Category: Canada Page 4 of 6

Dutch Disease

On December 11, 2015

In light of the price of oil collapsing to $36/barrel ($80 is the break even point for most Oil Sands oil in Canada), I thought it was worth revisiting this article on Dutch Disease, originally published in May of 2012. I’ll have more on the Canadian economy and how oil prices are affecting everyone else soon.

It seems a lot of people don’t know what Dutch Disease is. Here’s the short:

Dutch disease is when you sell a lot of resources, which increases your currency’s value. So if you discover a lot of oil, or oil becomes a lot more valuable due to a shortage, but you can produce tons of oil from the tar sands, you can experience Dutch Disease.

The consequence of your currency being worth more is that products you manufacture cost more for anyone outside your country. So, if Americans want to buy Canadian goods, it costs them more when the US and Canadian dollar are trading at about even than when the Canadian dollar cost only 80 cents American.

If something costs more, people will buy less of it, or they will stop buying from you entirely and buy from someone else who is cheaper.

What happened to the Dutch is that their manufacturing sector collapsed. What Canada’s NDP leader Thomas Mulcair is saying is that Canada is suffering from Dutch Disease. He says we are losing manufacturing jobs due to the higher value on the Canadian dollar caused by all the oil from the oil sands we’re shipping out of the country, which raises value of the Canadian dollar.

I observed, many years ago, that the Canadian dollar had become a petro-currency. This is now inarguable.

It is also virtually inarguable that Canada is losing manufacturing jobs due to the higher dollar. It’s just arithmetic. Unless you think price has no effect on sales, you can’t argue otherwise without creating excessive contortions.

Does this mean that Canada is suffering from Dutch Disease? It depends where you put the margin. One study, funded by the federal government, found that:

“We show that between 33 and 39 per cent of the manufacturing employment loss that was due to exchange rate developments between 2002 and 2007 is related to the Dutch Disease phenomenon,” says the study.

I am unaware of studies covering the subsequent period, and I don’t know if the study was correct. Personally, I suspect it’s higher than that, but I haven’t run the numbers myself and I probably won’t (unless the Feds want to pay for my time).

But, again, the argument is simple enough. Unless you don’t believe in higher prices reducing sales, and reduced sales leading to job losses and company closures, you can’t really argue that the oil sands aren’t hurting manufacturing. It’s just that simple.

The next question is: “Should we do anything about it?”

Canada has traditionally had what is known as a “mixed economy.” When it comes to exports, we have both manufacturing and resource sectors, the latter of which oil is just one part. Resources experience boom and bust cycles. There is always another resource bust around the corner. Always. No resource’s prices stay high forever. When resources are doing well, they support our exports.When they’re doing badly, manufacturing takes up the slack.

As with any such oscillating economy, what should be done is that when one is booming, it subsidizes the other. We don’t want manufacturing destroyed during high resource price periods, because there will always be low resource prices in the future. So we tax the high resource prices and we subsidize manufacturing. When resource prices collapse, the manufacturing sector subsidizes the resource sector.

If we allow the manufacturing sector to become badly damaged, it cannot be easily rebuilt when resource prices collapse. Nations built entirely on resources are, and will always be, subject to economic collapse when the resource prices collapse, and, again, they always do–the only question is when.

Mulcair has also talked about value-add and that’s worth discussing. Shipping raw oil, raw logs, and unprocessed fish means you get the lowest prices possible and less jobs. Value-add means you refine the oil in Canada and sell it. You turn the logs into paper or 2x4s in Canada. You can smoke the salmon in Canada. This provides jobs and the end goods sell for more. It may be that processing “in-house” will increase the price slightly compared to outsourcing the processing to the US or China, but that costs less sales than it would for the equivalent manufactured item.

Why? Because resources are finite. There is only so much oil in the world at any given price point. There are only so many salmon, especially wild salmon. There are only so many trees, especially trees that are good for construction-grade timber. Other countries will generally buy these resources anyway, because there is nowhere else to get the product. Sales may decline slightly, but profit often increases and so do the number of Canadian jobs.

When there is a bottleneck, as there is in oil production right now, especially, you can say, “No, we’re going to process it here.” If other nations don’t like it, tough. They aren’t going to stop heating their houses and driving their cars to their suburban homes. That is not happening.

