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Ottawa’s Focus on Alberta Oilsands is Killing Manufacturing Jobs in Eastern Canada, Economists Say
You know that old saying, “When the U.S. sneezes, Canada catches a cold.”
It still applies. The United States remains our biggest trading partner. What happens there affects everything from our tourism to our exports.
But now, Canada is facing a bigger threat to its economic health.
It’s called Dutch Disease — and it’s complicated by Prime Minister Stephen Harper’s newly acquired China Syndrome. Stung by U.S. President Barack Obama’s rejection of the Keystone XL pipeline, Harper is looking to China’s government-owned oil companies.
Dutch Disease isn’t about tulips or wooden shoes or even sick elm trees. It’s about Canada’s steady conversion to a petro-state, fueled by the rapid development of Alberta’s oilsands. It means that, more and more, Canada’s economy will be subject to the price of oil.
Coined by The Economist in 1977, “Dutch Disease” describes what happened to the Netherlands after natural gas fields were discovered off its shores. The little country became so economically entangled with its resource industry, its manufacturing sector tanked.
“Ontario is probably the province that has suffered the most from this,” says University of Ottawa economist Serge Coulombe, co-author of a massive study on the impact of Dutch Disease on Canadian jobs, published last fall.
“The biggest losers are typically the white males who had all those great jobs in manufacturing, much like in the U.S.,” he says, adding that Canadian salaries and environmental standards make our manufactured exports less attractive, especially as our dollar strengthens. “If we want to compete with China we have to be very, very smart. It is very, very difficult.”
In his report, Coulombe and his co-researchers determined that our petro-currency was responsible for 42 per cent of job losses between 2002 and 2007. That translates to at least 140,000 manufacturing jobs gone as a direct result of the oilsands development.
It didn’t get any better after that. Our manufactured exports dropped another 12.6 per cent between the second quarter of 2007 and the first quarter of 2011.
If Dutch Disease is allowed to spread, Coulombe and other economists warn, Canada’s ailing manufacturing sector will face still more job losses, while consumers, farmers and non-oil producing industries will feel increasing pain through inflation and gas prices at the pump.
It all started when the price of oil started rising in 2002, tripling through the decade.
The long-unprofitable oilsands, which require the expensive and water-intense extraction of tarry bitumen, suddenly became economically feasible. That increased oilsands development boosted crude exports. By 2006, oil became our biggest export, displacing autos and auto parts. The loonie surged against the weakening U.S. dollar. That made our manufactured exports — long dependent on a low Canadian dollar — more expensive. And that cost factory workers jobs.
Over the past year, alarm bells have been sounding.
Last April, Montreal-based MRP Partners (Macro Research Board), an independent global investment research firm, warned of the “petrolization” of Canada.
“Canada has often been referred to in jest as the 51st state, due to its historical reliance on the U.S. as a key export market,” wrote MRB partner Phillip Colmar. “However, it is becoming more accurate to regard Canada as another Province of China.”
“You have 1.3 billion people right now that are growing at an unprecedented rate,” explains Coulombe. “That creates a huge demand for natural resources.”
And Harper is eager to meet that demand, saying it is “increasingly clear that it is in Canada’s national interest to diversify our energy markets.”
Over the past two years, China has invested some $15 billion in Alberta’s oilsands. It wants the bitumen moved via the Enbridge Northern Gateway Pipeline to the B.C. coast, where it will be loaded into tankers.
That crude, rated the dirtiest on earth, will travel through our most environmentally sensitive areas, critics charge.
Earlier this month, economist Robyn Allan submitted a 74-page analysis of the Northern Gateway proposal to the National Energy Board Joint Review Panel considering the project.
Allan, a former Insurance Corporation of British Columbia CEO, makes a case that, if the project is approved, the Canadian economy will be hit by “an inflationary oil price shock” — as well as interprovincial conflicts.
“Right now 95 per cent of the oil is in Alberta but 75 per cent of the manufacturing jobs are in Ontario and Quebec,” she says. “If you have a policy that deliberately supports Alberta at the expense of Eastern Canada, then you’re stretching the national fabric.
“The jobs are not there, the benefits to Canada are not there,” she maintains. “We are going to experience even more upward pressure on the Canadian dollar; we are going to have even more intense division between Eastern and Western Canada.”
Yet another study published last fall, this time by Montreal’s Institute for Research on Public Policy, emphasized that “resource booms don’t last forever” and that Canada should maintain a competitive manufacturing industry.
Economists suggest there are ways to cure Dutch Disease, or at least lessen its impact.
Canada could invest in other industries, including green technologies. Or it could go the foreign currency route, by investing abroad. That’s what Norway does with its oil wealth. By creating a petroleum fund with foreign currency, it also pays down its debt, which reduces the upward pressure on the krone and protects the country’s exports.
