Thomas Mulcair supporter, SFU prof Doug McArthur, also linked tar sands to economic woes
More than a month before NDP Leader Thomas Mulcair sparked a national debate over the impact of the “Dutch disease” on the Canadian economy, one of his influential Vancouver supporters gave a public lecture on the same subject.
At a March 21 roundtable discussion on the economy, SFU public-policy professor Doug McArthur explained how tar-sands developments are driving up the value of the dollar and harming the manufacturing sector.
“This is distorting our economy,” he said at the time. “As long as this situation remains, we’ll face the Dutch-disease problem, which was that their manufacturing sector was essentially destroyed by high gas prices in the 1980s. By the time…the richness of these resources began to decline, they had no sector left to make the kind of investments that are needed. And they ended up being a deindustrialized economy.”
McArthur, a former deputy minister to B.C. NDP premiers, spoke at SFU Woodward’s in the Goldcorp Centre for the Arts. He publicly backed Mulcair's successful bid to win the NDP leadership race.
On May 7, Mulcair made similar comments on CBC Radio’s The House, telling host Evan Solomon that Dutch disease has caused widespread job losses in the Canadian manufacturing sector.
“The Canadian dollar is being held artificially high, which is fine if you’re going to Walt Disney World, not so good if you want to sell your manufactured product, because the American client, most of the time, can no longer afford to buy it,” Mulcair said. “We’ve hollowed out the manufacturing sector. In six years since the Conservatives have arrived, we’ve lost 500,000 good-paying manufacturing jobs.”
McArthur doesn't comment on private discussions he might have with people, so there's no way of confirming whether or not he influenced Mulcair to take a public position on this issue. In March, Mulcair wrote an article in Policy Options about the economic impact of tar-sands projects.
Mulcair’s recent remarks have since been condemned by Finance Minister Jim Flaherty and three western premiers, including Christy Clark.
And on May 16, three researchers affiliated with the Montreal-based Institute for Research on Public Policy released a study concluding that only 25 of 80 manufacturing industries experienced a “significantly negative relationship between the US-Canada exchange rate and output”. According to the paper, labour-intensive industries, such as textiles and apparel, suffered the greatest impact, whereas other groups—including food products, metals, and machinery—weren’t harmed nearly as much.
“On balance, the evidence indicates that Canada suffers from a mild case of the Dutch disease, which warrants a commensurate public policy response,” the researchers wrote.
McArthur, on the other hand, suggested in March that Canada should “slow down the pace of development in the tar sands”, calling it one of the “major large-scale challenges facing the Canadian economy”.
“The problem is none of our governments are responding in any active or even direct way to try to change this pattern,” he said.
A decade ago, the Canadian dollar was worth 64 cents in the United States. Now, the Canadian dollar trades around par with the U.S. greenback.
During his lecture, McArthur examined Canadian industrial-product and commodity prices over the past decade. He pointed out that lumber and wood products were down 11 percent, textiles were up by four percent, and machinery and equipment increased by five percent. Motor vehicles, transport equipment, and electrical and communications products were all down.
In contrast to an overall decline in prices of tradeable manufactured goods, McArthur noted, copper materials were up by 333 percent, metallic ores increased by 239 percent, and nonferrous metals rose by 251.6 percent.
Employment is up nearly 30 percent in the resource sectors, he stated, whereas it had fallen by 25 percent in manufacturing over the decade.
“The response of industries there is to reduce labour costs, reduce profit margins, or increase productivity,” McArthur explained. “That’s the only way they can continue to function and stay viable in the face of this.”
The public-policy professor pointed out that downward pressure on wages in manufacturing counters the goal of creating a high-skilled, high-wage economy.
In addition, he stated that the higher dollar is widening the productivity gap between Canada and the U.S.—meaning that there is less production per unit of labour employed in this country. McArthur noted that manufacturers cannot easily address this by increasing investment when they’re less competitive internationally.
“We need to take steps to manage the exchange rate to see that it doesn’t keep going up and up, which it will if we keep pushing the tar sands as fast as we are,” he said.
Listen to Doug McArthur’s speech on Canada’s economy catching "Dutch disease".
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