So if you can extract a bit less oil, make more money overall, and have more jobs, why not do so? That’s what Mulcair means by “value-add.”

Finally, let’s move to cap and trade, which is what Mulcair wants to do with the tar sands. Cap and trade means you cap the amount of carbon emissions allowed by oil sands extraction, and you allow people to buy and sell the rights to make those emissions. You also tax those trades and emissions. You then use the money earned to subsidize manufacturing, research, and whatever else will support the future of the country when oil prices collapse, which, again, they will, because resource booms always end, it is an existential certainty.

Once upon a time, the Canadian Maritimes were a resource boom area. They sold fish, but, more importantly, they sold trees which could be made into masts, an incredibly valuable commodity. Today, with pardon to my Maritime brethren, the Maritimes are in semi-permanent depression.

This is the future that Alberta faces. They should want to be taxed, and they should want that money reinvested in other sectors, because those sectors are Alberta’s future long after the oil boom ends. And the massive environmental destruction is incurring massive costs with which future generations will have to contend, long after the boom days are gone.

Canada’s economy has worked, and we have not become Argentina (the country we would have been compared to before WWII) because of our mixed economy. It is worth protecting, and it is necessary to protect, if we want prosperity not now, but ten years, 20 years, or 50 years from now. If we care about our children, or even ourselves 20 years from now, we must deal with the effects that the massive exploitation of the oil sands is having on our economy and our environment.

Dutch disease is just arithmetic. It is real, and it can devastate the future of a country. Non-renewable resources are the epitome of found money, and what you do with found money is invest it in something productive–something that will yield a return, something which will support you once that found money runs out.

This is Canada, and this is our future we’re talking about. If we actually care about the children we claim to love, we’ll acknowledge the simple arithmetic of what a high dollar does, and we’ll act to mitigate the damage.

(Update: Antonia Zerbisias had an article in February on Dutch Disease studies which is worth reading.)

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It’s Nice that Canada’s Cabinet Is Half Women, But…

By Ian Welsh

On November 4, 2015

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I’m glad Justin Trudeau, Canada’s new Prime Minister, has made half his ministers women. Good for him.

But…

let us take a single example. The new Finance Minister.

A man. Bill Morneau, who used to be in charge of the C.D. Howe institute. For non-Canadians, that’s a think tank that is very right-wing.

As I noted about Trudeau throughout the election, he’ll be good on some things, but he’s still a neo-liberal. There will be various good news around taxes and pensions, then they will pass the Trans Pacific Partnership, which will do more harm than every bit of economic good they do.

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What Type of Electoral “Reform” Might Canada’s Liberal Party Enact?

By Ian Welsh

On October 22, 2015

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Liberal party logo

Simple enough. Preferential balloting, where you rank your choices.

The Liberal Party, occupying the center, is the second choice of a lot of Canadians.

For example, in the 1997 federal election, the Liberals won 38 percent of the vote but captured 51 percent of the seats. The phoniest majority government in Canadian history. A study of voter preferences in that election projected that the Liberals would have gained 57 percent of the seats with the same level of support had AV been used.

In addition, ranked ballots tend to exacerbate regional strongholds, leaving those who support other parties even more unrepresented.

Canadian elections are often very close, and come down to a few percentage points, magnified massively by first-past-the-post. Ranked ballots would magnify that even more, but do so in a way that favors the Liberal party.

Trudeau promised electoral reform. This is the most likely “reform.” As usual, reform will mean “giving more to those who don’t need it.”

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What Is the Cost of NDP Losing Canada?

By Ian Welsh

On October 21, 2015

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The Maple Leaf

Many voters were in “Anyone but Harper” mode, but an NDP victory would have restructured Canadian politics for a generation, and very likely more. The NDP collapse to third place was a disaster for the majority of Canadians.

Canada has been ruled by either the Conservatives (in different incarnations) or the Liberals, since Confederation. The Liberals ran the lion’s share of that, but the Conservatives had their runs, as well.

The Liberal party would campaign left and “govern center,” which, since the 90s, meant embracing the neoliberal consensus.

