Today's Shooter in Foot - CME

The interesting and disturbing phenomenon of people voting against their own interests - particularly in the U.S. - has been fairly well explored, but aren't Canadian business people supposed to be rational actors when it comes to their economic interests?

Not entirely, it turns out. The Canadian Manufacturers and Exporters (CME) have joined tar sands interests in a big lobby push on Parliament Hill this week, pushing the one sided argument that tar sands means all economic upside. But, in doing so, is CME actually acting against the interests of its own members? Well, could be, if "manufacturing" and "exporting" are what it's all supposed to be about.

As we've explored before, because of expanded tar sands production, Canada is succumbing to "Dutch Disease," a term coined in the 1970's to describe the hollowing out of the Netherlands' manufacturing base when a major natural gas find pushed up the currency rate and priced its products out of international markets. The Canadian dollar now tracks closely with the price of oil, and with increasing scarcity, will go ever higher over time, thereby making the products of Canadian manufacturers more expensive vis-a-vis their international competitors.

One study found that 42 per cent of recent Canadian manufacturing job loss was due to our petro-dollar. The Government of Ontario estimates that a sustained 5 cent change in the dollar affects about $6 billion in Ontario's GDP. The Government of Quebec recently flagged the petro-dollar issue in its budget.

So, the question is whether CME lobbies on behalf of all of its members, or only those involved in the tar sands. If we are to have healthy manufacturing and exporting in Canada, we need to cure our Dutch Disease.

Matt Price
Policy Director
Environmental Defence

Dollar parity? You ain't seen nothing yet...

UPDATE: The Globe and Mail today has two interesting things on this. First, a blog by Jeff Rubin on the petro-dollar (which we think is better than his attack on low carbon fuel standards). And second, a story that essentially says that manufacturing is doing fine despite the rising dollar - although we'll apparently have to get used to fewer jobs...)


The Canadian dollar is once again on the cusp of parity with the U.S. dollar. On one level, this inspires a sense of national pride, of muscular loonies beating up on American eagles, until, that is, you look a little deeper.

The pin stripes on Bay Street make all that exchange rate stuff sound very complicated, and far be it for this environmentalist to want a cage match with a bunch of economists. But, then you look at a graph charting the price of oil and the Canadian dollar over the past year and you can't help but notice the similarity:



Turns out that because of rampant tar sands production we now have our very own petro-dollar, or "petro-loonie" that rises and falls with the price of oil.

This might not be so bad - cheaper vacations in Florida and all that - other than the fact that we can expect very soon lots of painful noises coming from our manufacturing sector about how they are being priced out of international markets and need to lay people off. This just in time for a fragile economic recovery. And, with ever more tar sands production being promised by our government and with the prospect of oil prices going even higher, how high will the loonie go?

For a fact sheet on the petro-loonie, visit here.

Matt Price
Policy Director
Environmental Defence

the Petro-Loonie

See the Toronto Star today for a piece on how because of the tar sands Canada's dollar has become a "petro-loonie" - connected to the price of oil.

With global scarcity hitting oil, the price will only trend upwards, taking the dollar with it, and pricing our manufacturing products out of international markets.

So, when people tell you the tar sands are good for Canada's economy, ask them "who's economy?"

Here is the graph: