Time to reimagine the staples of our economy
The country is in a tizzy about the falling Canadian dollar. It needn’t be.
We are not going the way of Zimbabwe.
Yes, imported cauliflower may now cost $8 a head. But there is relatively simple solution: Don’t buy cauliflower. Eat cabbage instead. And when you can, buy Canadian. The fact that our dollar is now hovering around 70 cents (U.S.) does not mean we are somehow less virtuous than we were when the two currencies were near parity.
It means only that foreigners don’t need as many loonies to buy the Canadian exports they want.
By and large, that’s because the price of oil — a commodity that accounts for a big chunk of Canadian exports — has cratered.
On the one hand, this is a real problem, particularly for those whose jobs depend on a neverending oil boom.
On the other, the oil price collapse gives Canada a chance to rebalance its economy.
Since the 1880s, Canada has been divided, with southern Ontario focusing on manufacturing while the rest of the country concentrated on raw materials — or what economists sometimes call staples.
Oil is only the latest staple. In the end, Alberta and other oil-producing provinces were vulnerable to the weakness that afflicts all staple-dependent economies — the sheer volatility of commodity prices.
When resource prices crash in such economies, they bring down everything around them.
Canada’s former federal Conservative government refused to acknowledge this problem. Instead, it accentuated it.
In particular, it sat by as the oil boom pushed the dollar to a level so high that many Ontario manufacturers could no longer compete in the U.S. market.
They mothballed their plants, laid off workers or went out of business.
New Democratic Party Leader Thomas Mulcair diagnosed this early on as an example of the socalled Dutch disease that can afflict countries caught in a commodity boom.
He later backed away from his analysis for fear of insulting Albertan voters. But his initial call was correct: The oil boom had hurt manufacturing.
Today that high-dollar mistake is being painfully corrected. The cost is falling on ordinary consumers. Manufacturing exports are rising. But it takes time to undo years of damage.
What can Justin Trudeau’s new Liberal government do?
First, it can’t affect the world price of oil. That will be set in part by markets and in part by the Saudi-led OPEC cartel.
What the government can do, however, is use the oil-price depression to encourage a rethinking of Canada’s approach to energy and industry.
Certainly, it makes no sense in climate-change terms to keep the Alberta oilsands. Increasingly, it makes less sense economically.
In his new book, After the Sands, political economist Gordon Laxer calls for the tarsands to be phased out, oil exports to be curbed and Canada to focus instead on energy self-sufficiency.
That’s one solution. Presumably, there are others. The point is that the oil-price collapse provides some room for re-imagining the role of staples in the Canadian economy.
In the meantime, the best way for Ottawa to ease the adjustment back to a low-loonie world is to do what it promised.
First, borrow to spend. Business isn’t investing enough yet to end the slump. Government has to take up the slack. More to the point, there are useful public works projects that should be built, as well as social needs, such as child and long-term care, that remain unmet.
Second, take a hard, critical look at trade deals such as the as-yet unratified Trans-Pacific Partnership (TPP). Most of these pacts are predicated upon the idea that Canada will continue to focus on raw mate- rial exports. The TPP in particular would make it harder for Canadian firms to challenge the technology monopoly of existing U.S. pharmaceutical giants.
Eventually, the loonie will rise again as Canadian non-oil exports pick up. With encouragement, it will stabilize at its so-called purchasing power parity rate of about 81 cents (U.S.) — low enough to encourage exports, high enough to allow the occasional trip south.
In the meantime, as we ponder ways to escape the staple trap, enjoy your cabbage. Prepared properly, it can be quite tasty. Thomas Walkom’s column appears Wednesday, Thursday and Sunday.