Ottawa Citizen: Regardless who wins the U.S. election in November, Canadians will be holding more cards than we have in the past
March 10, 2012 – In today’s Ottawa Citizen, I write about the greater degree of freedom Canada now enjoys in its relationship with the U.S. The full column below:
Regardless who wins the U.S. election in November, Canadians will be holding more cards than we have in the past, writes Brian Lee Crowley
By Brian Lee Crowley, Ottawa Citizen, March 10, 2012
Given the buffoonery of the U.S. primaries, the Nov. 6 election can seem agonizingly far off. It will, however, be upon us before we know it. Then the really interesting times will begin, for while we cannot vote for those who will have a share of power in Washington, we can and must think about how to manage the new cast of characters to Canada’s advantage. And not only will there be new players in the White House and on Capitol Hill, but they will be dealing with a different kind of Canada than in the past.
Don’t get me wrong: the odds today favour the re-election of President Barack Obama. His margin in the polls, however, is far from commanding and a Republican nominee such as Mitt Romney, with the ability to reach out successfully to independents and even some Democrats, would be highly competitive.
But even if Obama wins, much will be different. He will appoint at least some new cabinet members and other senior members of the administration, for example. But most importantly he will now be in his final term, insulated from further electoral calculations, at least where his personal future is concerned.
Furthermore while there will be new faces in both the House and the Senate, the rancorous partisanship of recent years is likely to deepen.
All of this makes thinking about managing our most important economic and political relationship complex enough. To those calculations, however, we must now add the new selfconfidence that Canadians feel, the new choices they have and the new points of friction with America.
Consider that Canada has become the darling of international economic observers for our management of our fiscal affairs and banking system, and how we emerged from the recent recession faster and stronger than any other major industrialized country.
Contrast that with the continued weakness in America, the unresolved housing bust, the stubborn unemployment and the continuing debt binge. Canada faces its own economic challenges, such as population aging, household debt and poor productivity growth, but does so from a position of relative strength, not weakness.
Now consider the greater degree of freedom we enjoy in trade. For years governments came to power in Ottawa promising to reduce our dependence on U.S. markets, and those same governments left office with the trade dependency deeper than ever. But as a result of continued American economic weakness and the rise of industrializing countries such as China, India, the Asian Tigers, Indonesia, Brazil and others, our trade dependence on the U.S. is lessening. In 2000 we sent over 87 per cent of our merchandise exports to the U.S. In 2010 it was about 75 per cent.
We are extremely unlikely ever to escape deep economic integration with the United States in manufacturing, because we don’t make much in the way of finished products in Canada. We tend to make pieces of larger products put together via a complicated production system spread throughout North America. Our relative degree of freedom to shift our production to other markets is rather small.
Not so with our natural resources, however, and those resources are far more likely to underpin our economic growth in the foreseeable future than manufacturing, even though manufacturing’s future here is brighter than many imagine.
Take natural gas. To date our assumption has been that our chief interest is to become integrated into a seamless North American energy market, feeding the consumers and industrial processes south of the border while importing American capital to pay for the necessary infrastructure. Today, however, thanks to the shale gas revolution, North America is awash in natural gas. The futures price is a paltry $2.30 U.S. per thousand cubic feet and is forecast to stay low for years to come.
Contrast that with the situation in, say, Japan where they have taken numerous nuclear reactors off-line following the Fukushima disaster and are filling the gap with, among other things, natural gas. Canadian gas sold in Japan would fetch a hugely higher price there than in North America. Canada’s trade interest, in addition to close and enduring ties to our chief market in America, is in selling more to Asian and other rising markets, but we have to build the infrastructure to get our products there. China and other industrializing countries are driving the rise in value of our resources, which we can sell anywhere.
Add to these considerations the diverging attitudes between our two countries on things like immigration and the desirability of natural resource development such as the Keystone XL pipeline, and Canada now finds itself in the unusual situation of having more choices than ever before in its relationship with the U.S.
Our degree of freedom is still mightily constrained, but it is real. Time to start thinking about what to do with it.
Brian Lee Crowley is managing director of the Macdonald-Laurier Institute, an independent nonpartisan public policy think tank in Ottawa: macdonaldlaurier.ca.
Ottawa Citizen: Why Canada needn’t fear the EU’s oilsands politics
In today’s Ottawa Citizen, I discuss why we shouldn’t care about how the EU will treat oil from Canada’s oilsands. The full column below:
Why Canada needn’t fear the EU’s oilsands politics
By Brian Lee Crowley, Ottawa Citizen, February 25, 2012
As the parliament of the European Union was getting ready to vote earlier this week on how the EU would treat oil from Canada’s oilsands, many Canadians were on tenterhooks. Would Europe blacken Canada’s eye by adopting the Fuel Quality Directive, declaring our oil to be “highly polluting”?
But with all due respect to the Canadians lobbying hard in Brussels, the real question is why we should care about yet another example of Europe’s penchant for hypocritical moral panics of the green variety.
In the event a typically European non-decision was taken: the directive was neither adopted nor defeated, but passed along to another body made up of ministers from national governments in Europe. So the matter is unresolved and more such votes will be held, whether in the EU or the U.S.
But Canadian hand-wringing about this sort of targeting of our oilsands production can only be based on ignorance of how world oil markets work.
Many, for example, seem to believe that a vote by European governments or, worse still, U.S. states, to stigmatize our oil will damage our ability to sell it. There is virtually no evidence to support this view.
My skepticism is not even based on the fact that the EU doesn’t actually buy any crude or refined products from the oilsands (although that lack of skin in the game does have a certain comic relief value). Americans do buy from the oilsands. And yet even if Americans decided they didn’t want the oilsands, it still wouldn’t matter all that much.
Oil is a globally traded commodity. A decision by Europe not to buy Canadian oil is not a decision to consume less oil, but merely not to buy that oil from Canada. Thus their decision leaves unchanged the total amount of oil consumed in the world. They have to buy from somebody; it just won’t be Canada.
The corollary of this is that if we assume that the supply and demand of oil in the world is in reasonably good balance (which over time it is), a country now consuming Canadian oil that wants to buy elsewhere must buy oil now being consumed by someone else. That someone else will therefore be out in the market looking for oil. And Canada will have excess supply because one of its customers just took the exit. More: according to the International Energy Agency, world demand is slated to rise for the foreseeable future, meaning new customers every day.
There is huge diversity of both sellers and buyers in global oil markets. Moreover, even very large suppliers actually produce remarkably small shares of oil supplies; when the Iran-Iraq War took a major share of both countries’ considerable production off the market, the loss was less than six per cent of world supply.
Attempts to isolate suppliers, through economic sanctions, for example, are notoriously ineffective unless accompanied by physical coercion. And no one is suggesting that Canada will be subject to a worldwide embargo; if Europe or America don’t want our oil, there are lots of other countries that will be glad to buy it at the prevailing world price, including China, Japan, India and more. As long as the infrastructure exists to bring that oil to market, it can and will be sold.
Apparently some Canadian authorities are also worried that European oil companies, such as Shell, Total and Statoil, might be prevented from investing in the oilsands. Because of their expertise and integrated worldwide operations, this would indeed be a pity and a loss to Canada.
Would they be replaced with other knowledgeable investors keen to produce oil in a politically stable country with no corruption, competitive taxes, the rule of law and reasonably sensible courts? Absolutely. Every major oil company has a huge interest in diversifying its production, in large part to mitigate political risks such as tax grabs and uncompensated nationalizations.
Canada’s strengths far outweigh the piffling risk of a few markets being closed to its oil for obtuse political reasons.
And just how credible is it that Americans, in particular, will not want our oil? Every source of oil in the world comes with a unique mix of environmental, economic and strategic costs and benefits attached. For Americans, Canadian oil comes from a reliable ally and trading partner with similar values and who will not spend the money on radical Islam, terrorism-promoting madrassas, Israel-bashing or human rights abuses. The environmental record of the oilsands is entirely defensible and constantly improving. The geo-strategic benefits alone are huge. Despite shortterm wobbles, America will buy our oil.
Sure, we must combat disinformation about the oilsands. But we must keep our nerve and not give comfort to self-styled green campaigners by panicking in the face of their tendentious attacks. In this game Canada has been dealt by far the strongest hand.
Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: macdonaldlaurier.ca.
The Hill Times: Sell to China, but never change who we are to do so
In today’s Hill Times column, I discuss trade with China. There is a great deal of pressure within Canada not to say anything that might ‘offend’ the Chinese because the subtext is that they will punish us economically if we dare speak our minds. What should we do? Our only possible response to speak away, while taking all the counter-measures necessary to protect ourselves, including aggressive counter-espionage and a healthy skepticism about the independence of Chinese companies from the regime in Beijing. The full column below:
Sell to China, but never change who we are to do so
By Brian Lee Crowley, The Hill Times, February 20, 2012
Sir Wilfrid Laurier, Canada’s greatest prime minister, had two sage pieces of advice for Canadians about trade. First, free trade with the United States is the indispensable cornerstone of our prosperity. Second, we should build on that primary relationship by seeking markets wherever they are to be found.
A century later, that is still good advice. Specialize, but diversify. We have free trade with the U.S, to whom we send the lion’s share of our exports, but we want to reduce our dependence on that single market. Put that unease about our dependence on America together with their recent erratic behaviour over the Keystone XL pipeline, for example, and Canadian eyes turn, quite naturally, to China and its vast expanding market.
Yet there is a powerful, but inarticulate ambivalence in the minds of Canadians about drawing closer to China. In the media that ambivalence is usually portrayed as a reservation about China’s treatment of its own people, or its “human rights record” at home.
