Respected economist echoes McGuinty: "petro dollar damaging to Canada's manufacturing industry"

Economist Robyn Allan addresses recent remarks from Ontario Premier Dalton McGuinty and Alberta Premier Alison Redford, highlighting conflicting viewpoints on oil and the Canadian economy.

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McGuinty is not the first to warn about the potential negative economic impacts of rapid oil sands development. Last year, the Montreal-based Macro Research Board predicted a detrimental shift they called the “petrolization” of Canada. Another research institute in Montreal warned that “resource booms don’t last forever” and suggested that Canada take steps to maintain a competitive manufacturing industry.

Recent reports have also been tossing around the term “Dutch Disease”, referring to Ottawa’s focus on developing an oil-centric economy. The term came from a crisis in the Netherlands in 1960s, when the Dutch found massive natural gas deposits in the North Sea. Rapid exploitation led to a significant rise in value for the Dutch guilder, and all non-resource industries suffered when their products became less competitive.

Even Green Party leader Elizabeth May has been blogging about Canada’s “Dutch Disease”.

“Some economists estimate that for every job created in the Athabasca oil sands, another job was lost somewhere else in Canada,” May wrote in a recent post.

In addition to arguments about jobs and the dollar, experts are also concerned about the country’s energy security. With most of Eastern Canada currently importing resources from the very countries oilsands proponents condemn as “unethical”, Allan says it’s not logical for the government to be pushing so hard for energy exports.

“Unfortunately our national leaders are busy securing supply for China when they should be looking at supply for Canada,” she said.

She explained that right now, Eastern Canada pays more for oil than Western Canada is getting for what it sells to the United States. Apart from the direct impacts on industry, this system also translates into higher prices for consumers at the pump.

“It doesn’t make sense,” said Allan.

“It looks like there’s an opportunity here for the Western Canadian oil producers to receive higher prices, and a possibility Canadian consumers could pay lower prices. So everybody becomes better off.”

Impacts of Northern Gateway

Allan’s views on the oil economy have received quite a bit of attention lately, after she submitted a thorough economic assessment to the Joint Review Panel for the review of Enbridge’s Northern Gateway pipeline. Submitted at the end of January, her report outlines some of the micro- and macroeconomic consequences of the proposed project.

According to Allan’s written evidence, “the Northern Gateway pipeline project has been presented as a production, or wealth-generating growth impact, when Northern Gateway really represents an inflationary oil price shock to the Canadian economy.”

Her assessment is based on the same logic as McGuinty’s general concerns over the oil sands—higher oil prices and a higher dollar mean a less competitive manufacturing and export sector.

“When the price of oil goes up in Canada, we actually have a negative impact on Gross Domestic Product, and we have layoffs—net,” Allan said.

“That’s why when I say there’s no benefit from Northern Gateway, it’s because higher oil prices have such a negative impact on the Canadian economy.”

On the other hand, pipeline proponents (who describe Northern Gateway as a form of “nation building”) cite key studies aiming to prove the public interest and economic benefit of the project. One report conducted for Enbridge by Wright Mansell Research promises up to $270 billion in gains for the Canadian GDP, as well as $48 billion in labour income and $81 billion in government revenues.

However, the report relies on certain assumptions about yearly inflation and increases in the price of oil—assumptions Allan says misrepresent the reality.

“When I read through the documents, I was surprised to find such a significant degree of misrepresentation,” said Allan.

“Everybody assumed that if they were saying it, it must be right. But no, that’s not the case.”

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