Canada's oil curse

Power is shifting to the oil-happy west, a Conservative stronghold

Published June 6, 2012 6:29AM (EDT)

This article originally appeared on GlobalPost.

TORONTO, Canada — When General Motors confirmed the closing of a Toronto-area car plant last week — targeting as many as 2,000 people for layoff — the workers’ union partly blamed what it called the “artificially-inflated Canadian dollar.”

Global Post

The closure is part of GM’s overall restructuring of North American operations, begun two years ago under bankruptcy court protection. In 2008, GM received a $10 billion bailout from Canadian governments. It repaid that generosity, the Canadian Auto Workers union charges, with the gradual shutdown of an Oshawa plant that makes the Chevrolet Impala and the Equinox.

The union directed some of its anger at the Canadian dollar, which for the past couple of years has generally been on par with, or higher than, the US dollar. That makes exports more expensive, union official Chris Buckley noted, and new investment more difficult to attract. (In 2002, a Canadian dollar was worth 61 cents US.)

The GM shutdown comes as debate over Canada’s high dollar divides the country. It pits the booming resource-based economies of the western provinces against the dwindling manufacturing sector in central Canada. It’s a regional divide that has raised political tensions and strained Canada’s delicate unity.

For much of Canada’s history, economic clout resided in Ontario and Quebec. But economic power shifted west with rising international demand for resources, particularly US-bound tar sands oil from Alberta. The dollar rose even as the 2008 recession hit and wiped out hundreds of thousands of manufacturing jobs in Ontario alone.

At the end of February, Ontario Premier Dalton McGuinty said a rapidly growing oil and gas industry in western Canada had created a high “petrodollar” that hurts Ontario manufacturers. Alberta Premier Alison Redford rebuked McGuinty, dismissing his analysis as “simplistic.”

The debate was reignited last month by Tom Mulcair, leader of the federal New Democratic Party, the main opposition to the ruling Conservative government. The high dollar, he said, has “hollowed out the manufacturing sector” and cost a half-million jobs.

“The Canadian dollar is being held artificially high, which is fine if you're going to Walt Disney World, [but] not so good if you want to sell your manufactured product because the American clients ... can no longer afford to buy it,” Mulcair told Canada’s CBC Radio.

Mulcair added that Canada suffers from “Dutch disease” — a term coined to describe how the discovery of natural gas in the Netherlands in the early 1960s forced an increase in the country’s currency and a collapse in manufacturing.The main culprit, Mulcair made clear, is Alberta’s tar sands — massive bitumen deposits that cover an area the size of Florida. They produce 1.6 million barrels of tar-like oil a day. Production is expected to grow to 2.7 million barrels in 2016 and 5.4 million barrels a day by 2035.

The oil sands are keeping the dollar artificially high, Mulcair argues, because companies developing them aren’t paying for the pollution they cause, from greenhouse gas emissions to massive pools of toxic sludge.

By Sandro Contenta

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