But, as Coulombe says, “We cannot do that in Canada because we have a sophisticated and complicated federal and provincial system and it is the provinces that own the natural resources.”
Alberta doesn’t seem particularly disposed to help Eastern Canada, which, ironically, imports most of its oil from the Middle East, Mexico and Norway.
“When the federal government talks about diversifying our markets, we shouldn’t be looking to northeast Asia, we should be looking to Canada,” says Allan. “We hear we have to diversify to Asia because Asia needs to protect its source of supply so it’s not dependent on Saudi Arabia. But Canada also has a dependency on Middle Eastern countries.
“So why are our federal leaders so concerned about everybody else’s oil security and not Canada’s? We should be looking at what we can do to help Eastern Canada avoid the unpredictable and volatile (prices) and perhaps supply restrictions that are going to happen in the years to come.”
Coulombe fears that little or nothing can or will be done to protect Canadian consumers and manufacturers from the effects of Dutch Disease.
“I don’t think the manufacturing sector will come back; I think we have to accept that,” says Coulombe. “The growth of China is like a big train. Canada will be more and more a country that will live on its natural resources.”
There’s another old Canadian expression, attributed to the late University of Toronto economist Harold Innis. He compared Canadians to “hewers of wood and drawers of water” because we were dependent for so long on exporting our raw materials to buy back value-added manufactured goods.
Today, we are selling our oil to buy back gasoline, jet fuel, asphalt, plastic and other petroleum-based products.
That would make us “deliverers of crude and drawers of water.”
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11 Comments so far
Show AllActually, they should call it the "climate change denier syndrome". Like the US, they seem to be determined to develop petroleum industries, particularly extraction, at the cost of everything else. It's not about energy security, because focussing on petroleum makes everyone less secure, and it exposes the economy to the ravages of speculation. It' like Mitch McConnell's statement about the purpose of the GOP, which is to deny Obama a second term...at the cost of everything else. They want to burn down the entire country to oust one black man from the White House. And the-powers-that-be are willing to burn down the entire planet, and the US, and Canada, to keep profitting from petroleum.
Interesting article. I had no idea that Canada was caught up in such a complex energy boondangle... and while I agree with Smallbear about the need to invest in Green Energy, his/her Obama remarks are a pathetic reinforcement of MSM
pabulum.
Stephen Harper is trying quite hard to pay off a major part of his political base, the Alberta fossil fuels mafia. For those who are not up to date on Canadian politics, Alberta is quite similar to Texas in far too many ways.
When I lived in Calgary 20 years ago, at a traffic light you could see bumper stickers that read: ONTARIO CAN FREEZE IN THE DARK.
Stephen Harper's political base all wear badges and uniforms with ironed pleats. In stead of catching crooks & serial rapists, they sit at telephones. Then you get a call at home from the police, informing you of their Widows & Orphans Fund - "How much can we put you down for: $50 $75 or $100? You get a corresponding color coded bumper sticker and card for your wallet as a =Friend of Police=. People who cannot afford to make a =donation= end up doing so, out of fear.
The only admirable difference between Alberta and Texas is that Alberta doesn't use Mister Sparky to execute felons. That, and their health care plan. Does Alberta have a sales tax now? They did not during my residence there.
Trylon
But why in the world did Canadian citizens re-elect Harper last year? Many of them are as opposed to the tar sands pipeline (going through either the U.S. or to Canada's west coast) as we are. For that matter, how long will it take citizens in Canada or the U.S. or Europe or the Middle East or anywhere else to learn that Conservative leaders harm them while Liberal/Socialist leaders work for the common good?
The key word is of course "Competitiveness". It has become a holy and sacrosanct word not to be violated. It is fueled by all those Free trade agreements and desire for Markets overseas.
In a Competition there is usually only one "winner" In order to win all the others must lose. The Competition for markets drives us to destroying the Natural world using methods that minimize costs.
We thus have Mountaintop removal to get coal. It is cheaper to fire all the workers but a small few, buy machinery and then blow the mountains to hell to get the coal. In the Boreal Forest of Alberta the Companies seeking more oil and less economical sources of the same stripmine tens of thousands of acres of land that they refer to as Overburden and use massive machinery to haul the tarsands away to be refined.
(Note the word OVERBURDEN. This is what they in fact call it. The overburden is the trees and grasses, the lakes and bogs and flowers. Its LIFE itself and they call it OVERburden)
Rather then detailing how we must become more "compettitive" and gain access to new markets any SANE Governmnet would say "WE do not need to operate on these terms. We do not NEED to compete our way to the bottom"
The mantra of "Markets" and "investments" and "Profits" and "development" and Capitalism itself has to be abandoned. Its a losers game.
