Should we worry about being a resource economy?

MADELAINE DROHAN

Globe and Mail Update

October 11, 2007 at 3:49 PM EST

Is being a resource-based economy really so bad?

You would think so from the comments Globe and Mail readers posted Thursday after Statistics Canada drew attention to the overwhelming importance of metals and minerals to the Canadian economy.

The tone was practically funereal and there was much discussion about the potential negative consequences of making money from mines and old wells rather than high-tech gadgets and software. It was almost as if the study contained bad news.

It did not. Instead, it chronicled developments in the resource sector and pointed out that Canada has been able to benefit from the so-called commodity super-cycle by having lots of what the world wants, even as demand changes from energy to metals to farm products.

The study went on to say that more processing is done in Canada than is commonly believed, which would seem to be good news. So why the negative reaction?

Philip Cross, the author of the study, may have inadvertently stirred the pot by telling Canadians that instead of being “hewers of wood and drawers of water” they were really “conveyors of crude and moilers of metals.” While undoubtedly accurate, this is not an image anyone outside the mining and energy industries can warm up to and certainly not anything we would want to make a national brand.

Mr. Cross helpfully added a footnote explaining that the original hewers of wood in the Bible were condemned to that menial task after deceiving Joshua, giving Canadians an additional reason to resent that label.

That can hardly explain the angst over a report that simply points out what we already know: minerals, metals and farm products are currently driving our economy. So what else is going on?

No doubt, some Canadians are disappointed that we didn't turn into the high-tech powerhouse that countless politicians told us we would become. As a country, we made a stab at it in the 1990s, when Nortel was flying high and the tech sector was growing by leaps and bounds.

The dot-com bust and the emergence of China as a major consumer of commodities put paid to that. It's not that tech companies have disappeared from the Canadian landscape, but rather that resource companies have come to the fore. So, unrealized expectations may be contributing to the backlash.

A more likely explanation to my mind is that the report has given rise to a number of related fears that aren't about our image or the current make-up of our economy, but about the impact and consequences of riding the commodity boom.

The environment is at the top of the list. The mining and energy industries have a poor image in this regard, both in how they extract their products and, in the case of fossil fuels, how those products are used. Hearing how dependent the Canadian economy is on these sectors alarms people who care about the environment.

Who ultimately benefits from the resources is another concern. The dispute in Alberta between the government and the oil companies over royalty payments is a case in point. Are corporations pocketing too much of the resource wealth? Should they not be giving more to the people who own the resources? The Statscan report is mute on this point, but its central findings on the importance of the sector will feed into this debate.

Then there is the East-West split in Canada, which is revived any time energy riches are discussed. Manufacturers in Ontario are being hurt by the rapid appreciation of the Canadian dollar, which has been caused in part by global demand for Western resources. There is sniping from both sides of the divide whenever energy's role in the economy is raised. And there is the mistaken impression that only Alberta is benefiting from the oil boom, when in fact the benefits flow across Canada.

Finally, there is the question about the future that hangs over any discussion of resources. While the Statscan report had some encouraging findings about how prone resource industries are to boom and bust (as prone as many other sectors in economy), the current situation will not last forever.

Eventually demand will slacken or the mines will run out and the wells will run dry. What happens then? Does any government in Canada have a vision or a plan for what happens next? Are investments being made today in infrastructure and education that will enable the country to shift directions when the time comes?

To a certain extent, countries have to play the hand they are dealt and Canada has been dealt an abundance of natural resources. It's our good fortune that what we have is in hot demand at the moment. But that does not mean we can't play our hand more skillfully.

If governments did a better job of addressing the very real fears that people have about the impact and consequences of our resource dependence, Canadians could be more comfortable with the idea of being a resource-based economy. That said, the label “conveyors of crude and moilers of metals” will probably never have broad appeal.