China indisputably is a conscienceless regime that treats domestic dissenters and opponents with breathtaking callousness and cruelty. From its arrogant, unaccountable and corrupt system of government to its cheerful resort to firing squads (5,000 executions in 2009—more than the rest of the world combined), harvesting of organs from opponents and its violent suppression of Tiananmen Square protesters, Tibetan autonomists, and Falun Gong supporters, the odious Chinese regime is certainly an egregious offender against international norms of human rights.
But that in itself is not sufficient to make us avoid trading with China. We have traded with as bad and worse regimes: the Soviet Union, Cuba, Venezuela, Iran, Libya before the revolution and others have all been places where Canadians have bought and sold despite appalling human rights records. Canada rightly criticizes all such regimes, but does not interfere with its own citizens’ rights to engage in trade as long as they do so in accordance with Canadian law.
The real reason to be exceptionally wary and prudent in our relationship with China actually has nothing to do with how they treat their own people and everything with how they treat us. Make no mistake: China is projecting its amoral pursuit of its regime’s interests into the wider world, including right here in Canada. Wherever China has acquired economic and political power, it has used it to intimidate opponents and hold itself above the law.
In Asia, for example, China unabashedly uses its growing economic and military clout to intimidate smaller countries. It is unwilling to see its expansive and weakly justified claims to resource-rich parts of the South China Sea subjected to normal rules-based settlement in international forums. It prefers to become economically dominant in smaller countries like Vietnam and the Philippines and then use that power to bully their partner into submission. The recent welcome political liberalization in Burma can be traced its military junta’s increasing unwillingness to be pushed around by China and the consequent need to repair relations with the west. Small Asian countries warmly welcomed America’s stated intention of becoming more present in East Asia because they want a powerful counterweight to the overbearing Chinese.
Then there is China’s aggressive campaign of spying and espionage against foreigners in general and Canadians firms, individuals and interests in particular. Despite considerable media coverage, Canadians seem blithely unaware of the extent of China’s spying efforts. To pick just one recent example, a defector from China’s intelligence services has indicated China has 1,000 economic spies at work in Canada, more than any other country. Canadian researchers have been instrumental in uncovering a worldwide software-based Chinese spy network that targeted sensitive government information, while industrial espionage has pillaged Canadian industrial and business secrets.
In sum China’s is a nasty regime that wishes us ill, unashamedly exploits weakness in its trade partners and holds itself above both the law and international norms of decency wherever it is to their advantage. We may be economically dependent on the U.S., but we debate that dependence and every exercise of American power openly and vigorously. We constantly tell America what we think without fear of serious retaliation because they are a mature transparent society that shares our values and operates under the rule of law. By contrast there is a great deal of pressure within Canada not to say anything that might “offend” the Chinese, on whom we are far less dependent. The subtext: they will punish us economically if we dare speak our minds.
The only possible response is for us to speak away, while taking all the counter-measures necessary to protect ourselves, including aggressive counter-espionage and a healthy skepticism about the independence of Chinese companies from the regime in Beijing. By all means sell to China. But we should never change who we are to do so.
Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.
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Ottawa Citizen: Subsidizing poorly performing parts of Canada can’t substitute for policy choices that foster prosperity
February 11, 2012 – In my latest column for the Ottawa Citizen, I discuss how subsidizing poorly performing parts of Canada is in truth a policy of refusing to make people face the consequences of the poor policy choices they have made over the years. And until we change that, both Canadians and newcomers will continue to head west, and the east’s weight within Confederation will diminish with every passing day, no matter how much we spend on equalization and other transfers.
Canadians vote with their feet
By Brian Lee Crowley, Ottawa Citizen, February 11, 2012
No man is an island. What is true of individuals is doubly true of societies. When even in authoritarian societies such as Iran and China, YouTube videos from Tunisia, Britain or Argentina can be viewed the instant they are posted, even the humble and the oppressed know what life is like elsewhere.
This effortless knowledge of conditions in places half a world away is liberating for the individual, but deeply threatening to societies that people are free to leave. As long as people can “vote with their feet” by moving, underperforming societies, ones with poor standards of living, endemic violence or rampant corruption, cannot easily hold onto their people, especially their most valuable ones.
People move to make themselves better off and to offer a brighter future to their children. Thus is the world a giant social science experiment, in which competing social and political systems vie for the loyalty of their populations.
And while it may be fashionable to say that no society is better than another, where people are free to move, they make value judgments every day about the superiority and inferiority of societies and their institutions.
Those that promote human welfare and dignity, that enjoy the rule of law, legal equality, protect property and promote enterprise thrive compared to those where the powerful may exploit the weak without let or hindrance.
In this competition, Canada is a winner. We bring together in one place almost all the practices, beliefs and institutions that allow people to build a better life for themselves. The immigrants jostling at our door are voting for the superiority of Canada compared to their home countries.
It is not only countries that are in competition for people, however. Within Canada we are also running such a gigantic social science experiment.
The latest report from the front line in our domestic battle for that most precious resource – people – is to be found in the recent StatsCan report on Canada’s population. That snapshot tells us that societies west of the Ottawa River are proving more attractive than those to the east.
