Boom and Bust Stifles Non-resource Economic Activities

Canada is, by in large, a resource-based economy. There's significant manufacturing in Ontario and Quebec, but most of the country operates on the principle of collecting natural resources and selling them to more populous countries. Basically we take advantage of our low population density relative to the fact that we're the 2nd largest country in the world. Being a resource economy comes with the drawback that you live at the mercy of the large economies of the world.

One often heard complaint is that we don't process our raw materials to add value to them, to any significant degree. In British Columbia in the 1990s the cry was over raw logs being exported to Japan without any milling.

The Globe and Mail's Inside Energy Blog had a post up recently on how the provincial and federal governments were showing no interest in pushing bitumen producers towards upgrading the product to synthetic crude in Alberta. Rather, they pipeline the bitumen (and presumably some solvent) South to the terminals around Chicago so that it can be upgraded there. The obvious complaint by unionized workers is that it should be done locally.

Technically, upgrading the bitumen elsewhere makes Alberta's carbon dioxide emissions look just a little better, but the net addition to the atmosphere is still going to be the same. The reason the corporations might want to do this is pretty obvious: labour is very expensive in Alberta, and much cheaper in the American Midwest.

The problem with this whole concept of trying to encourage a "value-added" industry is that it simply cannot survive the boom-and-bust resource cycle. To put it simply, if you are a manufacturer, would you want to put your operation in Alberta with the knowledge that in a boom all your costs would inflate like crazy and your employees decamp for the oil patch? And in a bust, the USA is likely in a recession, so you hurt then too. It seems like a no-win situation.

Peter Lougheed (famous ex-premier) is well known for wanting to develop a plastics industry in the province, but I simply don't see it happening without a radical change in the royalty structure. The development of "value-added" industry would require provincial governments to apply a brake to resource development when commodity prices are high, something they generally don't have the discipline to do.