The future of Ontario (Canada?)

Daniel Drache reports on some trends which I had not quite been following:

Ontario has the densest concentration of car production probably in the world…

From a North American perspective, Ontario, Canada’s industrial heartland, ranks 16 out of 18 on his competitiveness ranking index, just ahead of Michigan.

…the job boom in resources including minerals and agricultural exports offset less than one-fifth of the jobs lost in Canadian manufacturing facilities.  The big winners in terms of job growth are private services and government…

…the incredible growth in services challenges one of the standard assumptions of globalization — that Canada is becoming more integrated into the global economy.  Most service production is consumed domestically and virtually all public services are not traded…the most remarkable structural change in the Canadian economy is that Canada was less integrated in world markets at the end of 2006 than it was a decade earlier measured by intense export openness…Canadian exports reached their peak at over 45 percent of the share of Canada’s total GDP in 2000; by 2007 this had declined by 10 points to 35 percent.

Here is yesterday’s related post on America.  Here is my earlier post on Harold Innis.


Not a surprise for us on the border. Canadian money used to be spent like monopoly money, now it's on par. And if you follow car manufacturing, it's not a surprise at all, Canada is like Germany, high value union labor done right.

Yes, you can have properly done, socialized medicine, a healthy economy and manufacturing. Esp. if your neighbors have the least efficient health care in the world and a declining infrastructure, you can attract quite a bit of interest for high value manufacturing. While I'd rather have Silicon Valley than Ontario, high value manufacturing does tend to benefit a larger population in a broader way than high tech - look at Germany, the Scandinavian countries, Japan, SKorea.

Oh, but do you have a military that consumes 58% of discretionary spending, excluding VA, NASA, and the military parts of DOe?

hmmm, don't think you got Cowen's point....

Plot the C$ over this time period and look up 'Dutch Disease'. No real insight here.

As someone in another thread said, it's all about productivity change. Tradeables prices are dropping relative to service prices, so at current relative prices it looks like some economies are getting less open.

In any case, none of this matters.

Socialized medicine done right? You have to be joking.

High value manufacturing? The point being made is that manufacturing is shrinking.

It is a bizarre claim that a growing services sector (particularly when in includes growth government services, is a sgn of "a lack of integration" with so-called globalism, when is reality it is a sign of just the opposite as manufacturing is being shipped overseas.

The business of parity of the Canadian and American dollar has more to do with (mostly Democrat) policies that are killing of the American economy. This is quite on purpose; The tranzis have American prosperity in their gun-sites. Case in point: willfully limiting our exploitation of our energy resources.

If we where to chuck the treasonous Left and all their works, things would get back to normal soon enough.

There should be no way that a nation of 23 million and one of 300 million should have parity in their currency. That this is true say that something is artificially limiting American prosperity and wealth creation.

This article is the usual double speak that we get out of the pseudo intellectuals of the Establishment Left. It s just a preopserous set of straw men and unfunded assumptions.

There should be no way that a nation of 23 million and one of 300 million should have parity in their currency.

Hey, leave Australia out of this.

(Canada's population is 34 million)

Switzerland has 7+ M people. 1 Swiss franc = 1.22249 U.S. dollars. So what is your point?

"There should be no way that a nation of 23 million and one of 300 million should have parity in their currency."

What does this mean?! Add a zero to the CAD currency and magically this "parity" disappears: USDCAD 95.00 instead of 0.9500.

You may or may not have a point about CAD strength, CAN/US populations, relative economic strengths, etc.
but "parity-ness" doesn't mean anything, except for maybe behavoiral economists and voodoo technical analysis traders.

I'm tired of hearing of predictions and economic significances of "parity" of this and that currency cross; it's just an arbitrary ratio!!

Comparing country populations means nothing without also comparing the supply of money per capita.

Regards, Don

Tyler, Alex - you're really starting to let your comments section go --

I know no blog with a comment quality higher than MR. Any competition?

It must be remembered that exports are a COST, not a BENEFIT. All high paying jobs accomplish is to advantage the actual holders of those jobs vs the rest of the population by giving them a purchasing power edge, allowing them to more easily bid away all goods and services. A country relying strongly on exports generally leaves its own population worse off by reducing its total of consumption goods and services.

Regards, Don

I guess Germany and China are pretty much screwed then??

They are clearly sending some of their consumption to the USA- that is the definition of a trade surplus/deficit. The entire point of production is to consume, not to just have a job. I am always astonished when people actually believe that perpetual trade surpluses are a net good for a country.

They *ARE* screwed. They traded us BMWs for IOUs, and are going to be sadly disappointed when they aren't paid back.

