Are We Grape Sellers or Winemakers?

Towards a Full-Stack Economy

Canada is endowed with a wealth of resources, which is oftentimes a double-edged sword for our national economic situation. The ability to achieve a large share of our material sustenance through the gathering and selling of resources has meant, and continues to mean, that there exists little incentive for Canadians to invest further along in the value chain. The end result is that Canada is an economic vassal despite its political sovereignty.

What I wish to make clear from the outset is that this is not an exclusively Canadian problem but, rather, an issue that faces any nation that is wealthy in natural resources. When it comes to material sustenance, it is human nature to put in the minimum necessary effort to get by – if one can live well by doing little, so shall it be done. And by no means is cutting down trees, extracting minerals and oil, and fishing “doing little” in the manner of raw effort; however, it does mean that not as much effort will be devoted to processing and commercialization. More specifically, I am referring to manufacturing and branding in the context of physical goods.

Much has been said about manufacturing and job creation, which is not the primary concern here – walk into any modern factory and you quickly realize how much automation is being performed. The case I want to make can be summarized in this simple rhetorical question: as an owner of a vineyard, if you could sell only one or the other, would you choose to sell grapes or wine? This question is applicable to any resource-rich country, where the vineyard represents the country’s natural resources, selling grapes represents selling one’s resources raw, and selling wine represents selling finished goods derived from one’s resources. Without pointing any fingers, it’s clear that Canada has broadly chosen to sell grapes. Have we shortchanged ourselves?

There is no one person we can truly lay the blame on for deciding to be grape-sellers rather than winemakers – this is the systemic result of having a vast geographic territory, a small population relative to said geography, and a market-based economy. We realistically only have three major cities – three major sources of specialized talent pools – that are far removed from the resource industries. Thus, any resource entrepreneur in Canada is inherently working with a fraction of an already small population: successful extraction of the resources becomes a major task in itself. More importantly, without any unified national policy around resources – for example, the pipeline dispute between Alberta and B.C. – the resource entrepreneur is left to his or her own devices in terms of what to do with the extracted materials. The seemingly rational course of action for said entrepreneur is just to sell it off and specialize in resource extraction rather than take any on any further ventures in manufacturing and branding. Again, if one can live sufficiently off of a given activity, there is little incentive to do more.

Nonetheless, there are ways that citizens, acting through the vehicle of their state, can enact policies that prevent them from collectively shortchanging themselves. The historical policy has been import substitution where the nation in question stops importing a given finished good and, instead, cultivates its own manufacturing industry to produce said good through its own raw resources. For example, Tudor England – as described by Daniel Defoe in A Plan of the English Commerce (1728) – stopped raw wool exports and shifted to wool-manufacturing. As a matter of fact, raw wool exports were disincentivized with increased duties and eventually banned altogether. This type of infant industry protectionism paved the way for the England that Adam Smith eventually occupied when he composed his Wealth of Nations to advocate for free trade – free trade eventually makes sense when one is at the frontier of technology and production in a given industry since, at that point, what matters most is finding new markets for what one can already produce.

The core logic underlying import substitution is that adding more processing to raw resources – whether by human labour or machine automation – increases their value in the market. For instance, the Tudor mindset was that it was better to sell cloth than raw wool, and even better to sell it dyed and dressed rather than in a semi-manufactured state. This economic logic expresses itself wherever we care to look. Let’s walkthrough three examples:

1. Food: we can choose to buy raw fruit and vegetables in the grocery store, or we can buy them washed, cut, sorted, and placed with accessory dips in a plastic platter for considerably more money. Of course, the next step in the value chain would be cooking services provided by a restaurant that further situates the user experience at a venue within which the meal may be consumed – the processing value-adds are: cooking, venue ambiance, and customer service.

2. Education: we can self-direct our education by incrementally exploring books at a public library or we can buy a packaged education at a university that comes with domain experts, reading lists (curriculum), and discussion groups. This example is sometimes harder to see but the processing value-add comes in the selection of the teachers, the curation of the books to be read, and the even the selection of the people you will be learning with – much more streamlined than metaphorically stumbling through the dark in one’s self-education, without guidance and without a community of learners.

3. Fitness: we can buy a basic gym membership and explore the weights and machines on our own, or we can hire a fitness coach to provide camaraderie, instruction, a workout schedule, and a meal plan.

Bringing this back to our originating grape-vs-wine question, the logical action for someone with a clear view of national interests – especially so for a nation like Canada that has national healthcare, among other governmental services – is to initially double down on wine production through the vehicles of import substitution and infant industry production. This equates to both stopping the export of raw grapes and stopping the import of wine, while investing in the equipment and training necessary for wine production. Subsequently, if exports must be made before wine can be developed, it would be prudent do so as grape juice and preferably so under a brand that we own and can directly market to potential consumers. In so doing, we will have achieved vertical integration for winemaking and related grape products – what I like to call a full stack economy, where one owns the resources, the processing, and the commercialization. I would not recommend this policy for every resource-rich nation, especially those with weakly-involved governments; however, as mentioned earlier, Canada is a nation with a large governmental involvement in domains such as healthcare, education, and infrastructure. The additional tax revenue from a combined import substitution and infant industry protection approach would have a measurable impact on funding for these public services.

One final caveat worth mentioning is that this is not about making Canada into some holistic manufacturing powerhouse, to produce trinkets of every sort. The policies discussed above should only be applied to areas where we have a genuine resource advantage that can be leveraged into vertical integration and full stack economics. For example, Canada has no such advantages in mango production and should never even consider the thought. Nonetheless, there are domains like lumber, oil, mining, agriculture, dairy, and fisheries where some headway can be made; there is even a case for such policies to be applied to Canada’s digital industry (China was able to cultivate its own tech giants through what is largely import substitution in the digital domain on a national scale) but that is beyond our present scope of discussion. All I wish to emphasize here is how we can optimize the use of our existing resources to develop economic sovereignty commensurate with our political sovereignty.

It is the deepest of ironies to sell wool and buy cloth; to sell wheat and to buy beer; to sell grapes and buy wine. If we do not collectively decide to become winemakers on our own terms – through import substitution and infant industry protection – the market is more than happy to reward us as grape sellers for years to come.