Two Alternative Explanations of the Problem of Regional Dependency in Canada

Canadian Public Policy

Two Alternative Explanations of the Problem of Regional Dependency in CanadaAuthor(s): Ralph MatthewsSource: Canadian Public Policy / Analyse de Politiques, Vol. 7, No. 2 (Spring, 1981), pp. 268-283Published by: University of Toronto Press on behalf of Canadian Public PolicyStable URL: http://www.jstor.org/stable/3549226 .

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Two Alternative Explanations of the Problem of Regional Dependency in Canada*

RALPH MATTHEWS/ Department of Sociology, McMaster University

Though Canadian economists and sociologists both examine the nature of regional dependency in Canada, they have radically different interpretations of the nature of that dependency. This paper contrasts the economic theory of 'transfer dependency' developed by economist Thomas J. Courchene, with the sociological approach known as 'dependency theory.' The transfer dependency approach is criticized for its emphasis on economic factors at the expense of social and cultural considerations. It is argued that policies based on that theory may have deleterious social consequences. The dependency theory perspective is seen as providing greater insight into the nature of the social and economic structures which create and sustain regional underdevelopment.

MWme si des economistes et des sociologues canadiens ont examine tour A tour la nature de la dependance r gionale au Canada, ils sont arrives a des interpretations radicalement differentes au sujet de la nature de cette dependance. Le present article oppose la thdorie economique de la 'd6pendance des transferts,' developpee par l'economiste Thomas J. Courchene, et l'ap- proche sociologique connue sous le nom de 'theorie de la d6pendance.' La thdorie de la dependance des transferts met trop l'accent sur les facteurs economiques aux d6pens des consi-

derations culturelles et sociales. L'on fait remarquer que des mesures issues de cette theorie pourraient avoir des consequences sociales nuisibles. Le choix de la th6orie de la d6pendance, au contraire, pourrait entrainer une meilleure comprehension de la nature de la structure so- ciale et 6conomique qui engendre et maintient le sous-d6veloppement r6gional.

Regional disparity has long been a subject of concern in Canada. If the causes of regional disparities were easy to understand, or if the means to eliminate them were obvious, they would probably have disappeared years ago. There is no clear-cut formula for the elimination of regional economic differences in Canada. Nor is there any single theory which adequately explains the nature and causes of such differences. Instead within economics, sociology, and

* Earlier versions of this paper were presented at the annual meetings of the Atlantic Association of Sociol- ogists and Anthropologists in 1979, and as guest lectures at the Departments of Sociology at York Univer- sity and the University of Windsor in 1979. I would like to thank those who attended these lectures for their comments, the seven readers selected by Canadian Public Policy - Analyse de Politiques who provided detailed comments on two earlier drafts of this paper, as well as John Vanderkamp, editor of this journal, who provided me with detailed guidelines on how it might be improved. Likewise Lorraine Eden of Brock University provided many helpful comments and I am very appreciative for the time and attention which she gave to it. Finally, Byron Spencer of McMaster University deserves my thanks for patiently answering some of my groping questions about the meaning of various economic terms. While all of these persons will probably disagree with parts of this paper, nevertheless this revised version owes much to their advice.

CANADIAN PUBLIC POLICY - ANALYSE DE POLITIQUES, VII:2:268-283 spring/printemps 1981 Printed in Canada/Imprim6 au Canada 0317-0861/81/0014-0268 $1.50 ? 1981 Canadian Public Policy - Analyse de Politiques



Regional dependency in Canada / 269

several other disciplines there is a plethora of disparate and frequently contradictory approaches to the regional phenomenon. The situation is made all the more complicated by the tendency of different theories to use the same technical terms in quite different ways with very different meanings. Nowhere is this more obvious than in the use of the term dependency. The concept of dependency is basic to both economic and sociological interpretations of the nature of regional disparities in Canada. However, economists and sociologists often explain the nature of regional dependency in such totally different theoretical contexts that the term frequently means different things in each discipline. Thus, there exists in the literature about regional dependency in Canada two quite separate and contradictory bodies of thought. While it is unlikely that 'dependency economists' and 'dependency sociologists' will be able to develop a unified theory of regional disparity, they at least should know the fundamental assumptions and structure of the alternative approach to the problem. The economics approach will be referred to here as the theory of transfer dependency, while the sociological approach will be referred to as dependency theory which is the title by which it is commonly known in that field.

This paper was written primarily because of my serious reservations about the assumptions and strategy for development contained in the transfer dependency approach. It is my belief that such an approach fails to clearly distinguish between economic and social welfare, and frequently advocates economic policies which would have deleterious social consequences. My discussion of dependency theory will show that I do not accept all of its assumptions and arguments, but the utility of this perspective in understanding regional dependency in Canada has been demonstrated (Matthews, 1977; 1978-79; 1979; 1980a; 1980b; 1981a; 1981b). The strength of the dependency theory position lies in this recognition of the linkage between economic and social aspects of regional dependency, and in the emphasis which it places on the role of external social structural factors in creating and sustaining regional dependency.

