Week's End News Round-Up

Canada's Dutch Disease:  Fact or Fiction?  Today Bank of Canada Governor Mark Carney defends Canada's growing economic reliance on energy, increasing commodity prices be damned.  If you want to see his take on the energy sector vs. manufacturing sector debate, check out Maclean's Stephen Gordon's "annotation" to Gordon's speech--you'll feel like your an economist for a day!  And you'll see evidence that Canada and America's trading relationship may be changing in the coming decade:

So what treatment does [Carney] suggest? A good summary of his recommendations is “eat your vegetables.” Firstly, Canadians should get past the notion that the path to prosperity lies in being the low-cost exporter of manufactured goods to the United States... 

Carney's answer:  Dutch disease worries are a "caricature" which would limit the positive growth of Alberta's oil sands.  Naturally, the Organization for Economic Co-operation and Development (OECD) disagrees.

Reforming Canada's Healthcare.  The Hill Times' opinion page offers a strong argument to allow a mixed-healthcare system in Canada (i.e. allow Canadians to pay for private care).  Some interesting parts from the piece: 

If all of this bureaucratese sounds familiar, you’re right. This is the 19th major examination of the Canadian health-care system in the past 15 years. Yet, once again, the “nail” each study has continued to hammer is stuck in the paradigm that Canada’s health-care system must remain a government run monopoly.

That paradigm was starkly enunciated by Health Council of Canada member and former Vancouver General Hospital president Charles Wright who stated: “Administrators maintain waiting lists the way airlines overbook. As for urgent cases, the public system will decide when their pain requires care. The individual cannot decide rationally.”

...

If so, they should take heed of a recent Ipsos Reid survey that shows 76 per cent of Canadians support a “mixed model” of health care giving them the option of spending their own money for private care.

Job Growth Pushes The Canadian Dollar Up Against the Dollar.  Canada added 30K+ jobs last month, pushing up the Canadian dollar.  But Canada's 7.3% unemployment rate hasn't changed; though, British Columbia's unemployment has gone down.  America's job-outlook:  not so great.  

The Mega-Rich America's New Successionists?  Mike Lofgren, a longtime U.S. Congressional budget committee Republican staffer, writes in The American Conservative:

If a morally acceptable American conservatism is ever to extricate itself from a pseudo-scientific inverted Marxist economic theory, it must grasp that order, tradition, and and stability are not coterminous with an uncritical worship of the Almightly Dollar, nor with obesisance to the demands of the wealthy.  Conservatives need to think about the world they want:  do they really desire a social Darwinist dystopia?

...

Now, almost two decades later, the super-rich have achieved escape velocity from the gravitational pull of the very society they rule over. They have seceded from America.

Agree or not, Lofgren's new book, The Party Is Over:  How Republicans Went Crazy, Democrats Became Useless, and the Middle Class Got Shafted is worth checking out, as is the rest of his article Revolt of the Rich.

Canada Gets Out of Iran.   Canada today severed diplomatic ties with Iran, closing up their embassy and giving Iranian diplomats 5 days to get out.

Ontario Gets a Minority Liberal Government (Again).  After two by-elections in Ontario, the Conservatives lost a seat they held for 22 years, and the NDP won a seat the Liberals held since 2001.  The result?  The Liberals fell one-seat short (again) of a majority government.  As for the Conservatives' shutout, Progressive Conservative Ontario leader Tim Hudak is keeping his job.  Interesting note:  the byelection was engineered by the Liberals to win a majority.

More On Canada’s Exports

By Keith Edmund White, Editor-in-Chief

Canada's losing its share of the global export market, some blame the United States, but is this whole debate just a way to bury potentially troubling Canadian marco-economic policies underneath a swallow rhetorical debate on Canada's place in the world?

So...is America to blame for Canada’s dwindling share of the world’s export market? And what does this matter anyhow?

Last week’s speech by the Governor of the Bank of Canada Mark Carney has led to some interesting economic discussion in Canada. 