In every election, the NDP would show worse numbers than those of its natural support base because of strategic voting; left-wingers would run to the Liberal Party to “Stop the Conservatives.” Often, this wasn’t even necessary. In many ridings, the competition was between a Liberal and a NDPer.

As a result of this dynamic, Canada has been run as a much more conservative-centrist country than is justified by the beliefs of the population.

Additionally, the First Past the Post electoral systems reward a geographic clustering of the vote, leading to parties being rewarded for serving regional interests and inflaming regional prejudices. A clustered body of support (as with the Conservatives in Alberta and the West in general, or the Bloc Quebecois) would reap a disproportionate number of MPs.

In this election, what was at stake was a chance to change this dynamic.

The “run to the party which can beat the Conservatives” dynamic could have been transferred to the NDP–and almost was (remember, they had the lead going in to the campaign). Once that had been the case for a few elections, it would be as natural to people as the old “run to the Liberals” dynamic.

But transferring that dynamic is not what the NDP wanted. What they wanted was electoral reform so that people didn’t need to vote strategically to stop the Conservatives.

Just one elected NDP government managing to implement electoral reform would change the entire nature of Canadian politics. These would make another Harper impossible for a generation or two. They would mean that most governments would be coalition governments, with the natural coalition being Liberal-NDP, and with Conservative coalitions being much milder because they must rule with a more left-wing party on their flank.

Canada’s population is center-left. Sixty percent of the voting population would never vote Conservative. Electoral change would help Canada’s governments to reflect that, rather than being about the committed plurality, leaving us with eight to ten years of Conservative rule every 25 years or so.

This is what was at stake in the last election. It was a Big Deal.

The worry now is that we’re back to status quo. The Liberals and Conservatives swap being in government, the Liberals run to the left and govern to the center and Canada continues its nasty rightward trend (of which the Liberal governments of the 90s and 00s were a part) with some jogs leftward, primarily on social issues (which are important, but don’t trump the damage of neoliberal economics).

This election mattered, and it should have been about much more than “Get Harper Out.” Conservatives were not destroyed by this election. They did fine, they just took a normal loss. The party that was devastated was the NDP.

The price of that is likely to be severe, and this is true even if Justin Trudeau keeps the majority of his promises.

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Consequences of the Canadian Liberal Majority

By Ian Welsh

On October 20, 2015

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Justin Trudeau

Justin Trudeau’s Liberal Party won a majority government. Former Prime Minister Stephen Harper has stepped down as Conservative party leader. As of this writing, Thomas Mulcair has not stepped down as NDP leader.

The election started with the NDP in the lead, primarily due to the Liberal Party having voted for the police state bill C51. The NDP ran to the center, the Liberals ran (somewhat) to the left. NDP’s lead narrowed, then they were neck and neck until the Conservative party and Bloc Quebecois used the Niqab as a wedge issue. You can read a summary of the campaign here.

So what does this mean going forward?

A great deal will depend on how Trudeau rules. (A majority Canadian PM is essentially an elected dictator).

Trudeau has promised to repeal C51 and reintroduce a similar bill, minus the worst bits of C51. Note that Trudeau has repeatedly stated he voted for C51 as a matter of principle, so some of the nasty will remain.

Pipelines are a go. TPP is a go (though the NDP was not great on either of those issues, they were better than the Liberals).

National Pharmacare and Daycare will not happen.

Certain regressive tax changes, like income splitting, are gone. Expect another tax cut for the “middle class,” which it doesn’t particularly need.

Expect the muzzling of scientists to end, and the long-form census form to return. (Conservatives got rid of the longer census form and made the census non-mandatory, turning its data, essentially, to meaningless crap.)

Moving away from the First Past the Post-electoral system: The NDP and Liberals had both said they intended to do something along these lines. But with a Liberal majority government in power, this is very much in question. I will be pleasantly surprised if Trudeau doesn’t bury this in a committee.

The Economy

The brutal truth about the Canadian economy is that it is unlikely to recover significantly, though the recession will end.