THE TRANSFER DEPENDENCY PERSPECTIVE

The regional economic theory which we have labelled transfer dependency is a variant of neo- classical economic analysis. It maintains that market forces alone are sufficient to overcome regional economic disparity. Indeed, government regulatory programs and social assistance policies intended to ameliorate the harsh consequences of regional poverty are from this perspective, frequently declared to be major causes of continued regional disparity. The Economic Council of Canada summarized the neo-classical position as follows:

It emphasizes the importance of flexibility in price and wages, the mobility of labour and capital, and the capacity of market forces to solve regional problems when they are allowed to work unhindered. The immediate cause of regional problems is commonly diagnosed as market failure, brought on sometimes by circumstances and sometimes by the actions of policymakers. The advocated cure is to create a situation in which markets can work better, or to leave well enough alone and let market forces bring about a solution. (Economic Council of Canada, 1977:26)

The assumptions of the neo-classical perspective are to be found in the works of many Canadian economists who deal with the problems of regional disparity. Rather than reviewing the Canadian economic literature in its entirety, we have selected for consideration the work of Canadian economist Thomas J. Courchene, who has written widely on the subject of regional disparity and whose work reflects the neo-classical assumptions (cf. Courchene, 1970; 1973; 1974a; 1974b; 1976; 1978a; 1978b; 1980). Of particular importance is Courchene's



270 / Ralph Matthews

analysis of the role of government transfer payments. Courchene contends that such payments do little to alleviate the problems of underdeveloped regions, and serve instead to increase their dependency - hence our term 'transfer dependency.'

Courchene's work is well-known in Canadian economic circles and among federal and provincial planners responsible for the development of Canadian regional development policies. Given this, there is surprisingly little analysis and critique of Courchene's work in print. I will focus particularly on one of his more recent works (Courchene, 1978a) which deals specifi- cally with regional disparities and which brings together many of the themes developed in his earlier analyses.

Courchene's transfer dependency perspective has four major thrusts. The first thrust is his argument that transfer payments from Canada's federal government may actually serve to make poor provinces more dependent on federal assistance and less inclined to alter the conditions which create their underdevelopment. Courchene contends that one of the unanticipated consequences of cost-sharing agreements between the federal and provincial governments is that poorer provinces are enticed into expensive programs which may not be in their best interest, simply because this is the only way in which they are able to get federal assistance (Courchene, 1978a: 146). Courchene laments that 'some of the provinces find themselves in such dire straights that they are literally forced into resorting to such measures' (Ibid: 163). As he sees it, provincial governments no longer have power to determine their own strategy of development, and he argues 'that Canada is currently at a crossroad in its economic and political history where some decentralization of economic power from Ottawa to the provinces is inevitable' (Ibid.: 146).

I would argue that there are major problems with Courchene's position here. To demon- strate this, it is useful to compare his reasoning with that of the well-known 'culture of poverty' perspective. The 'culture of poverty' perspective contends that one of the dominant reasons for the persistence of poverty is the way in which poor people have adapted to the condition of being poor. Oscar Lewis the founder of this perspective, claims that many poor people develop an outlook which is characterized by 'present-time orientation ... strong feelings of fatalism, helplessness, dependency and inferiority' (1971:226, emphasis mine). A study by Spencer which employs this perspective gives a description of this dependency.

... Dependency becomes a social problem when individuals or social systems do not perform those role functions normatively ascribed to them, and some other individuals or systems perform those functions for them. (1970:12-13)

Thus, the culture of poverty perspective argues that some people in poverty psychologically adapt to it, and that welfare assistance can and frequently does create a change in role be- haviour and social structure as many recipients exhaust their energies attempting to maximize their welfare receipts rather than searching for ways to alleviate their dependent condition.

There are obvious parallels between Courchene's transfer dependency argument and that of the culture of poverty perspective. While Courchene does not delve into the psychological dimension, his very use of the term dependency connotes a psychological condition. Also, at the structural and behavioural level he is essentially claiming that the governments of provinces in receipt of transfer assistance often no longer perform the functions normatively ascribed to them. He further implies that these provincial governments have a present-time orientation which leads them to search for the easy handout without focussing on the long-term solutions which might put an end to their transfer dependency. Indeed, Courchene's argument implies that some provincial governments have become clients of the federal government in much the




same way that certain poor persons become the long-term clients of the welfare system. Is Courchene's work open to the same criticisms which have been levelled at the culture

of poverty perspective? One general criticism is that the culture of poverty perspective mis- represents the outlook and motivations of the poor. Most empirical studies of the poor show that they are far from being the demoralized, present-time oriented automatons depicted by Lewis. Instead, most poor people and poor cultures display ingenuity and planning in their efforts to survive under conditions of extreme hardship (cf. Valantine, 1968). A further criticism of the culture of poverty perspective is that it tends to blame the victim for his own misfortune. Ryan describes this process as follows:

... The logical outcome of analyzing social problems in terms of the deficiencies of the victim is the development of programs aimed at correcting these deficiencies. The formula for action becomes extraordinarily simple: change the victim. (1971:8)