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Interesting article about how the political economy of Canada is effecting the economy and ecological existence of life in Canada and the rest of the world.
Thank you GwNorth for your comments about competiveness, and Alberta oil sands development and environmental destruction.
"Overburden." Sheesh!
Reminds me of the U.S. financial industry in the 1990s bragging about financial innovation and pressing for the deregulation of financial corporations in order to expand and integrate markets in order to grow and compete.
The details just how things play out will be different, of course. But I expect the end result will be strikingly similar. Massive destruction for the many, while the few get incrediable rich, at least for a while.
Canada’s rich blessing of natural resources does not mean it must suffer the familiar resource curse of unsustainable and inequitable development. Why construct an export pipeline of nonrenewable resources and an import pipeline of some of these same resources returning with value added?
Why not instead construct a tax system that recovers the rental value of these windfall riches and then disperses them far and wide to each Canadian? This tax system would internalize all depletion and pollution costs associated with the commons. This means that some extractive endeavors such as tar sands oil would not be in the pipeline because of not being cost effective. But value-added manufacturing by Canadians could become cost effective with the elimination of taxes on labor and capital, leaving only the value of land to be taxed and shared.
Free trade would still be advantageous where comparative advantage exists. However, a new and natural trade barrier would be the cost of fossil-fueled transport. Presently much of what goes as free trade is really subsidized trade, going hither and yonder to escape punitive taxes on economic effort.
Sadly, Canada has no rich blessing of natural resources.
As a Federation of provinces strung out across three thousand miles, it has some provinces with rich blessings of natural resources and some with little or zip. The province of Quebec has hydroelectric power which can be sold to New York. Within any province richly endowed, the world market price can be more than the residents can afford. An analogy which may offend, is a dutiful husband working hard to keep and satisfy a wife, who tells him she can sell her body to others for so much more money that he can just forget about getting laid. This is called a Mosaic, scoff.
Trylon
The oil men are wringing every bit of the devil's milk they possibly can. They know the world is finished with fossil fuels and is on the brink of discovering and devloping abundant renewable resources. The oil men are doing everything they can to prevent that from happening. Classic case of good vs evil.
In one significant way, I think this article places far too much emphasis on current policy. While it is true that Canada had at one point a manufacturing sector, its' demise is not recent and rather can be traced back directly to NAFTA. When we signed that agreement we codified that our role in the world was to provide resources to other nations, to become the drawers of water, the hewers of logs, the miners of minerals, the catchers of fish, and now, most recently, the diggers of oil. Although I am no fan of Harper, I do not see him as any more guilty here than Cretien - who also supported NAFTA right down the line despite coming to power arguing that his party would either turf NAFTA or completely renegotiate it.
I grew up in Flin Flon, a hard rock mining town, and Fort McMurray, an oil mining town, and what I saw there, and assumed was normal, is that jobs pop up and people migrate internally to go where the work is. Once the work is done in that place, you move to the next. Canada is still very much like that, probably moreso than ever now. We are a nation of itinerant workers who focus on the easy stuff like raw materials and then buy all of them back after people much more clever than us make something useful out of it. When you have an attitude like that you do not bother to invest in building community, the only real infrastructure you pay attention to is roads, and even then only minimally because one day that road won't be needed any longer.
One hilarious irony to the whole thing is that we are not even smart enough in Canada to own the oilsands operations. Foreign nationals own it all and we even allowed Suncor, whose parent is Sunoco, to buy up PetroCan, our only Canadian-owned oil company. Although Canada actually manufactures enough oil to meet its' domestic needs, over half of our oil is imported - because we allowed companies like Exxon to extract it at the cost of production while we buy it back at market prices. Canada therefore is not in a position to determine what is done with "our" oil because there is no part of it that belongs to us (the Canadian people) anymore.
It does not matter which party is in power in Canada as long as we are not ready to pull out of NAFTA. None of this is new, all of this is deliberately calculated through our trade agreements as the type of effect we are seeking. As the saying goes, "If we do not change direction, we will surely get where we are heading."
Oh, one point I would like to make about the article: "The long-unprofitable oilsands, which require the expensive and water-intense extraction of tarry bitumen, suddenly became economically feasible." statement is completely false. I cannot say how long it was exactly before Suncor and Syncrude made back their initial money, but it didn't take long. In the 80's Syncrude's total cost to extract a barrel was $18 and they were tickled with a $20 barrel. The high and constant profitability of Syncrude and Suncor, despite both of them repeatedly taking multi-billion dollar gambles, is the main reason that now there are companies all over the place and the former forest is filled with roads.
I believe that Fort McMurray will make the most interesting ghost town one day and Canada may in fact become the first ghost country as everyone with any skills leaves to go anyhere else where they can find work.