I’ve written about the Canadian mixed economy in the past, but the bottom line is that Harper doubled down on resource extraction–especially oil. Manufacturing was gutted during the period of high oil prices and a strong Canadian dollar and will not recover naturally during a weak dollar period. This is because those who took advantage the last time were burned so badly most of them went out of business.

Canada’s housing bubble is significantly worse than the US housing bubble in 2007. This bubble is government guaranteed.

So, at this point, Canada is a resource extraction economy with artificially high asset prices. It is a petro-state.

Trudeau is onside with this. Mulcair repeatedly talked about the mixed economy and how to return to it, and was a staunch and principled environmentalist. Trudeau has pandered repeatedly to the oil sector.

Given this, there are only two questions about the Canadian economy that matter:

Will the housing bubble endure?
Will oil prices rise, preferably above about $80US a barrel, which is the break-even price for much of the oil sands?

If you think the housing bubble will burst, you expect a financial crisis. If you think the answer to number two is no, then you think that the Canadian economy will not significantly improve under Trudeau.

Trudeau’s economic performance, in other words, is linked almost entirely to how China’s economy performs and the world price of oil–things over which he has no control.

The Next Election

The economy may get a lot better, but that doesn’t mean it may not bumble along sufficiently well for the Liberals to be re-elected. Contrary to Democratic party talking points, Obama never fixed the US economy. The percentage of people employed in the US never recovered and wages stagnated, but Obama was re-elected (the Democrats didn’t do as well in the House, but the House in America is gerrymandered).

Still, the NDP and Conservatives will likely have an opening in the next election. Whether they will be able to capitalize on it is unclear and, again, much depends on Trudeau’s performance. Right now, he is a blank slate upon whom many hopes have been written. But in four years, he will have a track record.

I don’t know if Mulcair will stay on as NDP leader. He was a strong and effective opposition leader, but he was neither on the campaign trail, and must shoulder responsibility for turning a first place start into a third place finish. He has lost all the gains made by the previous NDP leader, Jack Layton. (I believe Layton would have won this election. The cost of his death rises and rises.)

As for the Conservatives, expect one of the Ford brothers to run, among others. It will be a zoo. But the Conservatives held their prairie base and a good chunk of Ontario and BC. They were not wiped out, they just lost. They will remain a viable threat–especially if the electoral system remains the same.

Justin Trudeau is going to feel good, for a while, compared to Harper. He will be better. He will repeal some of Harper’s worst policies. He will also not be an offensive creep, and that matters.

But he is, at the end of the day, a believer in the neo-liberal consensus. He will run a kinder neoliberalism, but it will still be neoliberalism. He is not particularly committed to civil liberties, he had no principled opposition to Harper’s worst excesses (that was Mulcair), and there is no particular reason to believe he will make any sort of radical break from Conservative policies; he voted for a great many of them.

The bottom line is this: Justin showed his character when he supported C51. Mulcair showed his character when he went hard against it, even as polls showed a majority of Canadians were in favor of it (they later changed their mind, but he did what he did when it was unpopular).

I cannot find any great confidence in Trudeau, either as an ethical man, or as an economic leader.

Finally, despite the spin in the global and domestic press, this election is no great repudiation of Harper, or a collapse of the Conservative party, which maintained most of its voters. There has been no collapse, like what happened to the Progressive Conservatives after Mulroney. After nine years in power, it is normal for a party to lose power, and majority governments are the historical norm in Canada. This is a status quo flip between Canada’s two ruling parties.

Harper changed the nature of Canada’s government and economy, and created a unified Conservative Party. Trudeau will not undo most of Harper’s fundamental changes. Harper will go down as an important Prime Minister.

Stay tuned.

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Canadian Election Today, Monday, October 19th

By Ian Welsh

On October 18, 2015

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At the beginning of the election, the left-wing New Democratic Party (NDP) was leading, Conservatives were in second, and the Liberal Party was in third.

Now that we’re going into the election, the Liberals are polling first, Conservatives second, and the NDP is third.

What happened? As I’ve been distracted this election, I asked one of the savviest Canadian observers I know for his thoughts.

For much of the election, the NDP and Liberals were polling even. Then Harper started demonizing Niqabs.

Unfortunately, this strategy played well in the province of Quebec and because the NDP was not on board with it, their numbers in that province crashed.

