The spin doctors sure sweated over Thursday’s federal budget: For a largely stand-pat exercise, it was packaged, leaked, and tweeted to the extreme. Three themes in particular were emphasized in all that spinning. The 2013 “action plan” (not a budget, apparently) was said to focus on eliminating the deficit (yawn), improving skills (yawn again), and revitalizing Canada’s manufacturing base (huh?).
Wait a minute. This is the same government that has been celebrating Canada’s new status as “energy superpower,” vilifying anyone who dared suggest the resource boom had a downside (whether economic or environmental), and implying that unemployed whiners in Ontario should just pack up and head to Saskatoon. How did the Harper government, with its axis of power running straight to Calgary’s oil towers, suddenly seize on manufacturing as a matter of national priority?
Of course, there’s a big difference between rhetoric and reality, and just because something gets mentioned in a budget speech doesn’t mean anything will necessarily happen. Some of the manufacturing money in this budget was recycled or re-announced. The support for pulp-and-paper processing is a drop in the bucket of what’s needed to keep up with U.S. subsidies in this sector. There are other devils lurking in the details.
But to be fair, the budget delivered enough real beef in this file to make it interesting. A billion dollars is dedicated to new initiatives in aerospace and defense products. The southern Ontario development agency is generously re-endowed. Tax support for capital spending now emphasizes accelerated depreciation (requiring companies to actually do something) rather than further lowering corporate tax rates. All this builds on other recent federal initiatives, including the huge shipbuilding program and renewed incentives for auto investments. Better yet, the government is focusing on direct hands-on participation rather than indirect tax incentives; this represents another departure from ideological conservatism.
What gives? I ascribe Ottawa’s rediscovery of manufacturing, and its willingness to invoke interventionist measures not traditionally favoured by conservatives, to four factors:
Sheer Economic Weight: Canada’s energy industry is big. But manufacturing is much, much bigger. For every Canadian employed in oil and gas extraction, there are 25 working in manufacturing. Manufacturing accounts for four times as much GDP, and three times as much export value, as the petroleum sector. Its productivity is rising (faster than the national average), whereas resource productivity is falling (as cheaper deposits are exhausted). Manufacturing’s tentacles spread into every province – including Alberta. Canada simply cannot be prosperous without successful manufacturing: an empirical reality which Ottawa is rediscovering.
The Energy Bubble is Popping: Canadian manufacturing has endured a decade from hell, but it’s bottomed out and is once again expanding. The energy boom, in contrast, may have already peaked. Yes, there’s still an awful lot of undeveloped bitumen lying underground in northern Alberta. But the economics of the industry are deteriorating rapidly – mostly because of self-inflicted damage done by the industry to itself (inflated costs, inadequate infrastructure, and the crippling effect of excess exports on realized prices and margins). Ottawa now realizes it’s time to start putting eggs in other economic baskets.
Elite Opinion: Many Canadian business leaders have been as distressed about Canada’s growing resource reliance as I have been. They dream rightly of a Canada that does more than hew wood, draw water, and scrape tar. Consider the following heavy-hitters who have weighed in lately: former cabinet minister David Emerson’s far-reaching recommendations for an aerospace and space strategy; industrialist Tom Jenkins with an equally ambitious proposal to use government procurement to stimulate Canadian jobs; and Royal Bank CEO Gord Nixon’s recent report (for the Ontario government) suggesting an ambitious federal-provincial strategy to revitalize manufacturing. (Full disclosure: I was the token labour rep on Mr. Nixon’s task force; the other 13 members were CEOs.) When these people speak about the importance of manufacturing to our future prosperity, Conservatives listen.
Crass Politics: The Conservative government has 73 MPs from Ontario – 2.5 times as many as in Alberta. The way things are going, the Conservatives will likely lose seats in the next election in the Atlantic provinces, Quebec, and B.C. – and they can’t win any more in Alberta. Thus the government’s political fate lies squarely in Ontario: the manufacturing heartland. Suddenly, bitumen starts to look like yesterday’s fad. And factories are the new black.
The budget measures fall far short of the sort of integrated national manufacturing strategy that Canada needs to really recapture our glory as a high-tech exporter. For that we need to pick up every tool in the policy toolbox: leveraging all government procurement (not just defense), enhancing domestic content in resource projects, and addressing enormous imbalances in international manufactures trade (due to lopsided exchange rates and one-way trade deals).
Nevertheless, it’s positive that the federal government has explicitly recognized manufacturing as a national priority – not just an Ontario priority. And instead of pitting one sector and one region against another, perhaps by lining up our national ducks we can once again become a manufacturing superpower, as well as an energy superpower.
Jim Stanford is an economist with the Canadian Auto Workers union.