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Jeffrey Simpson (Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

(Brigitte Bouvier For The Globe and Mail)

JEFFREY SIMPSON

Exploiting Canada's resources can be a fool's game Add to ...

Everywhere in Canada, the news is about natural resources: forestry and mines in British Columbia; oil and coal in Alberta; potash in Saskatchewan; hydro in Manitoba; the “ring of fire” minerals in Ontario; hydro and Old Harry oil and shale gas in Quebec; offshore oil and hydro in Newfoundland.

Canadians are so damn lucky. We just dig and pump and cut and ship, and we never seem to run out. We just hope commodities prices remain high.

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All those resources can be a fool’s game. Pumping and digging and cutting can keep the country comfortable, but they do little to address the country’s biggest challenge – a sagging competitive position. All those natural resources soak up capital; they usually don’t require much innovation or processing.

The Harper government, possessed of a majority government, seems to have its mind around elements of the long-term challenge. Whether it can persuade the country to confront them is another matter, in part because this government doesn’t like “visionary” politics, and in part because of its relentless partisanship, which waxes so many ears beyond its own supporters.

Canada has one of the worst productivity records in the industrialized world. Upon productivity improvements household incomes depend, not burgeoning household debt. When you ask why median household incomes stagnated for a long time in Canada, and why the lowest-income Canadians have gotten poorer, one reason (among many) is low productivity.

Part of the country’s long-term challenge is demographics. The population is aging (the first of the baby boomers hit 65 in 2011). Slowly, aging will influence everything for the next quarter-century. It will strain public finances in two ways. First, social programs for seniors will cost more. Second, there will be fewer people in the work force relative to those who are not.

If nothing changes, taxes will certainly have to rise on them just to deal with aging alone, unless those who remain in the work force are more productive. You don’t have to like the Harper government, or agree with its yet-unknown prescriptions, to understand that it has identified this inescapable issue. And you don’t have to like any particular government to know that a Canada Pension Plan worked out almost half a century ago (and Old Age Security somewhat later), when people lived shorter lives, has to be revisited. And that a health-care program devised at about the same time also needs an overhaul.

The government has also grabbed hold of the immigration challenge, a major determinant of long-term productivity for a country such as Canada. Immigration is not working for Canada as it did for so long. Many recent studies have shown that immigrants are falling faster into poverty, taking much longer to reach average Canadian incomes and are collectively a drag on productivity, instead of giving it a boost.

Some of this reversal undoubtedly relates to domestic policies; some relates to who the immigrants are, where they come from, what they don’t know when they arrive, and what languages they do not speak. The government is right to try to change criteria for admission to make immigration work better for Canada. (It is also right to change the refugee-determination system to fast-track out of Canada those coming from a list of democratic countries.)

The Prime Minister’s recent trip to China symbolically pointed to another reality: the fast-developing countries of that region. It took him a long time to wake up, and Canada has a huge catch-up job in the Asia-Pacific region.

Governments, in fairness, can only do so much. Business has to do the rest. It’s been estimated that only 4 per cent of small- and medium-sized businesses export to developing markets. Sadly, Canada lacks a free-trade agreement with any of them in Asia. Canada isn’t of much interest to Brazil, and hasn’t pursued actively such countries as Turkey and Indonesia.

The old model of exploiting natural resources and shipping most of them (and everything else) to the United States will certainly keep Canada comfortable. But increasingly it won’t make Canada more productive at a time when the population is aging and immigration isn’t working. Without better productivity, forget real income growth. Without it, a comfortable stagnation.

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