One could argue that Courchene's work does not display these characteristic weaknesses. For example, he only indirectly deals with the psychological outlook associated with dependency while that is the major focus of the culture of poverty position. Also in fairness to Courchene, one should note that he does not depict the dependent provinces as demoralized welfare ghettos. On the other hand, there are strong similarities between his proposed solutions to regional poverty and those contained in the culture of poverty perspective. It is Courchene's contention that the problem of regional disparity in Canada can only be overcome when transfer payments to poor provinces are severely reduced, or when the monies currently paid through transfer payments are turned over to the provinces so that they could spend them as they wish (1978a:161). He argues that such a strategy would lead to a lowering of the real wage rates in such regions and that these changes, in combination, will likely lead to the out- migration of excess population from the region. However, if such changes did indeed reduce real wages and encourage migration, this would constitute a significant change in both the economic and the social structure of the dependent regions of Canada. In this sense at least, Courchene's proposals can certainly be seen as aimed at 'changing the victim.'

If the 'victims,' which in this case are the governments and people of Canada's poorest provinces, are indeed the authors of their misfortune, Courchene's position may be valid. How- ever, even then it is uncertain whether the measures he proposes will bring about the effects he desires. If, on the other hand the poorest provinces and their residents are instead 'victims' of far-reaching national and international forces over which they have no control, then attempting to rectify the situation primarily through changing the local situation may simply create unnecessary hardship.

Significantly, the dependency theory position argues that much of the responsibility for regional disparities rests with forces and processes external to the poor regions, and these forces are unlikely to be affected by the more localized changes which Courchene advocates.

The uniqueness of Courchene's position derives largely from the fact the he has managed to wed the orientation described above to a well-established tradition of economic analysis. The belief in the 'naturalness' of the economic system, and the desirability of it being left to function free from interference is a fundamental tenet of classical laissez-faire economics. This belief is incorporated into the neo-classical treatment of regional disparity in the argument that market forces should be left alone to bring about a solution to regional inequality. The second thrust of Courchene's transfer dependency argument is his contention that government interference through transfer payments is upsetting what he terms 'natural adjustment mech- anisms.' He contends that the transfer system permits residents of the 'have-not' provinces 'to maintain a higher level of consumption than would otherwise be the case' (1978a: 152).




Furthermore, Courchene believes that the present system of transfer payments perpetuates an imbalance in trade and population, between the have and 'have-not' regions of Canada. The drain of capital out of the developed regions results in a reduced ability on their part to stim- ulate their own economic growth. At the same time, such transfer payments allow the 'have- not' provinces to maintain higher real wages than would be natural, and have lower levels of out-migration than would naturally occur. The result, as Courchene sees it, is that transfer payments actually exacerbate regional economic differences. In his words,

It is critical to recognize the interdependency among these various factors in jamming up the adjustment mechanism. If wages are inflexible downward, the current transfer system is such that more federal funds will be forthcoming for a region incurring a balance-of-payment deficit. (Ibid: 156) It is highly likely that the sheer magnitude of the flow of federal transfers toward less-developed provinces and regions, as well as the duration of these transfers has entrenched and perhaps even exacerbated regional economic disparities within Canada. (Ibid: 157)

Courchene's contention that transfer payments upset the adjustment between regional wage rates, migration, prices and trade is closely allied to the third major thrust of his dependency argument, which is that we must facilitate a return to a system of 'natural adjustments' if regional disparity is ever to be overcome (Ibid.: 157 & 159). As many regional planners in Canada are trained in economics they are likely to find such proposals attractive. Many may already be predisposed to believe that the economic system contains a natural equilibrium and functions best when left to operate on its own. Furthermore, there is something rather comforting about the desire for a more 'natural' state of affairs (presumably in contrast to an artificial one). Even the term 'adjustment' which is commonly used by economists suggests that there will be no major disruption of the situation and that equilibrium is simply being re-established.

However, it is imperative to consider just what Courchene's 'natural adjustments' would entail. If transfer payments are the root of the problem, one possible and seemingly obvious solution would be the immediate reduction or elimination of transfer payments. Wisely, Courchene rejects this alternative as 'unthinkable at the present time.'

... To continue with the level of transfers is likely to perpetuate and worsen still further the existing problem; to terminate them is unthinkable at the present time, given both the political and economic implications of such action. (Ibid: 157)

His alternative proposal is to slowly phase out many of the unconditional transfer programs, while shifting to the provinces the responsibility for administering other programs that are now cost-shared between federal and provincial levels of government. This, he suggests, could be done by giving the provinces lump-sum payments equivalent to what they now receive more indirectly through cost-sharing arrangements for particular services.

For example, suppose that the present formula for financing welfare was converted from a 50 percent federal-provincial cost-sharing format to a system of unconditional grants to the provinces. Under this system, the provinces would have a pool of money that could be spent as they wish. They would think twice about raising minimum wages to levels that generated considerable unemployment and forced people on to welfare because now they would bear the full cost of these welfare payments - funds expended on welfare would imply fewer dollars that could be allocated to other provincial expenditures. (Ibid:161)




It is Courchene's contention that such 'adjustments' would lead to a possible lowering of both the real and minimum wage rates in the dependent provinces of Canada, the possibility of migration both within and out of such provinces, and a possible stimulus in labour demand as new industry is attracted to the region by the prospects of cheap labour. Consequently, it is important to examine whether Courchene's proposals are likely to have the effects he anticipates, whether such changes if they did occur would be as desirable as he tends to think, and what might be some of the unanticipated consequences of his proposals.

