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Mike Thompson at Haliburton Forest Sawmill inspects logs for home building. (FRED THORNHILL FOR THE GLOBE AND MAIL)
Mike Thompson at Haliburton Forest Sawmill inspects logs for home building. (FRED THORNHILL FOR THE GLOBE AND MAIL)

Failure to add value to resource wealth chains Canada to its colonial past Add to ...

Canada, a country founded on its natural resources, possesses more natural wealth, per capita, than any other any other nation in the world. Our natural resources sustained our First Nations and catalyzed settlement, from east to west.

While Canada has changed considerably since its early days, natural resources still drive our economy. Yet, some suggest that by providing raw resources to the global economy, Canadians are pursuing lower-value, less-innovative and less-sophisticated activities, and that we should be shifting toward a more modern, knowledge-based economy.

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Are our resource industries mere relics, distracting us from more profitable, even civilized, pursuits?

With several controversial resource projects on the table across the country, Canadians and their governments are confronted with choices about the kind of future they want, and the role resources will play. But the options – to remain rooted in the past or embrace a greener economy by eschewing the use of our resources – are not as black and white as they first appear. To understand questions about our future, we must look to our past.

European settlement was motivated by the desire to exploit fisheries; exploitation of fisheries created the need for wood for shipbuilding. Inland exploration followed in pursuit of beaver pelts, which commanded high prices in Europe due to the fashions of the day. Large-scale agriculture came next. As production increased, the need for goods to supply workers gave rise to simple, then more complex, manufacturing sectors.

Harold Innis, a professor of political economy at the University of Toronto, described Canada’s origins as a “marginal” colony to Europe and later, to the United States. The colony’s efforts were relegated to producing raw materials, or “staples,” while manufacturing and industrial development occurred elsewhere. So, too, were First Nations manipulated to produce goods that were in high demand overseas. This caused wild swings in activity, as resources were alternately decimated or abandoned along with changing preferences in Europe.

In 1969, Peter Drucker, a professor in economics at New York University, first wrote about witnessing a fundamental economic shift from producing goods to producing ideas and information. The idea provided a glimmer of hope that the Canadian economy would break free of its shackles of servitude, and emerge as a more industrialized and productive nation.

In the following decades, economists began to view natural resources disparagingly. The “resource curse” was blamed for exposing countries to volatile product prices, inflating currencies and locking countries into low-tech industries.

Canadians and their governments took note. The Canadian International Council has reported that natural resources have been largely regarded as part of the old economy, best left behind as Canada raced toward a glittery high-tech future. Canada’s Public Policy Forum has also noted that despite their economic contribution, Canada’s natural resource industries have been denigrated as hewers of wood and drawers of water.

Modern resource development brings very real challenges. NDP Opposition Leader Thomas Mulcair has blamed oil sands energy exports for inflating the Canadian dollar and hollowing out the manufacturing sector, a phenomenon known as “Dutch disease.” Some have argued that Canada, by pursuing fossil fuel production, is following the old “staples-based” approach of our early extractive industries and locking us into a low-value future.

However, assertions about the “resource curse” are often oversimplifications that lack regard for underlying problems faced by many resource-based economies: corruption, lack of capacity and an inability to add value. The first two issues are largely political in nature; the third, political and financial.

Canada is fortunate to have a stable, democratic political system – but has failed to address the value problem. Instead, we have liquidated natural assets while ignoring other revenue opportunities and long-term impacts.

Many are quick to dismiss the idea of adding value in Canada due to relatively high labour costs, but consider this: Germany generates approximately the same value within its borders as China. And the United States, with similar labour costs to Canada, adds the most domestic value of any country in the world. Value added through processing and manufacturing depends not only on the cost of labour, but also on the technical skill and knowledge required.

While the current resource boom tantalizes us with tremendous short-term wealth, it also highlights the socioeconomic and environmental impacts of resource activities, and provides an uncomfortable reminder of our historical identity as a marginal colony. Disappointingly, Canadians continue to fail at determining how we can systematically manage our full natural wealth – not just individual resources – to ensure sustained long-term prosperity.

Harry Nelson is an assistant professor in the Faculty of Forestry at the University of British Columbia. Ngaio Hotte is a resource economist at the UBC Fisheries Centre.

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