Economic realities will pull us down

Posted on February 10, 2008 in Debates, Governance Debates – columnists – Economic realities will pull us down
February 10, 2008
Rudyard Griffiths

Stroll through Yorkdale Shopping Centre any day of the week and the stores are jam-packed with eager shoppers. Luxury items such as $500 handbags and pricey men’s apparel are flying off the shelves. It seems the “what, me worry?” exuberance of last spring has returned with a vengeance as the TSX has rebounded from its January lows and the housing market remains strong.

While the fear of an economic turndown is the last thing on the minds of GTA residents, I cannot figure out how our economy can escape falling into recession.

Our stock market’s lockstep march with the Dow Jones over the last few months has debunked the wishful thinking that a commodities-fuelled Canadian economy has “decoupled” from its U.S. counterpart. The math is inescapable: Exports make up one-quarter of Canada’s total GDP and America is the destination for three-quarters of our exports.

As much as we might wish it was otherwise, Canada’s economy will catch a cold, or worse, if the U.S. sneezes. Indeed, with full-blown crises underway in the American housing and credit markets, and mounting job losses, it is a question of when, not if, the fiscal flu affecting the U.S. will spread from Ontario’s manufacturing sector to the rest of our economy.

To make matters worse, when the U.S. recession finally hits home, the Ontario economy will have to battle with two unwelcome and intertwined economic realities: continuing high oil prices and a high Canadian dollar.

The reality is that consumer-related spending will fall further and faster during a recession, forcing Canadians to cut back even more on discretionary spending in order to still be able to afford to fill up the gas tank to make the long commute to work. It is impossible to see how the energy-consuming lifestyles we have all gotten used to won’t make the economic turndown worse and the recovery slower.

So, too, with the high dollar. While there are all kinds of reasons to be pleased about Canada’s emergence as an “energy superpower” in an era of $90 per barrel oil, the parallel rise of the loonie is anything but good news for the economies of Central Canada.

We simply are not productive enough to compete effectively in global markets with a Canadian dollar on par with the U.S. greenback. In a recession, our petrodollar will accelerate the gutting of our manufacturing sector and further delay Ontario’s economic recovery.

What can we do to ameliorate the triple economic threat facing Ontario?

The truth is there are no easy, short-term solutions. Stimulus packages that amount to less than 1 per cent of GDP are political pap. Our economic fate was cast in the aftermath of the bubble. Instead of spending the last decade making our economy less dependent on the U.S. and reversing our lagging productivity, we built easy and quick wealth on a low dollar, on the fire sale of Canadian companies and on the commodities boom.

While recessions promise nothing but hardship, maybe the coming economic turndown will convince us of the folly of repeating past mistakes.

There is no time like a period of economic anxiety to cut through red tape and put in place policies that could ensure Canada’s long-term prosperity, policies such as a real economic union, common sense controls on foreign ownership and a nationwide effort to get us generating wealth with what is between our ears as opposed to what we can pull or pump out of the ground.

Rudyard Griffiths is the co-founder of the Dominion Institute.

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