Canada In 2020, Hewer Of Wood, Pumper Of Oil

Resources have naturally played a central role in Canada's economic history. Our development has been largely shaped by successive resource booms: first furs, fish, timber, and agricultural goods, and later minerals and energy. These natural riches were harvested for export to our more advanced trading partners (first colonial Britain, then America). The resulting incomes paid for the importation of the more sophisticated manufactures needed on our farms and in our cities. Analyzing this historical pattern, Harold Innis and other Canadian political-economists worried that Canada's role as a hewer of wood and a drawer of water would constrict our prospects, leaving us perpetually dependent on wealthier metropoles to purchase and then transform our resources. So from Confederation on, Canadian policy-makers became preoccupied with the need to expand value-added industries and diversify the national economy. Under the National Policy of 1879, tariffs on manufactured imports were increased to kick-start domestic manufacturing. Government invested heavily over the years in strategic sectors (from aircraft to telecommunications equipment), and used other policy tools (like made-in-Canada processing requirements) to leverage additional Canadian value-added. In 1965, the Canada-U.S. Auto Pact gave a particularly powerful boost to Canadian industry. Gradually these efforts bore fruit, and Canada's economy began to escape from its traditional resource pigeonhole. One broad measure of this historical transformation is provided by the proportion of Canadian exports that consists of finished goods, rather than unprocessed or partially-processed resources. At the time of Confederation, Canada exported virtually no finished goods. By the end of World War II, 15 per cent of Canadian exports were finished products. The Auto Pact and other interventionist measures sparked further diversification, and by the 1970s one-third of our exports consisted of finished goods. This proportion continued to grow in the 1980s and 1990s, as Canada's undervalued currency, relatively low labour costs, and growing technological capacities spurred investments in a range of high-tech industries. By 1999, higher-tech finished goods industries, including machinery and equipment, automotive products, and other consumer goods, accounted for 56 per cent of Canada's total merchandise exports, and Canadian-made products (from cars to airplanes to personal telecommunications devices) were recognized around the world. After 130 years of Confederation, Canada had mostly escaped its status as a resource supplier. No one knew it then, but 1999 was a turning point, for Canada's economy began to quickly revert to its former resource-dependent status. In the first half of 2006, just 43 per cent of exports consisted of finished goods, down dramatically from 1999. The clear majority of our exports once again consists of unprocessed or partially processed resources: forestry, agriculture, minerals, and energy. Especially energy. Canada's energy exports have tripled since 1999. (Our exports of finished goods haven't grown a bit over the same time.) Canada is the largest source of imported oil for the U.S., supplying more than Saudi Arabia, Iraq, and Kuwait put together. And considering all forms, Canada now produces more energy for the U.S. economy than we do for ourselves. Hence Spurgeon's old adage should be slightly revised: Canada is now a hewer of wood and a pumper of oil. But the structural turnaround in Canada's economy isn't solely due to the energy boom. Other factors help to explain this dramatic structural reversal, which is undoing many decades of deliberate policy efforts: The dot-com stock market boom reached its peak in 1999. While many of the effects of that bubble were dubious and destructive, it did stimulate great amounts of R&D spending by Canadian high-tech firms, who developed leading products and successful exports. Since the bubble collapsed, R&D spending by Canadian businesses also collapsed. By the late 1990s, China's dynamic economy began to make its presence felt in world trade. China's phenomenal growth has contributed to our economic degeneration in two different ways. Our own finished goods industries are being squeezed out of traditional markets (both at home and abroad) by low-cost, increasingly high-quality Chinese products. Meanwhile, China's growing hunger for raw materials has bid up global commodity prices, reinforcing private incentives to allocate even more investment to resources. http://www.thestar.com/opinion/article/166321

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