This dropped NDP’s numbers below the Liberal party.

Next, the “Anyone But Harper” dynamic kicked in. With dropping numbers in Quebec, the NDP’s national numbers began to look bad. At that point, those on the left who wanted Harper out more than they cared about who would replace him flocked to the Liberals as the party which could displace Harper.

We’ll see how the actual election runs. Polls have been unreliable in a number of elections lately. Still, it doesn’t look good for the NDP.

The Liberals, under Justin Trudeau, have voted for most of Harper’s signature bills, including C51 (which gutted civil liberties.) If the Liberals get into office, they will be 90 percent as neo-liberal as the Conservatives, but less obnoxious about it.

The best chance now for a decent government is if the Liberals get a minority and make a deal with the NDP for support.

This is disappointing, but at the end of the day, Canadians will get the government they deserve. Mulcair has spent years opposing Harper while Trudeau has supported him. Any Canadian paying one iota of attention should know this.

And if making it so Muslim women can’t wear the Niqab is more important to Quebec than voting for an actual left-wing government, well, yes, sorry, “deserve” is the right word.

Still, we’ll see. Fingers crossed.

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The Writ Is Dropped and the Canadian Election Is On!

By Ian Welsh

On August 2, 2015

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Prime Minister Harper has dropped the writ. The campaign is about twice normal length, with the election on October 19th, a bet on Harper’s part that his money advantage and superiority in third party money will matter more in a longer campaign.

Harper’s been PM for ten years, though only since the last election has he had a majority government. He’s changed Canada significantly. Economically, he ended the mixed economy policy which had been Canada’s strategy for well over 100 years, letting manufacturing wither on the vine, while doubling down on resources. He invited in record numbers of guest workers, and his government underwrote residential mortgages, leading to a housing bubble which is now, in relative terms, almost twice as large as America’s was when it popped.

The result of all of this is the worst economic showing of any Prime Minister in post-WWII history. Tying the Canadian economy so heavily to oil and other resources turns out to have been a bad bet.

Harper has also instituted what might be called the “paranoid style” of governing. Ministers are on a short leash, and scientists and bureaucrats are not allowed to speak to the press without going through the government.

All of the Conservative Party’s victories have seen cheating by the Conservative Party, with multiple criminal investigations. In response to this, Harper removed Election Canada’s mandate to investigate electoral fraud, and its mandate to encourage turnout.

In civil liberties, Harper has annulled about half of the Canadian Charter of Rights and Freedoms, with the aid of Liberal leader Justin Trudeau, the son of the late Pierre Trudeau, who ran Canada in the ’70s and into the early ’80s.

Justin was leading in the polls from the moment he was selected Liberal leader until he had his party vote for bill-C51, the bill which gutted Canadians’ civil liberties. That decision saw the New Democratic Party, the only one of the big three parties to oppose the bill, swing into first place, a lead it has kept in most (but not all) polls, marginally, since then.

Traditionally, the NDP has been the third party. In the last election, under the charismatic Jack Layton, it surged to second place, but after Layton’s death from cancer and the coronation of Trudeau, it has been solidly in the third place.

This is an important election for Canada. If the NDP wins, and especially if it forms a majority government, there will be changes that matter. One shouldn’t overstate them; Mulcair, the NDP’s leader, has gone out of his way to reassure the business community. But Mulcair has also been consistent in his attachment to the environment, in his dislike of the tar sands, in his understanding of Dutch Disease, and the mixed economy. He has promised not to raise the retirement age, and on a variety of other neo-liberal agenda items, he has been in opposition. He has also promised to abolish Canada’s unelected Senate, and to move to some form of mixed-representative government (some geographic seats, some party list seats.)

Canadians, overall, are tired of Harper, mostly because of the economic news but also in part due to his paranoid style of ruling (and it is ruling). However, Harper’s support is concentrated geographically in the West and southern Ontario, and it is certainly possible he could still win.

The current dynamic is mostly about Trudeau’s liberals shooting at the NDP, the NDP shooting at the Conservatives with a few shots back at the liberals, and the Conservatives mostly concentrating fire on Mulcair.

