In March, the premier of Ontario was attacked for defending Ontario’s manufacturing sector. Asked to join Prime Minister Stephen Harper’s tarsands cheerleading team, McGuinty said, "If I had my preferences as to whether we have a rapidly growing oil and gas sector in the West or a lower dollar benefiting Ontario, I stand with the lower dollar." It was a dangerous move.
The evidence is clearly on Dalton’s side. Bank of Montreal economist Douglas Porter points out that the high dollar – mostly from oil exports has cost Canada 500,000 jobs. Most of those jobs were in Ontario.
Even so, tarsands promoters attacked immediately. Roger Gibbons, CEO of the Conservative Canada West Foundation, claimed Canada should take advantage of high resource prices and let Ontario’s inefficient industries go. Canada’s Minister of Natural Resources, Joe Oliver, told a conservative think-tank that the tarsands benefit all of Canada, including Ontario. Alberta Premier Alison Redford cited an oil industry study that found 350 Ontario firms selling to tarsands producers. Apparently it is OK to kill the Ontario manufacturing elephant as long as you return one or two peanuts.
At first glance, we Northerners might want to side with Alberta. We also want to take advantage of high resource prices, and southern Ontario hasn’t really supported Northern development. Sober second thought shows Dalton was right. The “petro-inflated dollar” hurts Northern Ontario almost as much as it hurts the south. It discourages exploration and mining development. It makes our main manufacturing cluster, the mining supply and service sector, less competitive.
So do we want to export our resources, but stop Alberta from exporting theirs? We could make that case. Our resource exports are different from their hydrocarbon exports. Remember the three R’s? “reduce, reuse, and recycle?” The metals that are produced in Northern Ontario will be reused and recycled for centuries. Hydrocarbons from Alberta will be burnt up in weeks. Our forests are renewable. Their tarsands are not.
But we don’t need to use this holier-than-thou argument, even though it is correct. It’s not necessary to stop oil development to stop the damage it does to our economy. Norway puts its oil revenues into the Government Pension Fund of Norway. They save, instead of spending it right away. Their fund is actually invested abroad. The Norwegian Krone does not rise, other industries are not hurt, Norwegians have security in their old age, and when the oil runs out Norway will still have a strong industrial sector. When the oilsands run out, Canada will have holes in the ground.
Economists call the Norwegian approach “sterilization.” Sterilizing our oil revenue would even benefit Alberta. They can’t process their own oil in Alberta because their “petro dollar” is too high. It is high because Alberta governments buy votes by keeping provincial taxes low. Alberta brags it has no provincial sales tax, but it is just selling off resource wealth to pay for current expenses. The Province of Alberta is Canada's worst and most short-sighted spendthrift. Its spending pumps more oil revenue into the economy and undermines the entire Canadian manufacturing sector.
Ironically, Albertans claim that Ontario manufacturers are inefficient. They accuse them of hiding behind a low dollar. This is just wacky Western economic theory – like the Social Credit economics of Preston Manning’s father. The fact is that the level of the dollar should be determined by the productivity of the majority of the population. It should be tied to Ontario's large manufacturing and export sector, not to a handful of jobs in northern Alberta.
Like Mr. Gibbons from the Canada West Foundation, and like the Conservative premiers of Saskatchewan and Alberta, Mr. Harper is deeply committed to Alberta, and to a vision of Canada as an “energy superpower.” He and his friends seem willing and even eager to sacrifice the Ontario manufacturing base for short-term gains.
The fact is that oil exports are hurting Ontario. It could be avoided – oil subsidies could be cut and oil revenues could be sequestered. But then they couldn’t be used to buy votes for Conservatives. Mr. McGuinty is right to speak up for Ontario manufacturing, but he should be aware that when he does, that oil money will be used to bring him down.