That is an unpopular way to describe it, again because it is unfashionable to say that one kind of society is better than another. But when large numbers of people are given a free choice of where to live, and over long periods of time they predominantly choose one place over another, we ought to pay attention.
Now, for the first time in Canadian history, more people live in the four westernmost provinces of Canada than in the five easternmost. Quebec, which for years was nipping at Ontario’s heels, has been lapped several times; Ontario’s population lead is now about five million people. B.C., with a population of 4.5 million, attracts as many immigrants as Quebec, with a population of eight million.
Quebec and the Atlantic provinces are not shrinking, but the growth in population to the west far outstrips that to the east. And those populations to the east tend to be older, to work less, to retire earlier, to pay higher taxes, to be more dependent on welfare and EI, to have more civil servants and less private sector activity. The growth rate differential is thus becoming entrenched in favour of places that favour growth and enterprise over big government.
These facts make many uncomfortable. In typical Canadian fashion the call goes up to compensate poor performers. A classic case was found in a recent oped in the National Post arguing that provinces with higher proportions of old people ought to get higher transfers from Ottawa because seniors consume lots of health care.
But no one asks why some societies in Canada age more quickly than others (a half-century ago Quebec had one of the youngest populations in Canada), and even less do they inquire whether poor choices by these societies might in fact be at the root of these massive and growing differences in population.
The fact that some provinces won the natural resource lottery is about as far as most people want to go in understanding the different provincial growth rates, and who could deny that natural resource wealth matters?
And yet the truth is it is a cop out. The wealthiest societies in the world have no natural resources to speak of (Holland, Taiwan, Israel, Hong Kong, Switzerland come to mind), whereas Nigeria and Mexico and Venezuela have oil galore and dispirited, dysfunctional societies. The world is full of Asian Tiger and post-Communist successes that prove that poverty and decline are not irreversible states. They are almost invariably the bitter fruit of bad policy.
Subsidizing poorly performing parts of Canada is in truth a policy of refusing to make people face the consequences of the poor policy choices they have made over the years. And until we change that, both Canadians and newcomers will continue to head west, and the east’s weight within Confederation will diminish with every passing day, no matter how much we spend on equalization and other transfers.
Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: macdonaldlaurier. ca. He is the author of Fearful Symmetry: The Fall and Rise of Canada’s Founding Values.
The Globe and Mail: We’ll keep working past 65, and we’ll like it
January 31, 2012 – In today’s Globe and Mail, I discuss why raising the qualifying age for Old Age Security and the Guaranteed Income Supplement is the right thing to do. The full column is below:
We’ll keep working past 65, and we’ll like it
By Brian Lee Crowley, The Globe and Mail, January 31, 2012
Prime Minister Stephen Harper has renewed a perennial debate about when Canadians should expect to retire. Mr. Harper reportedly has in mind changes to the Old Age Security and the Guaranteed Income Supplement that would raise eligibility for these benefits from 65 to 67.
Much of the reaction has focused on how such changes would affect public finances and the Canadian economy, essentially asking whether the benefits of reducing the cost of old-age income programs, plus the increased labour supply, justifies making older Canadians “worse off.”
But that approaches such changes exactly backward.
Such reforms, far from taking something away from seniors, are a tiny step in reversing decades of bad policy that has marginalized older Canadians, damaged their health and harmed their morale. Raising the age of eligibility is emphatically not a matter of imposing costs on seniors in order to benefit the rest of the population. It is an exceptionally pro-seniors policy to reduce the incentives to stop working at 65.
There was a time when 65 and retirement were closely linked for a compelling reason. A life of labour had left the average worker depleted. A few short years of decline was all they could expect before death. A Canadian male born in 1966, when the Canada Pension Plan was introduced, would only expect to live to age 68 or so. Today, it’s 79.
Age 65 and the moment when one can no longer reasonably be expected to work have long since parted company. We live longer and are in better health. Much of the work in our increasingly service-based economy is not physically taxing. Many conditions associated with aging can be controlled by medication or corrected by surgery, with new breakthroughs daily. It is only a modest exaggeration when some say that 60 is the new 40.
Age 65 is no longer the exhausted tail end of life. And the research is eloquent about how central work is to the lives of those able to engage in it, including those over 65. For many, idyllic pictures of early and prolonged retirement without work are, in fact, not that attractive. Why? Because working is and has always been bound up with human fulfilment, with being productive, useful to others and responsible for oneself.
That’s why most people, not just a majority, but around 90 per cent of them, express great attachment to their work, independently of income, education, social class and whether they work for private companies, not-for-profits or the public sector. In both Canada and the United States, the vast majority of people tell pollsters they would continue working even if they no longer needed to, including if they won the lottery.
More than four-fifths of Canadians say they would like to continue to work even if they had enough money to retire. And nearly half of Canadians of working age already expect to work beyond the age of 65, and not just for economic reasons, according to a survey done for one financial institution: “Nearly all of those who expect to work beyond age 65 cite one or more lifestyle reasons, including remaining mentally active, enjoyment of their jobs and the interaction with their co-workers.” In other words, future retirees are coming more and more to realize that work (although not necessarily any particular job, a distinction many people seem to have difficulty grasping), is closely related to happiness.