This is novel. Exports are to be deterred then?

It's the opposite of the mercantilist approach.

We had people who used this, for awhile. They said, "Don't worry about balance of payments. They give us all this great stuff, and we give them pieces of paper. We are better off."

"You're so worried about jobs. But look at it from the consumers' side, we get high-quality consumer goods cheap. We are better off."

It worked for awhile.

Sounds more like the zero-sum, fixed- pie type thinking to me.

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I live in Ontario. I work for a manufacturer here. After the recession, were we basically almost went under, we roared back but things are settling down again. Could be seasonal (July is always a slow month).

One thing that we've done is radically changed our business plan. We employ fewer people, produce more product, and we've invested in robotic and new machinery. We produce tooling very few people can for companies like GE (titanium cutting tools), Bombardier (aluminum cutting tools), Pratt & Whitney (titanium and aluminum), and a wide variety of mould manufacturers.

Business is good without being embedded in the automotive market. We still have automotive part manufacturing customers (several of the Linamars, several of the Magnas, a bunch of shops in Windsor, Ontario), but we're not embedded in that market anymore.

Ontario is definitely going to have to change, though. Manufacturers especially. Robotics, advanced manufacturing, high-quality product, and specialty production are going to have to supplant the dirty business of making cheap cars.

I find the "Dutch Disease" idea a bit confused. Is the disease supposed to be to the economy, as a whole, or just to the "manufacturing" sector or more aptly other industry?

While I can appreciate a difference between an in situ natural resource and manufactured good, then extraction of oil, gas and other natural resources requires substantial human effort and significant capital. Anyone who has been to Alberta or seen pictures would have to admit the capital used in these projects is significant as is the the number of workers. The number of workers employed also leads to diversification (although most people outside of the industry wouldn't be as familiar with the different jobs). Extracting and exploring for resources at such a massive scale leads to internal specializations and job descriptions that are glossed over by the phrase "oil and gas worker". You have people specializing in repair and manufacture of the equipment, dozens of different positions for each drill, various heavy equipment drivers etc. In addition these workers are considered skilled after only a few years on the job because of the highly specialized and rare nature of the work and find opportunities galore abroad. While the jobs for these workers are not in places like Michigan or New York, there is significant mobility to places in the Middle East, Russia, Kazakhstan, Australia, etc.

While I can see objections that: (i) there is a net loss in diversification because you've lost people that produce cars or electronics; (ii) that the jobs don't stay at existing population centers and (iii) that the movement of these jobs is often global, as opposed to national, I think these objections are overplayed. In respect of the first, no one is complaining about the loss of oil and gas jobs in China. No one speaks of a "British disease" where resource extraction jobs are sent overseas because producing cotton and other commodities cannot compete with the manufacturing industry. In respect of the second, population centers usually reflect some scheme of transportation and industry, so a new industry location changes job locations. These new population centers are no less sustainable than say Michigan. In respect of the last, I think it linked to globalization more than the change to resource abstraction issue.

The only other point I can think of is that resources in not being a final product are not inherently valuable, but depend on the value of a manufacturing process using them. This point is probably the most salient as it is often the person closest to the consumer that can extract the highest price and keep the client. That said, I don't think petroleum, diamonds and coal are inherently different in this respect. Often these items are directly consumed. Further, to the extent these items are not consumed, it isn't really the job or the whole process that is valuable to a consumer, only the name. When Detroit's infrastructure became outdated, brands simply moved plants. I think it questionable the assumption at best questionable.

I think the "disease" is actually better described as relegated to certain portions of a country and industries. The issue is less that this is bad for the economy on a net basis, and more it is bad for certain regions of the country. The "disease" may be more a symptom of political boundaries not matching geographic trade routes, which has always been a Canadian economic issue.

I think our hope is that Ontario does not become a have not province or develop structural problems with perceptions of normal employment patterns. I tend to think it won't because the Province is still home to a vast amount off wealth in terms of its population, resources and location. I might point out that an increase in administrative jobs may not be a symptom of a less integrated Canada, and may actually be a symptom of a more integrated Canada as government services are often more cheaply performed in places with an abundance of labour. I'd hate to see the cost of a government run by people that have to live in Fort McMurray, where donut store employees are often paid in excess of $15.00 /hour.

In summary: I fail to see how "Dutch disease" is anything except the expression of the loss of human capital, spirit of innovation and to some extent existing manufacturing capital, lost by a country with capable of producing more port and wine trading with a country that does not have port and wine. While the real world certainty provides examples where Ricardo's theory wouldn't hold true, I'm less than convinced such a situation is unique to the natural resource sector or, for that matter, currently exists in Canada.

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