For example, Courchene emphasizes a link between transfer payments, minimum wage rates and unemployment. Indeed, he argues that one reason why real wage rates remain high in poor provinces is that transfer payments permit poor provinces to keep their minimum wage rates high and not bear the full costs of such actions. He contends that 'there is no economic rationale, at least none that I am aware of' for high minimum wage rates in poor provinces, and he contends that such high minimum wage rates are inspired by political considerations. In his words, 'The political rationale for these high minimum wages ... must be that it (sic.) guarantees all workers some minimum level of income.' He further declares that such reasoning fails to take into account that high minimum wage rates are 'a major contributor to unemployment' in such regions, and refers to this as 'a minimum wage boomerang' (Ibid.: 160). He concludes that an appropriate set of incentives involving the reduction of transfer payments must be introduced to convince the provinces 'to enact more realistic minimum wages' i.e. minimum wage rates (Ibid.: 161).

Courchene's attack on high minimum wage rates in poor regions and his assertion that such rates lead to unemployment are grounded in neoclassical economics. Within this frame- work it is assumed that, if employers in any region are required to pay labour more than would be the case elsewhere, they will try and minimize the number of persons they employ. Furthermore, it is argued that minimum wage rates are a poor tool for social policy because they lead to a lower level of output, in part due to the increased unemployment they create. Economists with this orientation argue that, while minimum wage legislation may protect the lower levels of the employed, it discriminates against the most oppressed and needy who are unemployed, because it deters new industries from establishing in the area. Conversely, a reduction in minimum wage rates is seen as an encouragement to new industries to come into the area and thus functions to reduce unemployment levels. Unemployment rates will also be reduced if lowered minimum rates encourage some of those who are presently employed at or near that level, to move elsewhere for better paying jobs. This will open up new employment possibilities for those previously unemployed.

Without doubt, there is worldwide evidence that low real wages attract industry. Numerous Canadian resource industries have moved to third world countries largely because of the lower wage levels and low level of worker organization there. Nevertheless, we would argue that this is insufficient justification for the lowering of minimum wage rates in Canada's dependent provinces.

Minimum wage rates were introduced to protect those who are forced to sell their labour from the unfair exploitation of those who buy it. Without minimum wage legislation workers could be paid such low incomes that they would literally have difficulty surviving. This, we would argue, is an economic rationale for minimum wage legislation and it is incorrect to think of minimum wage legislation as simply a political expediency. In regions where unemployment is high and the level of unionization is low (such as one finds in the dependent regions of Canada) minimum wage legislation is particularly important. Without it, workers might be forced to compete for work at very low wages, just in order to have a job and some earned income.




However, while this justifies the retention of minimum wage legislation in the dependent regions of Canada, it still does not justify that these rates are occasionally as high or higher than those in richer regions. Despite Courchene's statement, there does appear to be some 'economic rationale' for them. Though statistics vary, most studies show that approximately half ofthose wholive below the poverty line level in Canada are employed (e.g., Caskie, 1979: 40). Admittedly, some of these are in agricultural and other primary resource occupations which are not subject to minimum wage legislation. Still, a large number of them do have jobs which come under this legislation, and would likely see their incomes lowered if employers were permitted to pay them less. Thus, the lowering of minimum wage rates would bring even greater poverty to many of those who are least able to bear the burden. Considerations of economic and social welfare would therefore suggest that the lowering of minimum wage rates, unless accompanied by far reaching changes in other aspects of the social and economic structure, is simply not possible. It is difficult to accept that the minimum wage rates are too high in poor regions, when they are still so low that the real wages of many fulltime workers are insufficient for them to rise out of poverty.

There would appear to be a further 'economic rationale' for maintaining high minimum wage rates in the dependent provinces. Should these rates be lowered, those industries attracted by low minimum wage rates are likely to be those whose continued existence depends on their ability to pay lower wages for the same work than workers receive in other regions. Such measures would not eliminate regional disparity, but rather they would institutionalize it. It would become virtually impossible to close the wage gap between rich and poor areas of the country, and would lead to a further polarization of society into advanced and underdeveloped regions.

Furthermore, while it is likely that a lowering of the minimum wage rates might encourage some 'low wage' industries to move into Canada's more dependent regions, their presence may not have the long run consequences that Courchene anticipates. Within a short period it seems likely that workers in such enterprises would attempt to unionize (e.g., Michelin workers in Nova Scotia), both to protect themselves from arbitrary dismissal and replacement from the large pool of unemployed workers seeking their jobs, and to demand equal pay for equal work with their counterparts elsewhere in Canada. Past experience indicates that low wage paying firms would then approach the provincial government with requests for additional operating incentives and threats concerning their impending closure. As the government frequently has made political gain out of enticing such firms into the area, it often sees no choice but to bend to such economic blackmail and provide further assistance, often in the form of tax concessions, purchasing contracts and subsidized energy. As the people of the region usually must bear the brunt of these costs, they are now being further victimized. Not only do they have lower wages than elsewhere, but they must also carry the costs of these concessions to corporate concerns.

