Saturday, January 16, 2016

Reorienting The Canadian Economy


Last year was full of bad economic news. Jim Stanford writes:

By any definition, 2015 was a lousy year for Canada's economy: complete with a technical recession, plunging oil prices, and big stock market losses. Lurking in the statistics, however, is an unreported but encouraging good news story. There is growing evidence that the national economy is starting to pivot away from past over-reliance on the extraction and export of raw natural resources (and energy in particular). Instead, Canada's high-technology industrial base is starting to flex its muscles once again. And the first place this economic reorientation is becoming visible is in recent data on international trade.

We reaped the whirlwind of a resource dominated economy which sought to make us, once again, hewers of wood and drawers of water. But, if you look more deeply into the numbers, there is some good news:

In particular, the data indicate impressive growth over the last two years in all of the five value-added sectors (led by a 42 per cent two-year compound expansion in other transport equipment, mostly aerospace). This expansion has offset much of the decline in primary exports. By mid-2015, value-added exports surpassed primary exports as the largest component of Canada's exports. By the end of the year, those five sectors were accounting for around half of all exports, compared to just over one-third in early 2014. (Back at the turn of the century, value-added exports were worth twice the primary exports, and accounted for two-thirds of all exports.)

The trade deals which the Harper government signed were focused on the export of resources. But the future is in value added manufacturing:

We all know that energy and mining have been hammered by the global commodities collapse. But other exports are now starting to fill the gap. Statistics Canada defines five broad categories of "value-added" merchandise exports: industries that rely primarily on technology, productivity, and skilled labour, instead of just the availability of natural resources. These sectors include industrial machinery, electrical and electronic products, motor vehicles and parts, aircraft and other transportation equipment, and consumer goods. These technology-intensive products typically command premium prices on global markets (in contrast to depressed commodity prices).

Based on the most recent trade data (up to October), Canada's exports in these five sectors are growing like gangbusters: up nearly 15 per cent year-over-year, on top of impressive 12 per cent growth recorded in 2014. In just two years, therefore, Canadian value-added exports surged by a compounded 28 per cent. In contrast, exports of "primary" products (minimally processed resources, including agricultural, energy, mineral, and forestry products) declined nine per cent over the same time -- dragged down by slumping commodity prices.

In January 2014, the five value-added categories accounted for just 35 per cent of total Canadian merchandise exports. By late 2015, they accounted for half. In fact, once the year-end numbers are in, it seems certain that Canadian value-added exports will set a new annual record (about $240 billion), finally surpassing the previous peak set back in 2000.

There is a lot of bad news in the air. But opportunity is the flip side of crisis -- if our government is wise enough to reorient our economy.


Anonymous said...

Are our declining primary exports a reason why our value-added exports represent a growing piece of the pie?

Owen Gray said...

Partially true, Anon. But, in the end, it's all about demand. There is demand for our value added exports. The demand for our primary resources -- particularly oil -- is decreasing. And, as renewable energy becomes more affordable, the demand for our oil will continue to shrink.

Dana said...

Including "value added exports" like Light Armoured Vehicles.

Scotian said...

I'm hoping that since this happened more or less in the wake of Harper indifference to such development on a meaningful scale that the Libs will actively work to support such. So far the initial focus Trudeau has been placing on education and things like coding education as part of basic education gives me optimism that they will. One of the things that has most frustrated me on the Harperium economic front was the near total not just abandonment but active damaging done to our value added diversification sectors (manufacturing in particular) of the economy in his mania/zeal to be the resource extraction and especially energy's manservant. We have unusually for a nation of our population and background as a second level power a very strong basis for building into the high tech manufacturing and service sectors thanks to our highly educated workforce and our open society (tech development tends not to thrive so well in closed/restricted societies overall, because lets face it it it is a field where to advance/succeed you need a flexible mindset and the willingness to subvert accepted wisdom/knowledge aka "out of the box thinking" on a regular basis, and that kind of mindset is seen as a direct and serious threat in any form of closed or even strongly controlled society) nature.

One of the greatest economic acts of mismanagement by Harper was his active contempt for developing green technologies because of his service to his energy sector sponsors (I would dearly love to see who paid his leadership race costs for CA leader, funny how Harper felt unions had to disclose all kinds of stuff but not himself) regardless of his feelings/thoughts on climate change. Even if his belief it was a hoax was genuine he still should have seen this was a trend that was being taken up by most of the planet and therefore a major market was going to be created period, and therefore getting on that tech development at the ground floor was good economic sense period. I see this as one of the best proofs that Harper was no economic manager of competence, wisdom, nor foresight despite all the CPC myth-making to the contrary.