Put this together with the evidence that older people live longer, healthier and happier when they continue to work and you have a compelling case that our dogged insistence on 65 as the age to encourage retirement has been a cruel policy that has created increasing unhappiness and ill-health for older Canadians. Encouraging retirement at 65 has pushed these costs onto seniors for the benefit of our younger population looking for work. Benefit eligibility at 67 is, therefore, far too timid a reform. A pro-seniors policy would be far more ambitious, looking at 70 or even 72. Even then Canadians would enjoy a longer period of work-free retirement than in 1966.
Canada must, of course, continue to look after those incapable of working, whatever their age. Changes must be phased to allow for adjustment in retirement planning. Retirement must stop being a radical overnight transformation and become a long slow transition, from full time to part time, balancing work and leisure and matching effort to capacity. And we should use some of the savings from reform to improve retirement conditions for those who do reach the age and state of health where work is no longer possible.
Sure, such changes will help public finances and ease the looming labour shortages that darken our economic future. But those are just side benefits. The chief beneficiaries will be older Canadians themselves.
Brian Lee Crowley is managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa.
Ottawa Citizen: Why we don’t just refine the bitumen in Canada
In my latest column for the Ottawa Citizen, I discuss why we don’t process the oilsands here at home. Read my full column below:
Why we don’t just refine the bitumen in Canada
By Brian Lee Crowley, Ottawa Citizen, January 28, 2012
All across the political spectrum the cry is heard: process the oilsands here at home.
Bank executives, trade unionists, editorialists and others want us to do all the work here.
Who could be against adding value to our resources before we export them? Where it makes sense and makes the greatest contribution to Canada’s prosperity we should all be in favour. But the simple calculus of more processing equalling more jobs and prosperity in Canada is not at all obvious when you dig into it.
Canada is a tiny market with a world-scale source of petroleum in a corner of North America that is far removed from the bulk of oil product consumers and is facing critical shortages of workers. All of these factors matter in thinking about how the get the best value out of our petroleum resources.
A bit of background: we don’t get oil out of the oilsands. We extract a tarry substance called bitumen.
That bitumen has to be “upgraded” (i.e. the undesirable bits stripped out) to make “synthetic” crude. A second step (refining) is then required to transform the oil into gasoline, diesel, jet fuel and so forth.
Unlike “conventional” crude, then, refining oilsands output is an expensive two-step process.
Moreover not all refineries can handle the upgrading. Oils vary a lot in their intrinsic qualities (such as sulphur content, for example), and refineries are designed for the kind of oil they will refine.
One whose feedstock will be light sweet crude from Saudi Arabia will be quite different from one built to process tarry crudes from Venezuela or the oilsands and cannot switch from one to the other without expensive refits.
In North America as a result of things like increased fuel efficiency, alternative fuels, changing consumer behaviour, etc., the demand for fuel has actually levelled off, even as the economy has grown. As a result, North America now has excess upgrading and refining capacity, particularly on the U.S. Gulf coast, a capacity designed to process bitumen-like products from Venezuela and Mexico, from whom the U.S. is buying less and less. So the capacity to process Canada’s bitumen is already available at no new capital cost, other than the pipeline to take it there.
Now look at Alberta. Far from complacently exporting bitumen, the industry has been furiously building upgrading capacity. Its ability to produce bitumen, however, is pulling ahead of its ability to upgrade it. Alberta’s economy is already red-hot and short something like 150,000 workers today. To meet Alberta’s ambitious target of upgrading two thirds of the bitumen it produces by 2020 will require the construction of four new upgraders at $10-billion apiece and require 60,000 person years of labour. That’s in addition to the work to expand bitumen production.
To require all bitumen to be upgraded in Alberta would mean lowering Canada’s standard of living, as we ratcheted back oilsands production to match our upgrading capacity at a time when the world is hungry for our output and willing to pay well for it. And that’s just for the upgrading phase, which only gives you refinable crude.
A new refinery (as opposed to an upgrader) hasn’t been built in Canada in decades. In fact the number of refineries has been steadily declining throughout Canada and the U.S., as uncompetitive facilities get phased out. Four major North American refineries have closed in the last year. The environmental and regulatory roadblocks to building a brand new refinery on a new site are such that the industry believes no such new refining capacity will ever be built in Canada.
Existing refineries also have to compete with new refineries being built elsewhere. In Jamnagar, India, 150,000 workers are today labouring on a $6-billion refinery that will be world’s largest. They have a supply of workers and a regulatory environment we cannot duplicate. North America is the target market for 40 per cent of this refinery’s production.