Finally, the lowering of minimum wage rates may have yet another deleterious consequence. It is unlikely that workers who receive a level of remuneration essentially below the poverty line will have much of a personal investment in their jobs. The result is likely to be a high level of absenteeism, and a low level of productivity. Workers are likely to cling to the pattern of wage employment already prevalent in the marginal work world, whereby they work only long enough to earn the money necessary to buy the necessities that can't be pro- duced at home, and to qualify for unemployment insurance. A number of economists have attributed the existence of this pattern to the high levels of unemployment insurance and transfer payments which the dependent regions already receive. However, it may be as much a product of the low wage levels and seasonal employment structure already existing in these




regions. A lowering of minimum wage rates will likely exacerbate this situation. However, the most contentious of the adjustments implied in Courchene's model are those

related to migration. Courchene accepts the proposition that wage differentials encourage labour mobility. He also maintains that the inflow of federal funds into the 'have not' regions has permitted them to keep minimum wage rates high and still retain a sizable proportion of their populations. It would appear to follow that one consequence of reducing minimum wage rates is increased out-migration from dependent regions.

Several of Canada's previous regional development programs attempted to deal with the problem of regional dependency by encouraging the out-migration of 'excess-population' and 'excess labour force' from these regions. Such measures almost invariably met with opposition and resistance at both a local political and local community level (cf. Iverson and Matthews, 1968; Matthews, 1976). So widespread has this opposition become, that those who still openly advocate out-migration encounter much public hostility in many regions of Canada. Conse- quently, one of the ironies of Courchene's transfer dependency model is that it attracts interest and support at local planning levels, even though it implies a strategy of out-migration. A main reason for this is that Courchene rarely explicitly supports out-migration. Throughout his work he calls for a return to 'natural adjustments' without making it obvious that migration is one of these potential adjustments. When Courchene (1978b) declared in a speech before a Newfoundland audience that 'Too much of Canada's policies toward its regions has been di- rected towards preventing the economic adjustments of the area,' his talk was favourably reported in the local newspaper (St. John's, Evening Telegram, Nov. 4, 1978). His audience apparently did not realize that one interpretation of this remark was that it was time for some of them to leave the region.

However, it is clear that Courchene has been an advocate of using migration as a means of regional economic 'adjustment' for many years. In a 1970 study he argued that migrant labour should 'bear the lion's share of adjustment' (1970:551), and in a 1974 address he came close to advocating not just increased out-migration but the actual depopulation of certain dependent regions (1974a:26). A clear indication of Courchene's attitude toward migration is also found to be in his studies of those who have migrated. His analysis concludes that there is a direct relationship between the financial gain to be obtained from migration and the dis- tance people are willing to travel. Based on these studies Courchene argues that migration 'appears to be economically motivated' (1974b:147) and 'can be treated as an economic variable' (1970:571).

Once again there is some legitimacy to Courchene's interpretation. Certainly, it is incorrect to assume as some policiticans have (e.g., Smallwood, 1973:352) that a large population is a prerequisite for industrialization (Matthews, 1978-79:96-97), and Courchene clearly recog- nizes this (1974a:26). Also, it is quite true that migration into and out of a province or a region is, to some degree, a reflection of the quality of life and working conditions there. If a large number of people leave a region, one likely reason for their departure is that there are no jobs for them there, or perhaps wages in the region are lower than those elsewhere. In that sense migration is an economic variable. However to consider migration in only this way is to neglect the social, cultural and psychological factors involved in anyone's decision, It particularly neglects the constant personal evaluation of the relative merits of social and cultural factors versus economic ones. Furthermore, the ex post facto analysis of the consequences of migration contained in Courchene's work, is not sufficient to fully explain the motives, causes, or process of migration.

When one takes into account these social, psychological and motivational factors, there are a number of other ways of interpreting Courchene's empirical finding that migration is




associated with economic well-being after moving. It may indicate that those people who do move are economically motivated, while those who remain behind (i.e. the majority of the population) are motivated by more social considerations. Another possible interpretation of his findings is that, once people are forced to move, they certainly try to maximize the economic gains they get from doing so. However, this in no way suggests that economic considerations could be considered a primary motive. Indeed, people may so value their way of life that migration is simply a last resort when government policies have made life both socially and economically impossible in their present location. Under such circumstances, a reduction in transfer payments and the subsequent decline in minimum wage rates is not likely to produce the out-migration that Courchene's model anticipates. Rather, the first reaction may be for people to adjust their way of life to a reduced standard of living. If so, their living conditions will have become worse rather than better. After all, if economic incentives were sufficient to make the residents of Canada's dependent regions move, the greater unemployment rates and lower average incomes in these regions should have already led them to do so. They have already demonstrated their desire to remain where they are despite the economic dis- advantages involved in doing so.

