Don’t blame West for Central Canada’s problems
The idea that Central Canada’s economic woes are the fault of pesky Westerners who are making lots of money took another hit on Monday with the publication of the Conference Board of Canada’s latest Canadian industrial profile.
This analysis suggests at least one of the results of Western prosperity is just the opposite of the “Dutch disease” scenario postulated by NDP leader Thomas Mulcair, Ontario Premier Dalton McGuinty, the Canadian Auto Workers union, and others who are seeking a scapegoat for mediocre post- recession economic performance in the industrial heartland.
The “disease” in question is what happened to the Netherlands after offshore gas was discovered 50 years ago. It happens when the value of a country’s currency is driven so high by one sector — usually petroleum, but also other resources — that other sectors can no longer compete because they’re priced out of the market.
But the Conference Board looks at six Canadian sectors and concludes that for five of them — electrical equipment, fabricated metal products, machinery manufacturing, oil and gas support activities and professional services — a resource- extraction boom in the three westernmost provinces is stimulating demand, not constraining it. Only textiles and apparel saw no boost from the mining and oil sectors, so its challenges were largely international — to integrate with lowcost offshore producers and to shift to high- end products.
Nor is the Conference Board alone in making its point.
For example, C. D. Howe economists Philippe Bergevin and Daniel Schwanen noted on Saturday in a column in this newspaper, a veritable boom in services has been ignored in the “Dutch disease” debate. Another piece by author David Gratzer, published Monday in The Sun’s sister paper, The Ottawa Citizen, notes that although manufacturing in Canada took a big hit in 2008, it is hardly attributable to Dutch disease as this was the height of a global recession. And the sector has been growing ever since. The rate is slower than for some other Canadian sectors, which makes it a shrinking proportion of the Canadian economy, but growth is growth nonetheless.
Others point out that a vibrant Western economy pays much of the freight for federal transfers of billions of dollars to several provinces, including Ontario, that are performing weakly. Or that a strong dollar lowers the cost of imported goods.
So it’s simplistic to blame the high dollar exclusively, or even primarily, for the losses in the two- steps- forward, onestep back dance that Canadian manufacturers are engaged in these days.
The problem with much of the traditional manufacturing done in any developed country is, in a nutshell, that somebody somewhere will do it cheaper. This suggests the whole basket of costs, not just one, must be addressed.
This isn’t a popular suggestion with, among the others, the autoworkers union. CAW says its members are paid a top rate of $ 34 an hour. This is about one and half times the average of the Canadian manufacturing sector and about $ 6 an hour more than what the union says is the top rate for their counterparts in the U. S.
But the union pooh- poohs any suggestion that these wage costs have anything to do with its industry’s woes. In a document published last April, it argues that nominal wages for its members in Canada only appear high, but are lower than wages in the U. S. since the goods these wages buy cost, on average, 23 per cent more here than there.
If that’s the case, it seems to me Westerners have done the rest of Canada a favour if they’ve driven up the value of the loonie. Since a high dollar lowers the cost of imported goods, imagine the price differential if our buck was worth just 80 cents or so — the level where CAW says it belongs.
The union points out, rightly, that wages aren’t the only cost of production, and perhaps not even the major one.
But a case premised on wages being too high in suffering manufacturing plants is at least as solid as the case that our dollar should be artificially dragged down by suppressing economic progress in another region. This is especially true given that the burgeoning resource sector is creating massive opportunities in other sectors and other parts of Canada. Not to mention that it’s a key engine in generating the $ 1.4 billion in federal and provincial subsidies that, according to the Institute for Research on Public Policy, has been paid out since 2004 to keep Canadian auto- makers afloat.