For as long as I’ve been alive, the Liberals have always told people to vote strategically: to vote Liberal to keep Conservatives out, because Liberals had the best chance of winning. It is delightful to see the shoe on the other foot now.

We’ll see how it plays out. I think the odds slightly favor the NDP, but there’s a long campaign ahead, and I expect the Conservative party to cheat. If it comes down to only a few seats, as it probably will, that cheating could make the difference.

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Canada’s Left-most Party, the NDP, Moves Ahead of the Neo-liberal Liberal Party

By Ian Welsh

On June 6, 2015

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I am amused:

Canadian Federal Poll Results

This is entirely the result of the decisions made by Liberal Party leader, Justin Trudeau, and by NDP leader, Thomas Mulcair. After Parliament was attacked by a mentally ill man, the Canadian Prime Minister, Harper, decided to push through a surveillance and police state bill, Bill-C51. This bill voided about half the Canadian Charter of Rights and Freedom.

Immediately after the attack, support for the bill was in heavy majority territory. So Justin Trudeau, the Liberal leader, decided to support it. Mulcair decided not to support it.

But Canadians turned out to be more sensible and principled than Trudeau thought (indeed, I was surprised, though I would have done as Mulcair did as a matter of principle); as time went by and the details of the bill came out, they turned against it.

More importantly, left-wing swing voters turned against it. And seeing that it was supported by the Liberal party, they turned against the Liberal party and towards the NDP, whose principles now appear to be driven by something other than polls.

Or, as I sarcastically noted some time ago, “I’d like to thank Justin Trudeau for single-handedly reviving the NDP’s election chances.”

Justin Trudeau is, for those who don’t know, the son of the great Pierre Trudeau, who ran the country through much of the 70s and 80s, and who is beloved by many on the left (and truly hated by many on the right, and in the West). Justin is also quite pretty, and has beautiful abs, which he showed off in a boxing match he won.

He was the heir-presumptive from the moment he was coronated by the Liberal Party (calling it an election implies there was any chance the Liberal Party wasn’t going to choose him)—the polls consistently showed the Liberal Party under him as the main opposition party to the Conservatives.

Meanwhile Mulcair kept just doing most of the right things. And one day Justin, who was always quite clearly a neo-liberal with few actual left-wing beliefs, made an error of judgment and character which left-wing swing voters weren’t willing to overlook.

This is exactly the circumstance I was talking about in my article on ideology and political parties. Exactly:

Let me put this precisely: The job of a political party is either to get a few specific people into power, or it is to offer a clear option to the voters. If it is the second, then your job is to make sure that option remains available. In many cases, if you do so, you will get into power fairly soon—after two to three terms. In other cases, if you are a minor party, it may take decades.

If you genuinely believe in your policies, in your ideology, whatever it is, then that is fine. The public has a right to choose, you just make sure they have a real choice and not a menu that is all of the same.

Your job is to offer a clear choice. Mulcair, fairly consistently, has offered that clear choice. Perhaps he did so out of principle, perhaps he did so out of strategy, perhaps it was both, I don’t know. But it has paid off. If he had offered the same as the Liberals, those voters would not have gone to the NDP. (I happen to believe, in this case, that it is principle.)

The election is still some way off, and there is no way to be sure who will win. But this has changed a multi-year dynamic in a significant way. Last election made the federal NDP the official opposition party, but it did so on the back of the personal charisma of the previous NDP leader: Jack Layton. One election is not a pattern. Two elections start becoming one.

If the NDP either wins the election or becomes the official opposition again, one will be able to make the case that they are one of the two main parties. At that point, strategic voting starts cutting heavily against the Liberals (a thought which brings most NDP supporters great schaenfreude). If you want the Conservatives out, you must vote NDP, not Liberal, so as to “not split the vote.”

I find that funny beyond describing.

And as for Trudeau, he was always an empty suit: A man cruising on his father’s name, “le Dauphin”, with no real accomplishments or weight of his own. Since their coup against Chretien, the Liberals have repeatedly selected as their leaders either men with little charisma (Martin, Dion), no weight (Trudeau), or neither weight nor charisma (hello Michael Ignatieff). Perhaps they should decide to believe in something other than being in power, and in doing so, deserve to be in power.

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