Social Policy in Ontario

How the resource boom is transforming our economy

Posted on December 26, 2011 in Debates

Source: Globe & Mail — Authors: David Campbell

TheGlobeandMail.com – report-on-business/economy/economy-lab
Posted on Tuesday, December 20, 2011.   David Campbell

The Canadian economy has undergone a fairly profound shift over the past 10 years and these changes will have considerable public policy implications as we move into the future.

The biggest change has been the shift in our goods producing economy from value-added manufacturing to non-renewable natural resources development. In 2001, transportation equipment manufacturing accounted for nearly $250 out of every $1,000 worth of exports from Canada (more than $100-billion in total). Based on January to September data, this year transportation equipment will account for only $142 out of every $1,000 worth of exports — a decline of 42 per cent.

The same pattern can be found in most other value added manufacturing sectors. As a share of total exports, fabricated metal manufacturing exports are down by 28 per cent. On the same basis, computer and electronic product manufacturing exports are down 43 per cent. Wood products and paper manufacturing exports are down 58 per cent and 37 per cent respectively.

Meanwhile, oil and gas exports are up from only $104 out of every $1,000 worth of exports in 2001 to nearly double that figure over the first nine months of 2011. Mining sector exports as a share of total exports have increased 273 per cent and now represent the third most important export sector.

The manufacturing export sectors that have been growing are based on non-renewable natural resources such as petroleum products and primary metal.

It looks like we are starting to see a Canadian version of ‘Dutch’ disease where the increase in exploitation of natural resources leads to a decline in the manufacturing sector.

Compared to value-added manufacturing, the non-renewable natural resources sector requires far fewer workers per $1-million worth of output. Between 2001 and 2011, direct mining, quarrying, and oil and gas extraction sector employment increased by only about 90,000 while manufacturing employment dropped by 466,000.

In this new economy, Canadian governments are much more reliant on the turbo boost provided by resource royalties and taxes. The four ‘have’ provinces all generate a substantial portion of their revenue from royalties. At the same time, Ontario, the province most reliant on manufacturing, is now the second largest recipient of federal equalization payments ($2.2-billion in 2011-2012).

Other provinces are looking at how they can get on the non-renewable natural resources development bandwagon. Quebec’s Plan Nord calls for at least 11 new mining projects. In addition to its offshore oil, Newfoundland and Labrador is growing its mining and smelting industries. Nova Scotia recently unveiled a new mining strategy and New Brunswick is pushing for development of its shale gas and potash deposits.

This emerging reliance on non-renewable natural resources brings new challenges. First, it has the potential to exacerbate the ‘have’ and ‘have-not’ problem in Canada. The provincial economies in western Canada are starting to pull away from the rest — including Ontario.

In this new reality, as resource wealth piles up mostly in the west, the federal government may end up transferring increasing amounts of tax and royalty revenue from the haves to the have-nots.

Second, non-renewable natural resources have environmental impacts. We do not want to leave a mess for future generations to fix.

Third, eventually these resources will run down. This is not going to happen in the short term but we need some long term thinking. We should use some of the proceeds of non-renewable natural resources development to foster growth in our truly renewable resource industries — such as information technology and life sciences.

Non-renewable resource industries in Canada have the potential to be a vital source of economic growth for decades.

Author’s note: Click here to view tables showing the changing export and employment profile of Canada from 2001 to 2011.

David Campbell is an economic development consultant and columnist based in Moncton, New Brunswick. He also authors a daily blog on economic issues in Atlantic Canada which can be found atwww.davidwcampbell.com.

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Tags: economy, standard of living

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