Carney, noting Canada’s decade-long slide in the global export market, placed blame on “overexposure to the US market and underexposure to emerginng markets….”

But William Watson from McGill makes an interesting counter-point when it comes to the impact of Carney’s words: in short, let the markets work. From Watson’s editorial in the Ottawa Citizen:

On average since 2000, the rich countries to which we send 85 per cent of our exports have been growing at under two per cent per year, while the “emerging markets,” some of which have pretty much completely emerged by now, have been growing at over four per cent. The import of these numbers is that Canadian exporters will want to think about focusing more on rapidly growing markets and, if they agree with Carney that these trends will continue, less on our traditional markets.

Of course, the great thing about a capitalist economy is that businesses don’t actually need a high government official to tell them where to turn their export intentions. As if on cue, on Wednesday Statistics Canada released its annual review of our merchandise trade. While in 2002, 87.1 per cent of our exporting and 62.6 per cent of our importing was with the United States, last year those numbers were 73.7 and 49.5 per cent, respectively. Canadian businesses, not policy-makers, are who we want making decisions about where they can get the best deals for their products. It seems they’re already on the case.

Naturally, this back-and-forth is covering up an important question: why are Canadian exports getting this much attention? Well, first, Carney is reacting to Canada’s post-recession export boom not really mirroring past trade trajectories. Second, Canada’s exports represented 26% of the Canadian economy. So it is an important chunk of Canada’s economy. But, on the other hand, simply increasing exports doesn’t naturally equate to greater economic growth: if new exports, for example exports in manufactured goods, triggers the need for more oil imports, could dilute the impact of positive export growth.

But the real issue behind this debate is how Canada can keep finding markets for their exports, especially in the face of an American economy is not growing like it was in the 90s. With Canada's population 1/9 the size of America's but maintaining an average income that is 50% higher than America's, diversifying markets in face the of an uneven American recovery seems an obvious economic and political priority. And this is especially important as the Canadian economy has been floating on robust consumer spending that has, in Carney's opinion, generated an unsustainable increase increase in household debt.

But, as Watson points out, Canadian businesses act economically rationally: having policy makers tell Canadian businesses where to trade doesn't really make sense--the businesses will make the best choice for them. You want to make Canadian exports more competitive? Raise the currency. You want to cut back Canadian debt levels? Raise interest rates. What I take from his article: 'Thanks, but don't lecture Canadian businesses for responding to the environment you've put them in.'

Naturally, these policies in effect take away 'free money' that Canadians are enjoying: a stronger dollar allows consumers to enjoy travel and more foreign goods, and low interest-rates allow them to over-consume, which is always fun until the party ends. And why would a Conservative government, just enjoying its majority government, want to get in the way of this party. So, instead, we seem to see the Bank of Canada Governor's speech trying to find another way to protect Canada's long-term economic interests without engendering public blow-back: let's focus on who are businesses are and are not trading to and if we can put some blame on the States--why not?

But, whether or not my cynical reading is even close to accurate, one thing is clear: that there’s some serious economic soul-searching going on in Canada, and it might have bad ramifications on the Canada-U.S. bilateral relationship. The graphs below show just how important a trading partner the United States is to Canada.

But, first, more from the AFP article assessing Canada’s current export health:

Over the past decade, Canada's share of world exports has declined from about 4.5 percent to about 2.5 percent, and its manufactured-goods export market share has been cut in half, he added. 

Meanwhile, export growth is almost five percentage points slower than the global average per year, ranking Canada's performance as the second worst in the G20. 

Carney pointed to Germany, which has maintained its market share in manufactured goods by exporting capital goods and automobiles to China and Australia's rising exports of commodities to China as examples to follow. 

He noted that strong household spending has lifted Canada's fortunes of late, but at a cost -- rising household debt, which he said is "unsustainable."

Canada-U.S. Commentary Highlights

by Keith Edmund White, Editor-in-Chief

*Note an earlier version of this article incorrectly referred to James Coan as Joan Coan, and omitted to refer to other Woodrow Wilson materials related to deepwater drilling.

