National Energy Program are examples of such overall frameworks that will be examined later in this thesis. In some cases, Parliament has simply overridden the jurisdiction of the Board over oil export approvals and pricing, such as during its policy response to the 1973 oil shock. At other times, Canadian governments have granted the NEB greater powers to regulate; instructed the NEB to delegate particular functions to the market; and allowed the NEB to independently pursue other forms of deregulation. In sum, the policy role of the Board has been contested throughout its existence, and direct government regulation versus independent regulation (and of what aspects of the oil market—“deregulation” is not the same as “non-intervention” in this case) has been a continual dilemma. The goal of this thesis is to explain the evolution of this continuum in Canadian oil export policy since the 1950s until the present day. What factors have influenced the creation and implementation of interventionist or non-interventionist policies, and why? How is intervention related to the orientation of governments towards oil exports (and, thus, continentalism)? How can shifts along the continuum be accounted for? My normative goal is to suggest ways that the dominant export mentality can be challenged, following the evidence I uncover. In this Introduction, I will lay out in more detail the theoretical tools I will be using to map influences on and changes within oil export policy. Drawing on approaches employed within the literature, I will formulate my own theoretical lens based upon four major tools. First, I will set out a general framework for organizing and making sense of a historical analysis of export policy, based on Richard Simeon’s concept of the “funnel of causality.” Secondly, I will situate the fundamental viewpoint of the thesis within a framework of political economy, 3 Peter Graefe, “Political Economy and Canadian Public Policy,” in Critical Policy Studies, eds. Michael Orsini and Miriam Smith (Vancouver: UBC Press, 2007), 19. 4 “National Energy Board Act,” in Revised Statues of Canada, 1985, c. N-7, s. 12, available http://laws.justice.gc.ca/eng/N-7/index.html, accessed November 23, 2009. 5 Ibid., s. 12. 6 Ibid., s. 26. 2 emphasizing the interconnectedness of political, social, and economic factors and the power relationships between each. Thirdly, I will bring in concepts from regulation theory compatible with a political economy analysis as a tool for examining policy change. Fourth, in recognizing the importance of the NEB, I will explain my usage of some concepts from institutionalism and institutionalist analyses of regulatory policy. Throughout this discussion, I will lay out a plan of the following chapters with reference to this theoretical framework and the arguments I hope to develop. Theoretical Discussion One of the most complete and well-written studies of Canadian energy policy in general is John McDougall’s