“Dutch Disease” or Canadian Politics?

There has been a lot of commentary in the print media about Thomas Mulcair’s remarks on the connection between “Dutch Disease” and the tar sands.  Mulcair claims that the vast exports of fossil fuels have led to a high Canadian dollar.  In turn, a high dollar hurts the competitiveness of Canadian manufactured goods in foreign markets. So, over recent years, the high dollar has contributed to the loss of many thousands of jobs from the manufacturing sectors in Ontario and Quebec.

Read our previous blog comments on the “Dutch Disease”

 Resource Curse of   Dutch Disease aka as “Petrodollars”

 

If this message becomes a campaign issue in the next election, the NDP will lose seats West of Ontario.   But the message could well win sufficient seats in Ontario and Quebec to enable the NDP to form the next government of Canada.

Mulcair has been criticized as playing politics with national unity.  Some critics refer back to the 1980’s National Energy Policy of the Trudeau Government.  This policy returned central Canada to the fold but alienated the West against the Liberal Party.  That era also saw the rise of separatist sentiments on the Prairie Provinces.

Who are Mulcair’s critics?   Western politicians (Western Premiers and former political leaders like Preston Manning),   Western political commentators (Tom Flanagan, a Professor at the University of Calgary), business leaders, (like Gwyn Morgan, former CEO of Encana), journalists (Globe and Mail editorial writers), and Federal Conservative Cabinet Ministers, including some Cabinet heavyweights from Ontario, such as Jim Flaherty and Tony Clement.

Many of these critics claim that Mulcair’s reference to the Dutch Disease in connection with the tar sands is bad economic analysis.  They say that Canada is a resource economy. The high Canadian dollar is a result of Canada’s exports of resources, such as wheat, potash, hydro power, ore, and not just fossil fuels. What’s more, countries that are important traditional markets for Canada, such as the United States, have experienced low or negative growth in their economies.  So market conditions in these countries have had an effect on recent exports of Canadian manufactured goods.

We watched an effective TV ad sponsored by the Canadian Association of Petroleum Producers.  The message was: the oil industry (particularly the tar sands) creates jobs across Canada.  Our reaction:  Conservative political propaganda.

Yes, the tar sands need heavy equipment. Yet that equipment will be imported from the US now that Caterpillar has closed its Canadian plant.  And we wonder about industrial bearings, now that Timken is leaving Ontario and moving back to the US.

Take the example of the steel industry.  In 2003 Canadian steel manufacturers supplied 60% of domestic demand.  In 2007, the percentage was 47% and the projections were that this downward trend would continue over the next 5 year period. Imports from abroad have increased because of a favourable exchange rate and lower costs of production . When TransCanada stockpiled pipe for construction of the Keystone pipeline, it sourced the product off-shore.  (Go to this commentary for a more detailed analysis on the steel industry in Canada.)

We don’t doubt that mining for bitumen does have some spill over effects on the economy of other Provinces.  We just don’t want Canadians to be hood-winked by the mantra “Jobs, Jobs, Jobs”.

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