A report released last week by the Canadian Centre for Policy Alternatives suggests the federal government is heading down the wrong road in its strong support for resource development.
The report, titled "The Bitumen Cliff," warns there are risks to placing too much economic reliance on the oilsands. The authors say it is leading Canada toward a "staples trap" which actually hinders economic diversity and productivity.
It was just over a year ago, during his visit to China, that Prime Minister Stephen Harper declared, "We are an emerging energy superpower. We want to sell our energy to people who want to buy our energy. It's that simple."
Harper went on to say his government is "committed to ensuring that Canada has the infrastructure necessary to move our energy resources to those diversified markets."
But the CCPA report says Canada is painting itself into a corner with this approach.
"Our concern is that Canadian policy makers who were so quick to jump on the bandwagon of us becoming an energy superpower forgot those lessons of the potential downside of a staples-based strategy for our whole economy," Jim Stanford, an economist and co-author of the report, said in a Canadian Press story last week.
What is the downside? Well, the report's authors explain that heavy reliance on exporting raw materials instead of a more finished product can create a vicious cycle. Oilsands development requires huge fixed-cost investments in production and transportation infrastructure, and those costs must be made up by increasingly faster production and export of the energy staple - in this case bitumen. That can actually drive down the price of the product.
Such heavy investment in one industry can also work against other sectors, such as manufacturing. "The brunt of resource-driven sectoral restructuring in Canada's economy has clearly been borne by the manufacturing sector," says the report, which blames high oil prices for the high Canadian dollar, which in turn hurts the manufacturing sector.
The influence of such an intensive resource focus goes beyond the economy. The report says, "The concentrated political influence of this latest staples industry, anxious to recoup (as quickly as possible) its enormous investments in bitumen export, shifts the nature of politics in Canada as a whole. The growing political influence of the petroleum sector, both provincially and federally, constitutes a kind of 'petro-state' in Canada, wherein the petroleum industry exercises disproportionate influence over all public policy."
In supporting its view of the negative effect on the Canadian economy as a whole, the report notes that the petroleum industry created 16,500 mostly well-paying jobs in the decade ending 2011. But that was offset by the loss of some 520,000 Canadian manufacturing jobs alone during the same period.
Proponents of Canada's resource development in the oilsands region have pointed out that Canada can benefit greatly by being a major player in the global energy game. On the surface, that view makes sense. We have huge quantities of a resource that is in big demand internationally.
But the "Bitumen Cliff" report offers a cautionary view that should at least be considered. Could it be that the authors are correct in their assessment, and this heavy push toward resource development is a mistake?
For the sake of average Canadians who depend on a healthy and diversified economy, let's hope that the decision makers are making the right decision.
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