The fable of the ropes.

• Author: Robinson, Dave
• Position: ECONOMICALLY SPEAKING

Once upon a time there was a vast, resource-rich region - kind of like Northern Ontario. It was stuck in an old-fashioned development trap. You know, producing raw materials for other regions, with all the decisions being made outside the region, and almost all the revenue from selling off resources going outside the region.

One man was officially in charge of pulling the region out of that development swamp. He was in charge of all the forests and all the minerals. The Grand Minister of Mines and Forests struggled heroically to get the region moving. But nothing happened.

Unfortunately, the Grand Minister was relying on an outdated model of development. He was pinning his hopes on the Ring of Fire and on doing what the forestry companies want. After flirting with change, he backed away from increasing community control and putting wood in the hands of small local producers. It looked like he'd been hog-tied by the big companies.

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To pull his region out of the development swamp, the Grand Minister of Mines and Forests would have to do some studying. He would have to twist the four main strands of modern development into a rope strong enough to pull against the sucking drag of a century of misguided policy.

The old theory said if you had trees, you shipped logs to people who didn't have logs. If you had rock, you sold them to the regions that had factories. It was called the theory of comparative advantage that went all the way back to Robert Torrens and David Ricardo almost two centuries ago. The theory is taught in every introduction to economics. It was right 200 years ago, and it is still right. But not right enough for Northern Ontario in 2011.

The old theory said, "Do what you are least bad at." There was nothing in the old theory about getting good at something else. The new theories talk about "created advantage" instead of comparative advantage. They emphasize innovation instead of natural resources and creativity instead of commodities. One strand of the new theory was laid out by Paul Romer in the 1980s. It added one simple idea to the older model. Romer pointed out that companies can invest in knowledge to invent ways to increase productivity Growth is "endogenous," not automatic. It is something that can be controlled.

The second strand of the new theory is Michael Porter's cluster theory In the late '80s, Porter pointed out that...