Last week’s exchange between Alberta Premier Alison Redford and Ontario Premier Dalton McGuinty has put the debate over the “Dutch Disease” on the national agenda.
The name was coined by the Economist magazine based on what happened after the Dutch government entered into a massive joint venture with Exxon and Shell in the late 1960s to drill for off-shore oil and gas. Energy wealth flowed in, but within a decade or so, the broader economy was in trouble. Energy exports had driven up the currency so much that Dutch manufacturers were unable to sell their products abroad due to unfavourable exchange rates. Unemployment rose, and when those off-shore reserves finally began to run dry in the 1980s, the Netherlands was hard pressed to re-build an economy that had lost its entrepreneurialism during the boom times.
Canada is not immune to this “disease”. In 2008, the Organization for Economic Cooperation and Development warned that Canada was already exhibiting symptoms:
“The Alberta oil boom has created many jobs in the rest of Canada, especially in professional services and in the materials and capital equipment supply industries. However, the induced real exchange rate appreciation has cost jobs in manufacturing-based provinces, which are also competing with emerging Asia. For a time the positive job and income spill-overs offset the negative ones. However, with the gathering US recession and depreciating US dollar, the balance has been shifting.”
The current debate, however, began when Premier Redford publicly called on Ontario to speak up in favour of the tar sands. In a rare off-the-cuff comment at an unrelated event, Premier McGuinty demurred, citing concerns over how Alberta’s oil industry was driving up the Canadian dollar at the expense of Ontario manufacturing. He subsequently apologized (sort of), while suggesting that Alberta’s dream of a tar sands-based national energy strategy should also include Ontario’s green energy push. Though he tactfully avoiding mentioning how the oil boom (via the high dollar) actively undermines his green energy manufacturing strategy.
While McGuinty took a beating in much of the press coverage, the data supporting Redford’s position is probably have a worse time of it. It turns out that many of the supposedly Ontario-based companies that were claimed to be benefiting from the tar sands weren’t, and it is clear that the oil boom is hurting Ontario’s manufacturing capacity. This led the director of the Ontario-based Mowat Centre to suggest that Alberta shouldn’t ask for Ontario’s love, and settle for acquiescence to the new economic order.
A feistier approach has been taken by economist Robyn Allan, who has pointed out some questionable-bordering-on-ludicrous assumptions behind the economic benefit numbers Redford and the oil industry keep quoting, and how they hide the regional impacts of the Harper government’s determination “to support the national energy strategy of China.”
Of course there are economists who reject the entire “Dutch Disease” argument, and (given some pretty big caveats) they have a point. So long as your concern is strictly how much stuff you sell rather than what is produced (or how), then there may not be a significant difference between selling climate-changing tar sands oil or solar panels (or land mines versus affordable housing, for that matter).
But if you haven’t had the benefit of years of economic training designed to expunge such philosophizing, then questions of what, how and for whom may rank up there with “how much”.
And when we are talking about the future of the country, those questions should matter.