Did Alberta and Newfoundland kill Ontaroi?

[Phantasee]

http://en.wikipedia.org/wiki/Dutch_disease

In economics, the Dutch disease is a concept that purportedly explains the apparent relationship between the increase in exploitation of natural resources - in this specific case natural gas - and a decline in the manufacturing sector [...]. The theory is that an increase in revenues from natural resources will deindustrialise a nation’s economy by raising the exchange rate, which makes the manufacturing sector less competitive and public services entangled with business interests. [...]

The term was coined in 1977 by The Economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of a large natural gas field in 1959.

Under possible examples, it lists Canada:
Canada - oil revenues from Alberta and Newfoundland and Labrador "unsterilized" by an internationally diversified sovereign wealth fund exacerbated local labour shortages and supply bottlenecks in the 2000s, while significantly accelerating the decline of Ontario's manufacturing sector.

Did our recent oil boom kill off our manufacturing capability?

Another thought that occurred to me: The US exported a lot of its production to Canada (particularly in the automotive sector), so could this have been an exacerbating factor in the recent downturn (before the banks started dieing)?

The Australians examples are interesting as well. Have our Australian members noticed a decline in the non-resource sectors of the economy since the commodity markets heated up?

[bobalot]

The Australians examples are interesting as well. Have our Australian members noticed a decline in the non-resource sectors of the economy since the commodity markets heated up?

In short, yes. The mining boom sucked in a lot of skill labour and driven up the exchange rate. This has an negative impact on manufacturing and more importantly agriculture. It is also a factor in driving up inflation.

Norway's approach to this problem is interesting. They taxed North Sea Oil revenues and put the proceeds into a sovereign wealth fund for the day when the oil runs out. I think this had the benefit benefit of keeping a lid on inflation.

However, in Australia we aren't as enlightened or as clever as the Norwegians and we simply blew the extra (once in a lifetime) revenue on tax cuts and other pre-election bribes.

[TheKwas]

It plays a role, but not nearly as significant as many people (including many economists) believe.

It's especially hard to diagnose Dutch Diease in Canada because Canada's exchange rate and trade is so dependent on America, which has it's own currency. Basically, an appreciation of the Canadian dollar could be explained by Dutch Diease, or it could be explained by a deappreciation of the American dollar, and it's a tough econometric job to completely disentangle the two impacts.

The period which many economists believe is an example of a Dutch Diease boom-and-bust is 2002-2008. During that period, economist Serge Coulombe estimated that about 42% of the change in the CAN/US exchange rate was due to Canadian dollar appreciation (most of which would be due to oil exports), while 58% was due to depreciation of the US dollar. So 43% appreciation is important for manufacturing, but it would be in a bad place even without Alberta's oil boom.

[TheKwas]

Norway's approach to this problem is interesting. They taxed North Sea Oil revenues and put the proceeds into a sovereign wealth fund for the day when the oil runs out. I think this had the benefit benefit of keeping a lid on inflation.

Alberta has a similar program, but the discount rate is much higher for Alberta than Norway.

[Phantasee]

Is this the paper you are referring to?

[TheKwas]

Indeed it is. The paper was presented to me by Coulombe himself so the conclusions stuck in my head.

[aerius]

Did our recent oil boom kill off our manufacturing capability?

Not that much, it has more to do with our dumbass autoworker unions, which I'll get to next.

Another thought that occurred to me: The US exported a lot of its production to Canada (particularly in the automotive sector), so could this have been an exacerbating factor in the recent downturn (before the banks started dieing)?

In short, a large portion of of the manufacturing in Ontario is stuff that's related to the Big 3 auto industry, we got everything from foam manufacturers (for the car seats), plastics, molding, machine tools, production line control equipment (sensors, switches, PLCs) and a million other things are used in cars, car factories, car parts factories, and so on.

Unfortunately, where you have autoworkers, you have the CAW, and to say they've been fucking things over would be an understatement. Thanks to them, labour costs are too high so factories get downsized or shutdown and moved to Mexico, and when that happens it kills a bunch of parts supplier and support jobs as well. This has been going on for at least 15 years, GM, Ford, and Chrysler factories have been downsizing and laying off workers for as long as I can remember.

The more recent currency exchange rate changes don't help, but the manufacturing decline started ages ago for other reasons. Hell, we lost manufacturing jobs thanks to NAFTA, Free Trade, and Bob Rae's retarded policies way back when.

[[R_H]]

[
Unfortunately, where you have autoworkers, you have the CAW, and to say they've been fucking things over would be an understatement. Thanks to them, labour costs are too high so factories get downsized or shutdown and moved to Mexico, and when that happens it kills a bunch of parts supplier and support jobs as well. This has been going on for at least 15 years, GM, Ford, and Chrysler factories have been downsizing and laying off workers for as long as I can remember.

They can't be so stupid to ignore this, or are they?

[aerius]

It's the CAW, like almost all other big unions they'll suck the companies dry, bankrupt them, and then cry about lost jobs.
Yes, they are that dumb, and then some. Those unions need to die.

[TheKwas]

Even without the CAW, we would expect to see a significant portion of manufacturing being exported to Mexico/whatever since we wouldn't be able to match their prices with or without unions.

This isn't a defense of the CAW, just stating that trying to pinpoint blame on such a small group for a large and complex economic phenomenon is simple-minded.

Blaming Bob Rae for anything related to the manufacturing sector is just plain stupid. He actually opposed the CAW and other unions to the point where they actually withdrew support for the NDP for the first time in history.

[aerius]

True, thanks to Free Trade and NAFTA which made it more profitable to move jobs south. However, it wouldn't be nearly as bad without the unions since the automakers at the time wanted to keep the factories in Ontario since we had the best quality control and some of the most efficient production lines, even if there was a wage premium here. Problem was the wage premium got so out of hand thanks to union demands that this was no longer possible and off they went to Mexico. (I worked at Ford-Visteon nearly 10 years ago and had the scoop on a lot of Ford stuff. Then Visteon got moved to Mexico and that was the end of that job).

[The Duchess of Zeon]

The problem I would submit is not Newfoundland and Alberta by themselves, but rather Newfoundland and Alberta in combination with a tariff-free zone in North America. That is what leads to the Dutch disease--the increase in revenues from natural resources will deindustrialize only in a tariff-free situation because the manufacturing sector's being less competitive can be protected by tariffs, and the natural resources guarantee that your nation will be popular enough that minor tariffs to help preserve your manufacturing sector will be ignored by other countries. Note that the Netherlands, like Canada today, was in 1959 part of a tariff-free zone.