Because of our higher construction and other costs, it would likely cost $7 billion to $8 billion to build a new refinery in Canada if you could get approval to do so. But why would the industry invest billions to build uncompetitive new capacity that isn’t needed and likely wouldn’t be profitable? We could upgrade and refine some of our production facilities in the east (at the Irving refinery in Saint John, for example), but they are already well supplied by world oil markets, whereas getting large quantities of Alberta crude to them would be costly for little benefit.
Forcing investments of billions of dollars in unproductive capacity and delaying oilsands development won’t improve Canada’s standard of living, but the reverse. Our current policy of expanding oilsands production while continuing to build upgrading capacity and using lowcost spare upgrading and refining capacity wherever it is available gets the best value out of the resource for Canadians.
Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: macdonaldlaurier.ca.
The Hill Times – Canada’s monumental economic challenge: Our increasingly schizophrenic attitude to natural resource development
January 23, 2012 – In today’s Hill Times column, I discuss how to restore the Canadian consensus in favour of natural resource development. The full column is below:
Canada’s monumental economic challenge: Our increasingly schizophrenic attitude to natural resource development
The provinces may control natural resources, but Ottawa controls enough of the jurisdictional, legal, tax, environmental and regulatory levers that it can set the tone and get provincial buy-in for a cooperative national framework equal to the opportunity Canada faces.
By Brian Lee Crowley, The Hill Times, January 23, 2012
One of the best Canadian politicians of his generation, Macdonald left behind him an enduring and powerful legacy. No, no, not Sir John A. The other one: Donald S. Macdonald. A Trudeau-era Cabinet minister, Macdonald is best remembered for his job post-politics. At Trudeau’s behest he headed the eponymous Macdonald Royal Commission, which reported in 1985. Dry-as-dust history? Hardly. A quarter of a century later we forget how Macdonald’s report led us out of a historical cul-de-sac and revolutionized our economy. It is a feat we need to repeat today, so Macdonald’s triumph deserves our attention.
By the early 1980s, the inadequacy of the old protectionist National Policy was plain. Inefficient domestic industry sheltered behind tariff and other barriers. To that inward-looking policy bequeathed us by Sir John A. Macdonald the 1970s had added restrictions on foreign investment, aimed chiefly at U.S. multinationals.
Yet, Canada was hugely dependent on America being willing to absorb our exports. The old strategy had become a Rube Goldberg confection unworthy of a great nation.
But it was deeply rooted in our politics and our neuroses, and particularly our fear of American domination. No government wanted to seize the nettle and say what experts had long since concluded: that a formal free trade agreement with the United States was the only sensible way to promote Canada’s national interest.
Enter Don Macdonald. His royal commission launched a truly comprehensive national conversation about what Canada needed to do to prosper. His fellow commissioners came from different parties, regions and language groups.
Academic papers were commissioned, experts consulted, and hearings held in every corner of the country.
After this impressive national pulse-taking, Macdonald duly reported, among many other things, that Canada’s national interest lay in free trade with the United States. By the next election, in 1988, the deal was done and Canada has never looked back. Macdonald’s massive work of careful, thoughtful and non-political national psychotherapy allowed us to let go of old emotions and prejudices.
Today’s Macdonald will be called upon to unravel a different but equally monumental economic challenge: our increasingly schizophrenic attitude to natural resource development.
Make no mistake: Canada is on the brink of massive development fuelled by our increasingly sought-after natural resources. It isn’t just the oil sands. Potash, natural gas, conventional and non-conventional oil, minerals and rare earths, and more in almost every province and territory all presage investments of tens of billions of dollars, year after year, for many years to come.
Far from being limited to Western Canada and the North, these opportunities can indisputably be harnessed to put Canadians to work in every part of the country. Steel, vehicles, and equipment as well as engineering and other high value services from Central Canada will be required, port facilities and processing terminals will be built on both coasts, unemployed workers will be put to work in high wage occupations, trade schools and universities in our communities will buzz with energy training people for these opportunities. Canadian workers’ pensions will be invested profitably in the companies doing the work, and our financial institutions will scour the globe for the capital needed. And despite globalization, most of the resource extraction work cannot be sent to other countries, because the resources are here.
Our challenge, however, is that the old consensus that properly regulated natural resource development is good for Canada is breaking down.
We see that in the debate over the Northern Gateway pipeline and Quebec’s shale gas today, just as America’s decision on the Keystone pipeline shows that next door the consensus in favour of resource development has collapsed. Aboriginal land and other claims add a further dimension of complexity and uncertainty to project prospects. All this adds up to investors being increasingly skittish about risking their money on projects that may become interminably mired in vexatious and acrimonious approvals processes that are increasingly hijacked by special interests for whom emotion defeats evidence every time.
The consensus can be rescued, but only if Canadians can be convinced that development will go ahead under the most demanding conditions, including responsible environmental standards and fair dealing for Aboriginals. We could then free up technical tribunals like the National Energy Board to return to their original mandate, which is not to be some kind of giant opinion poll dominated by emotive opponents, but to be a place where projects are examined quickly but thoroughly on their objective merits, ensuring they live up to Canada’s high standards.