I have greater hopes with the Trudeau government when it comes to this sort of development but we are now in the position of needing to catch up from behind instead of being one of the main leaders we could have been and were a decade ago positioned for. If nothing else Trudeau's clear value on education and a well educated society/workforce should be a major boost in the right direction even without other more specific targeted aspects, and for that alone we should see some significant improvements over time. Hopefully there are those better targeted actions as well, because we really could use them, especially after the decade of darkness, but at least there is reason for some hope, especially since these developments you've noted also came out of the Harperium despite Harper, not because of him.

It doesn't hurt that we are also one of the most wired nations on the planet overall and have become very internet based as a society/culture. Over time and with good management that too should also be one of our strengths for economic development, we always did tend to do well with telecommunications development. Still, lots of challenges to go, but better reasons to be positive than we have had in a long time now.

Owen Gray said...

That's one export we could do without, Dana.

Owen Gray said...

It should be quite apparent, Scotian that -- despite all his claims to the contrary -- Harper did not manage the economy well. A good manager sees into the future and pivots when necessary. Harper suffered from tunnel vision; and the result was an economy based on 19th century economics.

The Mound of Sound said...

China and a dozen other Asian countries produce consumer goods for export, some of it pretty impressive in technological scale and quality. We, or at least the North American titans of industry, have invested our nations' wealth in growing our competitors' economies to the point where they emerge as our successors. The Spanish did it. The Dutch did it. The Brits did it. Every economic superpower reaches a period of dominance and then purchases its own decline - for the sake of much greater but short-lived returns. What the others did over a century or two, we've achieved in far less than half that span.

It's great to develop this new industrial economy but what does that mean unless we reverse our already worrisome level of inequality and rehabilitate our middle class? Yes we can bring in more wealth but where does it and the political power associated with it wind up? There is no "trickle down" economy. Even David Stockman admitted that was all a hoax. Yet there is a very real and powerful trickle up economy, a predator state that is the product of neoliberalism.

Is the question not how we can achieve this technical renaissance while also restoring balance between capital and labour in Canada? To my thinking it's a challenge we cannot win until we reclaim from capital what we so foolishly surrendered - uncontrolled access to our markets.

Here's an idea. Take a look at SAAB. Ask yourself how a small nation such as Sweden can be home to the maker of very advanced fighter aircraft that are doing reasonably well against the American and Anglo-French-German powerhouses? I'm thinking we need to SAABify our economy to get back on our feet as an industrial nation.

Hugh said...

I agree that we should be making more of our own stuff. When almost everything we purchase in the store is manufactured somewhere else, that's not good.

the salamander said...

.. very interesting reading .. perspectives like this always trigger thoughts of 'The Upside of Down' .. an amazing book.. which also examines the simple economics in play as overbearing colonial civilizations crack and fail. They make war, hold vast lands, amazing 'wealth'.. but they can't feed their home populations

Of course, every time I hear 'the Economy' (as if quoted in the holy bible) .. its often accompanied by shrieks from the likes of Joe Oliver .. "tidewater.. pipelines to tidewater' as scripted by that colonial monarchist mail clerk Stephen Harper. Now Harper may have yearned for the days of getting beaver pelts to tidewater and hence off to old England and ships bulging with salt cod to feed loyal soldiers marching dutifully in block formation into the grapeshot of cannons.. wonderful Kipling stuff.. you know.. fighting the nasty kaffirs or heathen or whirling dervish infidels.. but Harper should have studied other than addresses on Imperial Oil mail and the twisted utterings of Tom Flanagan et al. The Calgary School y'say?

Maybe something useful like Sociology.. or Cultural Anthropology.. maybe pause to question whether his odd god created dinosaurs and man on the same day, so man could use them to plow the land or drag sleds laden with hewn wood or carts with water. Funny that.. how vast oil reserves were formed millions upon years ago.. and gas! And the tar sand deposits.. how did he fail to comprehend their genesis? And does he yet? The foresight of Norway must have grated on someone who thought stripping Canada's resources for China's economy was the stroke of genius.. his genius.

Arghh.. we now reap the myopic, narcissistic arrogant evangelistic legacy of a churlish, very nasty man

Owen Gray said...

And the lower dollar will make our own stuff cheaper when it leaves our shores, Hugh.

Owen Gray said...

Sweden is an excellent example, Mound. A so called "socialist" country, it seems to understand capitalism pretty well. It's not about wealth. It's about how the wealth is shared.

Owen Gray said...

The irony, salamander, is that Peter Lougheed thought of Norway's wealth fund before Norway did. Look at what his successors have accomplished.

ron wilton said...

Maybe we should be de'orient'ing the Canadian economy.

Owen Gray said...

In the sense that we're oriented -- full tilt -- to commodities, you're absolutely right, ron.