Hewers of Wood and Drawers of Water

In a recent article in the New York Times, Thomas Friedman argued that bringing Vladimir Putin to heel was a matter of turning off the demand for Russian oil and gas. Since Russia is basically a petro state, a significant reduction in demand will cause severe economic stress.  The inability of Putin’s close associates to use money market facilities in New York, London and the Continent will also isolate Russia. 

There is a lesson here to be learned for Canada.  Canada is very much a petro state.  Much of our future has been linked to the oil sands and to exports to either the United States or the Far East.  If that was not bad enough much of the rest of the economy is linked to other extractive industries.  If world markets for such commodities fall (as they did during the last recession) Canada becomes the canary in the mine.  If America becomes more energy self-sufficient, Canada will lose one of its prime customers.  A report this morning from one of the banks indicates that manufacturing represents just 14% of the GDP in Canada.  This down from 16% pre recession and up from 12% during the recession.  To make matters worse (or better?) this feeble sector of our economy depends on a cheap dollar for it to be competitive at all.  A dismal picture. 

The old canard that Canada is just too small an economy to foster an indigenous manufacturing industry belies the fact that countries smaller than Canada do just that.  The Scandinavian countries, the Benelux countries and even a city-state such as Singapore do very well indeed.  In Canada much of our manufacturing is linked to American countries that can, on whim or otherwise, terminate their existence in Canada.  Leamington has been decimated by closures of US food processing plants.  The London-GTA corridor depends largely on the US auto manufacturers.  We live, largely on US manufacturing handouts and job creations wax and wane at the whim of US manufacturers.  If cars can be made more economically in Kentucky, then that’s where Korean carmakers put their plants.

One of the functions of governments is to create a global view of our economy.  I know that our Prime Minister has been trying to forge trade relationships with Europe and Southeast Asia and that will help.  However, that is not enough.  There is the patchwork of job creation programs that involve both federal and provincial governments but that’s not enough.  Canada’s unemployment rate remains stubbornly above 7% and we treat that as the new normal.  We need policies that foster companies that can manufacture goods that are consistent with the size of our market and our need to export surplus inventories.  It needs a bigger picture and that’s what none of our political parties can and want to do.