There is yet a further obstacle to out-migration becoming a significant 'adjustment' as appears to be assumed in the transfer dependency model. The model does not seem to fully take into account the fact that migration from any region is also a reflection of the opportunities available elsewhere. Lowering minimum wage rates in the dependent regions is not likely to produce out-migration unless there is somewhere for people to go. The historical evidence would appear to support this contention. For example, historically it would appear that, when unemployment rates in the Atlantic region of Canada have been high the rate of migration from that region has been comparatively low, while the migration rate from the region has been highest when the unemployment rates have been lowest (Matthews, 1982). On the other hand, there has frequently been a direct correlation between the rate of migration out of the Atlantic region, and employment rates in Ontario. As Ontario has been a favourite des- tination for many Atlantic province migrants, this may well be significant. It suggests that Atlantic province migration is not governed as much by forces pushing people out of the region, as by pull factors from the more developed regions. When conditions are bad and unemployment levels high in the Atlantic region, unemployment levels are also high in central Canada and there is simply no place to go. Given the current economic and industrial reces- sion in central Canada, it is unlikely that Ontario can absorb an influx of Atlantic province migrants in the foreseeable future no matter how many incentives to move are implemented. Indeed, this may well explain why there has been a net inflow of migrants into at least two of the Atlantic provinces in recent years. The employment situation elsewhere is now so bad that many of those who previously migrated have become unemployed and are returning home where family support systems can sustain them, and where there is the possibility of employment in the region's expanding resource sector.

Finally, consideration needs to be given to which segment of the labour force is most likely to be influenced by a lowering of minimum wage rates. Such a move is unlikely to have much impact on the incomes or migration rates of those already in the middle and upper income brackets. Its greatest impact will be on those who are already employed at low income levels. Despite Courchene's contention that 'across income groups ... migration rates are higher for the low income classes than they are for the middle-income class' (1974b: 142), a closer examination of his data reveals that in the Atlantic provinces (presumably the poorest and most dependent region) upper and middle income migrants had a higher migration rate than the lower income group (Ibid.:30 & 42). Lower income migrants from this region have shown




comparatively less interest in moving in the past, and there is little to support the belief that these lower income employed workers will be more inclined to move if their income level drops. First, low income workers are likely to be labourers with no skills that are readily nrar- ketable elsewhere. This probably explains their previous lower rates of migration, and nothing has altered this. Second, it is probable that many of these workers see the social and economic benefits of family and community support as of greater value to them personally than employment at a slightly higher income in a distant community.

The other category of persons which might potentially be affected should the transfer dependency model be implemented, are the unemployed. Lowered minimum wage rates are unlikely to open up existing jobs to them, and their economic situation is unlikely to be improved by lower wage industry attracted into the area. On the other hand, a decrease in transfer payments may eliminate some of the projects now designed to be of direct benefit to such people. It is they who are potentially the greatest victims of the transfer dependency approach to regional underdevelopment.

However, such unemployed persons might be materially benefitted if the fourth thrust of Courchene's argument were implemented. Coincident with his support for reduced transfer payments, Courchene advocates the introduction of a Negative Income Tax system (1973: 349-369; 1978a: 168-178). His advocacy of Negative Income Tax stems from his belief that transfer payments are of limited utility as a tool to distribute income equitably, whereas Negative Income Taxes can serve this function better.

It has always struck me as anomalous that Canada has a very comprehensive tool of sharing wealth or income among provinces (i.e. a system of equalization payments) but a far less comprehensive system of sharing income among individual Canadians (i.e. the non-existence of a negative income tax). (1978a: 168)

One of the potential functions of such a taxation structure is its ability to offset some of the undesirable effects which might occur from transfer payment reduction. In particular, it could be used to compensate for some of the income lost to the people of dependent regions. It could also provide a floor below which wages would not fall in the absence of any minimum wage rates.

There are, however, major reasons why such a development is unlikely. First, to the extent that the Negative Income Tax provided a real wage floor, it would be operating in much the same way as a reduced minimum wage rate. We have already dealt with the objections to this. If, on the other hand, a Negative Income Tax program provided a level of financial support beyond some minimum 'poverty line' level, it would be performing much the same function that transfer payments now serve. Under such circumstances there would be little point in formally reducing transfer payments. It is clear that Courchene does not consider this desirable (1973:359), and he attempts to counter such a possibility by arguing that the guaranteed income level should be different in each region (Ibid:360). In that way the unemployed in those regions where incomes are low, would be ensured of getting a lower guaranteed income than those in similar circumstances who happen to reside in areas where the average wages are higher. Such measures would guarantee that the Negative Income Tax system would not, in and of itself, be an instrument for reducing regional inequality.

Finally, it seems likely that Courchene's Negative Income Tax proposals will fall victim to public opinion. Negative Income Tax as a vehicle for ensuring a Guaranteed Annual In- come is already seen by many of the public, as well as some politicians and the press, as a tool for paying people not to work. Under such circumstances, this writer would deem it unlikely that the Negative Income Tax system will be implemented. On the other hand, there is




likely to be much support, particularly in the richer provinces, for ending the transfer payments system. This system is seen by many residents and leaders of the developed regions as a means whereby dependent regions get unearned handouts. One cannot but feel that Courchene's statements do little to allay such suspicions.