The provinces may control natural resources, but Ottawa controls enough of the jurisdictional, legal, tax, environmental and regulatory levers that it can set the tone and get provincial buy-in for a co-operative national framework equal to the opportunity Canada faces. But where is this generation’s Don Macdonald? And where is the prime minister who will put him to work?
Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.
The Hill Times
Ottawa Citizen: The real pipeline debate
By Brian Lee Crowley, Ottawa Citizen, January 14, 2012
The start of hearings about the proposed Northern Gateway pipeline to take Alberta oil to the west coast has been notable mostly for the venomous invective hurled about by the interested parties. Yet beneath the exaggerated charge and counter charge the hawk-eyed can discern the very earliest stages of a national debate that will preoccupy us for the next decade or two.
Like it or not, Canada’s economic strength has always been closely tied to natural resources. We are abundantly blessed with them, we have great expertise in extracting and processing them, we have one of the world’s great markets for financing them, and we have spent liberally on pipelines and railways and ports to take them to market.
In return natural resources have generally been kind to us. Growing global demand has driven up the price we get for them while the cost of many imports, such as manufactured goods, has remained stable or fallen. This improvement in what the economists call the terms of trade is a major cause of Canada leading the G7 in terms of income growth in recent years.
The phenomenal economic development of countries like China and India, with their insatiable appetite for our resources, has broadened markets for what we produce. That doesn’t eliminate the risk of falls in resource prices, but it makes extended declines less likely for the foreseeable future.
Yet at exactly the moment when resource investment and development, particularly in the west and the north, seem poised to take Canada to unheard of levels of prosperity, we are discovering the weakness of the institutions we have created to manage such growth in the public interest.
Take the tribunal holding hearings on the Northern Gateway. It is premised on the idea that Canadians favour the development of their resources, but want that development to proceed in accordance with high standards of safety, environmental protection and social responsibility. Technical experts, paid for by the state, subject things like pipeline proposals to searching analysis and criticism, ensuring that they meet our standards before proceeding. In their analysis they are aided by a mandatory public hearing process that is intended to assemble and then critically evaluate, by written and oral cross-examination, factual evidence put forward by proponents and opponents.
Increasingly, however, a vocal minority sees these regulatory proceedings, not as opportunities to ensure fact-based decision-taking as we develop our resources, but as a place to argue that such development ought not to be allowed at all.
But that is a political and a moral argument that such agencies are not equipped to deal with. There is a world of difference between the assumption that projects that meet Canada’s technical, environmental and social standards are in the public interest and should proceed, and the assumption that development is somehow in principle undesirable and ought not to be allowed.
In the first case disagreements about whether projects meet our standards can usually be resolved by science and reason. In the second case we have disagreements over values and beliefs, such as whether a pristine environment ought to trump economic growth and job creation.
It is not that such disagreements cannot be grappled with in a democratic society. Rather it is that regulatory tribunals are not the place to do so. Conflicts over beliefs and values are properly resolved—indeed can only be resolved—in the political arena. We have to separate the question of whether we want natural resource development from the one about whether specific projects are up to standard.
The stakes are enormous. Under the current dispensation, thousands of people, some of them apparently inhabiting different continents, can sign up to participate in the Northern Gateway hearings causing enormous delay while manifestly not contributing to the tribunal’s goal of ensuring a reasoned consideration of the project’s merits.
Such delays themselves are hugely costly to project proponents but are essentially costless to opponents. Capital that could be used putting Canadians to work and developing our resources can be driven out by regulatory uncertainty and long approval delays just as surely as by outright rejection of a project.
With oil sands production in Alberta set to exceed pipeline capacity within a few short years, blocking new pipeline construction would have the effect of stranding new production and the forgoing of billions of dollars of investment and thousands of new jobs across Canada. Allowing such hijacking of the regulatory process allows a vociferous minority to achieve indirectly what they could not win through legitimate democratic debate: the power to block natural resource development.
The “right to be heard” is an important one, but it has to be made compatible with the right of Canadians to see their resources developed thoughtfully and responsibly. Achieving that balance has just rocketed to the top of the national agenda.
Brian Lee Crowley is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.
© Copyright (c) The Ottawa Citizen
Financial Post: NAFTA is really about running a single integrated economy
December 14, 2011 – In today’s Financial Post, I discuss how North America is a deeply integrated, cross-border economy whose most important feature is not free trade in finished goods. It is our ability to make things together and then sell them to each other and the rest of the world. An excerpt below:
On Dec. 7, Stephen Harper and Barack Obama announced their “Beyond the Border” initiative to respond to exactly these practical realities at the border. The intentions are good, but the language is vague and tentative and a U.S. election year is not a propitious moment to advance the idea of more economic openness. But at least the Americans are now committed to an agreement in principle that points in the right direction. It is now our responsibility to make sure we move from pretty words to a workable border regime. Our continental competitiveness and prosperity depend on it.
The op-ed is based on my November 15th Commentary published by the Macdonald-Laurier Institute. The full op-ed is copied below.
