Like envious older siblings, some Canadian provinces may have experienced jealousy while watching Alberta rise to become Canada's economic powerhouse. Basking in its success, Alberta may have, at times, expressed some unnecessary smugness. But, as the quick plummet in the price of oil changes Alberta's circumstances, other provinces should think twice before gloating over its falling fortunes.
An oft-heard complaint is that the oil sector (strongest in Alberta, Saskatchewan and Newfoundland and Labrador) is subsidized with public money from all provinces. While one can (and should) question why a successful industry more than capable of standing on its own is still receiving government support, the other side of this equation must also be taken into account.
Like a family with one high-wage earning member, Canadians have financially benefited from the huge growth that, until very recently, was occurring in the western Canadian oil patch. While federal and provincial subsidies to the fossil fuel sector amounted to about $211-million in 2014, the two senior levels of government receive in return an average of $18-billion a year from this sector through taxes and royalties. That revenue stream can be spent on programs and services, some of which might not otherwise exist.
Federal subsidies are decreasing with the phasing out of two major expenditure programs. In 2016, subsidies from all levels of government will total approximately $71-million. Combined, governments are investing about 0.03 per cent of the revenue they receive back to the oil and gas sector. From a financial perspective, this is an insignificant investment.
Many commentators, at least one federal political party leader and the former Ontario premier have blamed central Canada's manufacturing woes on a bad case of Dutch Disease caught from Alberta – the theory that a high dollar was driving manufacturing jobs out of the country.
Data suggest otherwise; that ailments inflicting Canada's manufacturing sector were not contracted from another province.
Between 2002 and 2011, our dollar rose 59 per cent, from 63.7 cents (U.S.) to $1.01. During that period, manufacturing employment in Canada and the U.S. – a country that did not export petroleum – dropped by an identical 23 per cent. The primary reasons for this decline are the same for both countries: increasing low-cost competition from China, Vietnam, Indonesia and other countries and decreasing global demand for their products because of an aging population in the developed world.
According to the Institute for Research on Public Policy, real decline associated with currency appreciation was found in Canadian textiles, apparel and leather products manufacturing. This area accounts for less than 2 per cent of Canadian manufacturing output. These industries are labour intensive, their product lines are homogeneous compared with their competitors and they face higher penetration of competitive products from countries with low labour costs. In other words, these industries were already in trouble, and did not have real prospects to be high wage or high quality employers now or into the future.
Another reason Canada's manufacturing sector has suffered is its overexposure to the U.S. economy. The United States is a weak long-term market prospect because its government is buried in debt and its population is aging. Further, as people get wealthier, there is a natural shift from goods to services. After you've bought your lawn mower and your couch, you are more likely to travel or eat in a restaurant. The challenge for Canadian manufacturing to find new markets is just as important as it is for our energy sector.
Alberta's success has helped more than hindered the other provinces. That being said, Canada's economy runs on five cylinders: the West, Ontario, Quebec, the Atlantic provinces and the North. It is a problem that, for the past decade, only the western cylinder has been firing strongly.
Ontario and Quebec's manufacturing sector is something we should care about in western Canada. And the citizens of those provinces should also care about the success of our resource sector.
To move forward as a country, all provinces must get over the sibling rivalry underlying the outdated "east versus west" attitude. We need to be asking how every region can work together to get Canada's economy firing on all cylinders.
Dylan Jones is president and chief executive officer and Naomi Christensen is policy analyst with the Canada West Foundation.