This presents the 'transfer dependency' model with a major problem. As we have tried to show, a reduction in transfer payments coupled with efforts to lower minimum wage rates and encourage out-migration may bring extreme hardship to many residents of Canada's poorer regions. The only possible way of making such proposals palatable is through the pro- tection offered by some form of guaranteed income system. We believe that there is a real danger that those responsible for regional planning will proceed with the former and ignore the latter.

THE DEPENDENCY THEORY APPROACH

Most approaches to national or regional underdevelopment see underdevelopment as a consequence of some failure, deficiency or lack in the underdeveloped area. Such areas are claimed to lack resources, capital, education, infrastructure, achievement motivation, entrepreneurial initiative, or human capital. Such explanations of underdevelopment are generally referred to as modernization theories, as their usual conclusion is that development will occur only when these local lacks are overcome by the influx of modern industry, modem management, modern education or one of the other modernizations.

The sociological approach, known as dependency theory, was developed by Latin American economists as an alternative to these modernization theories in explaining underdevelopment in their home countries. In recent years it has also been used by sociologists in the developed societies to explain the persistence of regional pockets of underdevelopment in these more developed nations. Within Canada, there is no single proponent of dependency theory whose work exemplifies all of the approaches within it. Moreover, perhaps because of the youthful- ness of the dependency theory paradigm, most Canadian work still leans heavily on work done elsewhere for its concepts and comparisons. Thus our discussion of Canadian dependency theory of necessity must include mention of the more general literature upon which the Canadian work is based.

From a dependency theory perspective, underdevelopment is not the result of some lack within the underdeveloped region, but it is caused by the continued exploitation of the dependent area by more powerful and wealthy ones. From the point of view of dependency theory, underdevelopment is not a condition, but a process - the process whereby a region is made dependent.

To those familiar with Marxian analysis it is obvious that the roots of dependency theory lie in the Marxist analysis of imperialism. This position contends that capitalism, by nature, is exploitative and must constantly subjugate other areas in order for it to survive. This, Marxists argue, is made necessary primarily because of the accumulation of capital into the hands of the few which threatens the viability of the system unless new sources of capital are constantly found.

As we have elsewhere examined dependency theory in some detail (Matthews, (1980a; 1980b), we will use our limited space here to provide only a brief overview designed to high- light those points on which dependency theory differs most clearly from the transfer dependency perspective as an interpretation of the nature and causes of regional dependency. There




are four basic stages to the dependency theory perspective, and scholars in Canada and elsewhere have done empirical and analytical work at all four levels. The first stage involves the obvious analogy that the relationship of exploitation between nations has its counterpart at the regional level within nations. At this stage focus is primarily on the nature of exchange between regions. Within Canada this has led to a number of studies that have documented the process whereby the dependent regions have been historically drained of their resources and wealth by the developed ones (Acheson, 1972; 1977; Naylor, 1975).

The second stage of the dependency perspective also builds directly on Marxist analysis. This time the focus is on the supposed inherent necessity of capitalism to require a large 'reserve army' of labour which it can exploit virtually at will. Mandel (1973), in particular, developed this into a theory of regionalism by noting that underdeveloped regions provide not only raw materials, wealth and a market for more developed regions, but also function as a reserve labour supply. Labourers can be drawn into the developed regions when industry is expanding, and simply laid off when economic conditions get bad. This regionalization of the reserve labour force is seen as particularly advantageous to the developed regions, as many unemployed workers return to their old homes. Thus the developed regions rarely have to pay the full economic or social costs of maintaining their reserve labour supply. Within Canada, Veltmeyer (1978) has shown that the migrant labour force of Atlantic Canada operates in much the same manner that Mandel's theory suggests.

However, to this point, dependency theory does not differ substantially from traditional Marxist analysis. It is the third stage of dependency analysis which marks the formation of a distinctive body of theory and empirical research. At this level attention shifts from a focus on wealth and population movement, to a direct consideration of the social structures which develop both to facilitate the process of regional dependency and as a consequence of it. In particular, the focus here is on the nature of social class, and on the way in which 'bridgeheads' (Galtung, 1971) are formed between the dominant class of the developed area and the dominant class of the dependent area. In this way the elite of the dependent region becomes 'compromised' (Don Santos, 1973) into supporting its own domination. At the same time there is a conflict of interest between the elite groups and working class groups in both developed and dependent areas, and even a conflict of interest between the two working class groups. Though a number of Canadian sociologists, anthropologists and political scientists are engaged in this stage of dependency analysis, the best known work is by Clement who has empirically demonstrated that many of Canada's corporate elite are the coopted compradors of economic interests based in other countries (1975), and that the economic elite of Canada's dependent regions are also frequently the agents of economic interests based in Canada's more developed regions (1978). The focus of all this research is on the way in which the actions of such elite groups serve to increase the dependency of their home regions.

