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Electro-Motive Canada employees clean up the picket line after accepting a severance package: Caterpillar slammed the doors on the plant in February and shunted production to the U.S. (Deborah Baic/The Globe and Mail/Deborah Baic/The Globe and Mail)
Electro-Motive Canada employees clean up the picket line after accepting a severance package: Caterpillar slammed the doors on the plant in February and shunted production to the U.S. (Deborah Baic/The Globe and Mail/Deborah Baic/The Globe and Mail)

Manufacturing hit hard, but nowhere near dead Add to ...

A casual media consumer might get the impression manufacturing is all but dead in Canada.

We’re repeatedly told that Canada’s petro-infused loonie has made our factories so hopelessly uncompetitive the country can’t make things any more.

We mine for ore, dig for bitumen and flip burgers. Resource extraction and services, but virtually no manufacturing.

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It’s a sad narrative: hewers of wood, Dutch disease and all that.

Only, it’s not quite true.

Factory jobs are vanishing, but not output. Output grew 3.2 per cent last year, significantly more than the overall growth of the economy.

Indeed, 2011 continued a trend that stretches all the way back to the early 1980s recession. Factory output grew 59 per cent between 1981 and 2010, according to Statistics Canada. Over the same period, manufacturing employment fell 16 per cent.

The big picture is that Canada is producing more widgets with fewer workers, largely because of new technology and automation. If manufacturers had invested less in new technology, the jobs toll would be even worse. And if they stop investing, the future will be grim.

All this talk about the death of manufacturing sends the misguided message that factories are doomed – to policy makers, would-be plant workers and investors.

It’s true that manufacturing employment has been hit hard in the past decade. Bank of Montreal deputy chief economist Doug Porter estimated recently that Canada has lost half a million factory jobs since the loonie began its ascent to parity with the greenback from 70 cents (U.S.) in 2003. Manufacturing now accounts for just 10 per cent of Canadian jobs, down from 16 per cent in 2000.

Caterpillar Inc.’s recent decision to close its Electro-Motive Diesel Canada locomotive factory in London, Ont., aptly captured the jobs quandary. The U.S. multinational slammed the doors on the plant in February and shunted production to the U.S. after its 450 workers balked at working for half-pay.

The phenomenon of factory jobs fleeing to lower-cost locales is hardly the whole story. It may not even be the main story.

Another corporate example illustrates an equally important feature of Canada’s manufacturing landscape. Maple Leaf Foods Inc. is in the process of closing five aging plants and replacing them with one highly automated factory in Hamilton, Ont.

The result: 1,550 jobs lost, but one plant capable of cranking out more hot dogs, bacon and cold cuts than the five it replaces.

Maple Leaf’s story is an unfortunate side-effect of productivity. Investment in technology makes some jobs redundant.

But improving productivity is the key to wealth generation and rising living standards.

There’s no denying manufacturing is facing challenges, including the high dollar. Auto making – the engine of Ontario’s manufacturing base – is still far from where it was in 2000. Canada produces nearly two million vehicles a year now versus three million then, creating a ripple effect through the parts industry.

But Canada is still a manufacturing power, and will remain so for quite some time. The survivors will be those that specialize, innovate, invest and add value.

By exaggerating the death of an industry, we may actually be hastening its decline.

Imagine the message we’re sending to banks and investors by perpetuating the myth that manufacturing is in its death throes. It makes it that much tougher for manufacturers to finance their activities.

We’re also telling the next generation of workers that it’s pointless training to become a machine operator, a technician or mechanical engineer.

And we’re sending a signal to governments that they needn’t bother with a coherent manufacturing strategy because all the action is in services and resource extraction.

There is a lot governments can do.

For starters, the provinces can help steer more young Canadians into fields where there are skills shortages, and then ensure these workers have matching education, training and apprenticeship opportunities.

Governments can also reform incentives to help small businesses grow into larger, globally competitive companies. Bigger companies are more productive. They’re also more likely to invest in research and development, innovate and create high-paying jobs.

And Canada needs to keep its border open to foreign investment, including foreign venture capital, so they can grow.

Manufacturing is dead. Long live manufacturing.

Follow on Twitter: @barriemckenna

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