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Jeffrey Simpson (Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

(Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

Mulcair should drop the 'Dutch disease' rhetoric Add to ...

NDP Leader Thomas Mulcair is right with one part of his critique of Western Canada’s oil-driven economy, and wrong about all the rest. On balance, it’s a poor batting average for someone who, some day, hopes to become prime minister.

Mr. Mulcair has been chastising the oil industry, and the governments that regulate it, for not making the industry pay the full cost of emissions that create greenhouse gas emissions.

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Even Exxon-Mobil in Houston (and the Canadian Association of Petroleum Producers) thinks there should be a price on carbon – through a tax or, less preferably, a market-trading system for emissions. Alberta has such a tax, but it is set way too low to be very effective.

So Mr. Mulcair is correct that pollution costs should be factored into the product’s final cost. Otherwise, all of society loses from the pollution.

To say, however, that Alberta and Canada are acting like Nigeria in regulating the industry is political nonsense. As is his wider critique that Canada is suffering from “Dutch disease,” whereby high prices for commodity exports drive up the Canadian dollar which, in turn, hollows out the manufacturing industries of Central Canada.

This “Dutch disease” analysis is simplistic in the extreme. Worse, for a potential prime minister, it deliberately targets one part of the country for special (and wrong) blame, which is not what a serious national leader should do in a highly regionalized country.

The reasons for the strength of the Canadian dollar go way beyond the fact that Canada exports oil. It also exports natural gas, minerals, potash, forestry products and hydro, especially from Mr. Mulcair’s own province, Quebec. Those products (except maybe forestry these days) are in high demand, especially in Asia. When demand is high, prices tend to track demand.

Moreover, the Canadian economy has lower deficits, less debt and a somewhat better future growth track than other industrialized countries, all of which makes the country a magnet for the inflow of money. Does Mr. Mulcair decry that strength, because if deficits and debt soared, unemployment rose and economic growth slowed, Canada might have a lower dollar all right, but at what cost?

Similarly, the troubles of the manufacturing sector are reflected in other advanced industrial countries, because the cost of making things is cheaper in other places for some products. That’s a phenomenon that is going on in many places, not just Central Canada, and it has to do with many factors beyond the value of the Canadian dollar.

As Bank of Canada Governor Mark Carney, who knows a lot more about economics than Mr. Mulcair, said recently, “It is far too simplistic to talk about the Canadian dollar as a commodity currency, let alone a currency that moves consistent with one commodity.” A recent study by the Institute for Research on Public Policy confirmed that statement, arguing that, at best, Canada is suffering from a very mild case of “Dutch disease.”

Politically, one supposes, Mr. Mulcair might think that since his party is feeble in Alberta and Saskatchewan, but strong in Quebec, whipping the bitumen oil industry, and Western Canadian commodities in general, makes political sense. In Quebec, after all, lots of people like whipping the bitumen oil industry, the sense being that Quebec’s hydro is virtuous by not polluting in contrast to bitumen oil.

That kind of politics perhaps reflects the new dynamic of Canadian affairs whereby the federal opposition is now based in Quebec whereas real political power is in the West, especially Alberta.

If, however, Mr. Mulcair aspires to be a national leader, with a shot at being prime minister, he’s got to drop weak economic analysis such as the “Dutch disease” stuff, try to figure out how to appeal to the whole country, and explain with something less than over-the-top rhetoric why putting a price on carbon makes sense, as even some charter members of Big Oil suggest publicly.

Mr. Mulcair is new in the job as leader of the Opposition. He’s going to make mistakes, such as the ones he has just made, from which a wise leader, as opposed to an opportunistic one, can learn.

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