NAFTA really about running a single integrated economy
By Brian Lee Crowley, Financial Post, December 14, 2011
What is NAFTA really about?
That might seem a silly question. NAFTA is about trade, right? It is the North American Free Trade Agreement after all.
But what if it is not really mainly about trade at all? Thinking chiefly in terms of trade might actually obscure the real point.
Unfortunately when many people think about trade, they think of it in old-fashioned terms. Each country has its own self-contained economy. And in each economy, that country’s workers make goods and services. Those finished products are then sold to other countries, which make different goods and services in their own little self-contained economy. Japan makes cars. France makes wine. They trade wine for cars.
That is emphatically not what happens for the most part in North America. What we have is not three countries and three economies trading finished products with each other. We have a single economy shared by two countries, Canada and the United States (and increasingly a third, Mexico). We have a single economy awkwardly cross-cut by inefficient and obstructive national borders.
The implication of this one-economy-but-three-countries view is that NAFTA is not (despite its name) chiefly about trading finished goods between separate national economies. It is about managing a highly integrated continental economy in which Canadians and Americans work together to make things. NAFTA should really be called the North American Integrated Production Agreement (NAIPA).
Canadians and Americans do not trade with each other as the French and the Japanese do. We make things together and then sell them to each other and the rest of the world. That is why, for example, about two-fifths of the vast “trade” between our two countries takes place within individual companies. They move goods from one plant to another at different stages of production, and those plants are spread about in both Canada and the United States.
Let me make this eminently practical. I have in my hand a drawing of a rear wheel assembly used in North American auto production. In this drawing every part contained in the assembly has been flagged to show the country in which it was produced. Roughly half the parts were made in Canada, the other half in the United States.
Take one look at that drawing (which is quite typical — it could have been made of any other assembly that goes into cars made in North America) and you realize there is no American or Canadian auto industry. There is a North American auto industry. And dig into each one of those individual parts, and you will find chemicals, metals, castings, coatings and other products from plants in jurisdictions throughout the continent. It is not just the auto industry but the entire continental production process that is increasingly integrated.
The business community got this long ago. NAFTA did not create economic integration in North America. The business community did that over many decades, in response to strategic and economic imperatives. NAFTA was a crude and belated effort to create a legal and institutional framework for an economic relationship that had outgrown national institutions.
If you want to see what North America looks like from the point of view of business, have a look at a map of the continent depicting, say, oil production, pipelines, the rail network or truck traffic. In each case I defy you to spot the border in the business decisions that have shaped these maps. The economic energy of North America surges in all directions, and is increasingly unconstrained by considerations of political jurisdiction—unless, of course, jurisdictions forcefully intrude, as in the case of, say, the Keystone XL pipeline or “Buy America.”
There’s the rub. Politicians respond only to national voters, and so live in a closed political system. Alas, that closed polity is superimposed on an open economy. Government policies that result cannot truly encompass the interests of North Americans, but only of Americans and Canadians separately. Hence we get border thickening in the post-9/11 world and post-recession protectionism in the United States. Canadians’ vulnerability is that we live in another country, but not another economy.
National policy mismatches inevitably show up at the border. An inefficient border is an annoyance in a trading bloc. But in a production bloc, it is disastrous.
To understand why, think again about the rear-wheel assembly. It required that parts be brought across the border in different directions and at different stages of production. The car industry says a North American car crosses the border five or six times in the course of its production — likely an underestimate. A thick border causes our integrated production process to stumble every time the border must be crossed. We lose time and efficiency.
By contrast, a foreign car exported to North America enters our territory only once. Since the car is already made, our border controls don’t disrupt production. Our own production crosses the border innumerable times. Every inefficient or obstructive contact there is in effect a tax that our international competitors do not pay.
North Americans are in this together, building a relationship that is virtually without precedent for its breadth and depth. In thinking about what comes “after NAFTA” we must be capable of the effort of imagination to create institutions that can overcome the political divisions that scar our economic efforts while preserving our national sovereignty.
On Dec. 7, Stephen Harper and Barack Obama announced their “Beyond the Border” initiative to respond to exactly these practical realities at the border. The intentions are good, but the language is vague and tentative and a U.S. election year is not a propitious moment to advance the idea of more economic openness. But at least the Americans are now committed to an agreement in principle that points in the right direction. It is now our responsibility to make sure we move from pretty words to a workable border regime. Our continental competitiveness and prosperity depend on it.
Financial Post
Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an Ottawa-based think-tank.
Media Update: The Ottawa Citizen, Wall Street Journal and The Hill Times!
In today’s Ottawa Citizen, I discuss the upside of downloading - cutting transfers to provinces in order to balance federal budgets. Click here for full column.
In my November 28th column for The Hill Times, I discussed the inability of the American political class to tackle their fiscal challenges. Click here to read the full column.
On November 23rd, the Wall Street Journal quoted me in an article about mounting provincial debt. Click here for more info.