It is in the fourth stage of dependency theory analysis that attention shifts from a consideration of the links between developed and dependent regions, to a direct consideration of the consequences of dependency for the social and ecnomic structure of the dependent region itself. Much of the theoretical work here has dealt with the articulation between capitalist and non-capitalist modes of production (cf. LaClau, 1971; Amin, 1976) in the dependent society. It is argued that this produces economic polarization (Sunkel, 1973) which in turn creates two largely independent social structures. Cardoso (1972, 1973) and Cardoso & Faletto (1979) have also argued that the 'dependent development' which occurs under conditions of dependency has characteristics which make it distinctive from that found in more developed regions. In Canada, Veltmeyer's (1978) work on class transformation in Halifax, Matthews (1978) work on the development of underdevelopment in Newfoundland, and the essays in




Brym and Sacouman's recent (1979) collection, are all part of a growing body of literature which investigates the consequences of dependency on the social and economic structures of Canada's dependent regions.

It is tempting to dwell more extensively on the details of dependency theory and its use- fulness in understanding regional underdevelopment in Canada. However, that has been done in detail elsewhere (Girvan, 1973; Kahl, 1976; Long, 1977; Palma, 1978; Matthews, 1980b), and we will devote the remainder of our space here to a comparison of the 'transfer dependency' and 'dependent theory' approaches.

'TRANSFER DEPENDENCY' VERSUS 'DEPENDENCY THEORY'

The 'transfer dependency' approach and 'dependency theory' constitute two quite different perspectives on the nature of regional dependency. Nowhere is this more obvious than in their conceptualization of the 'cause' of regional dependency. The transfer dependency perspective sees regional dependency as the product of too much external money being poured into a region in the form of transfer payments. From a dependency theory perspective, dependency is caused by the systematic draining of capital and resources out of a region by other regions. In the case of Canada, there are data which can be used to support both posi- tions. Dependency theorists rely heavily on the historical data documenting the movement of wealth from Canada's eastern provinces in the period from 1890 to 1920. In contrast the exponents of the transfer dependency approach point to the substantial inflow of money into that same region in recent years in the form of transfer payments. There is no simple resolution to this contradiction, though dependency theorists might legitimately argue that the eastern regions of Canada might not need today's transfer payments if they had not been drained of their wealth in an earlier era. It should also be stated that the existence of a substantial inflow of transfer payments into the Atlantic region is not, in itself, a justification for their reduction or elimination.

Both the transfer dependency perspective and the dependency theory perspective also in- corporate theories of the nature and function of migration with respect to regional depen- ency. The transfer position on migration is the clearest - out-migration of excess labour from a dependent region is regarded as a desirable goal for it is seen as contributing to a natural balance in the region. The dependency theory position on migration is less clear-cut. Migrants are seen as the victims of an exploitative economic system - and from this it appears that dependency theorists regard the programmed migration of those who would prefer to stay at home to be undesirable. It is less clear, however, how dependency theorists would overcome the existing conditions which require the seasonal migration of a large reserve army of the unemployed from one region to another. Presumably this would involve a more equitable distribution of economic power and industry in the country. It would also presumably require a reduction in the chains of dependency which tie local entrepreneurs to investment capital outside the region. It should also be noted that data on the existing pattern of out-migration from eastern Canada support the dependency theory interpretation that such migrants are indeed a reserve army whose movement is affected primarily by economic conditions in the developed regions.

A third difference between the transfer dependency and dependency theory approaches is in their implicit understanding of the power of local governments and local economic interests to change the conditions of their existence. It would appear that, from a transfer dependency perspective, provincial governments and local entrepreneurs do have this power. Thus it is argued that transfer payments should be reduced or eliminated in order to force




provincial leaders to take the necessary steps which would ultimately move them out of their underdeveloped condition. However, dependency theorists argue that the conditions of the 'world economic system' combined with the power of giant multinational corporations miti- gate against the success of local initiatives. Indeed, they would suggest that the failure of many local initiatives has not been the result of a lower level of entrepreneurial ability, but a consequence of the inability of local leaders to control the major national and international economic forces which operate in such a way as to make them dependent.

Finally, some attention should be given to the difference in value orientation between the two dependency perspectives. It is clear that the dependency theory position is a value-oriented perspective and takes a normative stand against external exploitation. The dependency theory critique of the existing structure of capitalist economic organization in Canada is that it up- holds the interest of certain groups within the central developed regions at the expense of many of those who live in the dependent peripheral regions of the country. It is not always realized that the transfer dependency positionislikewise value-oriented and normatively biased. It is based on a capitalist model where maximization of economic welfare is the goal of the system and thus it tends to divorce considerations of economic well-being from broader social and cultural value orientations. The consequence of this focus is a fairly instrumental approach to development, and a tendency to treat the economic system as natural rather than man-made. Daniel Bell levels much of the same criticism at contemporary economists who, he contends, 'make accumulation an end in itself.' He further notes that 'economic policy can be efficacious as a means; but it can only be as just as the cultural value system that shapes it' (Bell, 1978:xi). A major value bias of the transfer dependency position is its tendency to ignore the cultural values of many of those who wish to remain in Canada's dependent regions.

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Documents

Two Alternative Explanations of the Problem of Regional Dependency in Canada