A wrap up some commentary from March and April I thought might be of interest. Topics include Canada's federal and Ontario's provincial budget, Canada's Asia pivot, offshore drilling, a chat with the Prime Minister, and some summit forecasting.

Canada’s Asia Push. Paul Wells blogs on Bank of Canada governor Mark Carney’s tying Canada’s “unsteady” recovering with Canada’s shrinking share of the world’s export since 2000. The cause: the high Canadian dollar and “a reflection of who we traded with than how effectively we did it.” And guess what “who” he’s talking about? The United States. The solution? “[R]efocus[ing] on commodities exports to Asia.”

Two Budgets, Four Commentaries Plus a Quick US Comparison. Last week, Canada’s Conservative federal government released its first majority budget; at the same time, Ontario Liberal government released its first budget as a minority government. Fleishman Hillard’s Anne Marie Quinn provides some context to the budget proposals. Even in these two different situations, American readers can glean the dramatic difference in Canada's budget politics. The Fraser Institute slams the Conservative government “no-cut” (but rather cost savings budget), arguing that the Conservatives should have used their new majority government to “enact a bold and aggressive plan to balance the budget more quickly through actual reductions in spending.” Finally, going back to Ontario, this Atlantic Market Institute for Market Studies sets forth broad guidelines of balancing Ontario’s budget through cuts, not new revenues. Best budget overview, though, goes to Michael Holden's blog post at the Canada West Foundation.

Assessing Summits—More Players, Less Substance? Chris Sands reads the past and future Summit dance-card, predicting which ones are worth watching—and which aren’t.

Woodrow Wilson Center Gets Two Shout-Outs:

Canada’s Offshore Drilling—Decentralized Better (Or Should We Be Looking at Other Variables)? Woodrow Wilson’s Canada Institute chats with two experts on the differences in the U.S. and Canadian offshore drilling political regimes. interviews Alexander MacDonald, managing partner of the St. John’s, Newfoundland and Labrador office of Cox & Palmer, an Atlantic Canadian law firm. Offers some nice (and thankfully well-edited) clips with Mr. MacDonald. Key insight: offshore drilling is a provincial-federal issue, not like America’s debate which is held hostile on the national stage. Joan James Coan, Energy Forum research associate at the James Baker III Institute for Public Policy then comes up and pushes back a bit: he notes that even if a (future Republican) U.S. president took the federal obstacles away, how many States would actually opt for drilling? While he might be right on western coast Florida and the Northwest, I’m not so sure about Virginia. 

Some omissions additional aspects of note: (1) discussion on the politics of Canada west coast offshore moratorium, and (2) the different model of offshore regulation Canada uses ("goal oriented") from the United States (criticized as overly "prescriptive"). Yes, a bit wonky--but critical to assessing whether any U.S. offshore expansion sticks (not to mention if Canada is sticking on its own Deep Water Horizon time bomb).

The Woodrow Wilson Center offers more of these topics in their publication The Risk and Regulation of Deepwater Offshore Drilling: American and Canadian Perspectives and the 14th edition of the Center's One Issue, Two Voices series with James Coan, Alexander MacDonald, and moderator David Longly Bernhardt on the topic of deepwater offshore drilling. This March 7, 2012 event is what led to the shorter interviews discussed above.

[Note: CUSLI-Nexus thanks the Woodrow Wilson Center for bringing the misnaming of Rice University Research Associate James Coan and its deepwater drilling materials to its attention]

Woodrow Wilson Snags PM Harper for hour-long chat in DC. Harper chats on Canada’s envious economic performance over the recession, among other topics. A “very solid system of financial regulation” – really? What about that murky, provincial system of securities regulation?) Harper notes Canada’s stimulus response (emphasizing “shovel-ready projects” like the U.S.), but emphasizes that Canada’s smaller debt as giving it greater flexibility. But let’s be fair: Canada had the nice buffers of a booming economy market and a property market that hasn’t crashed. And, perhaps, a less polarized political sphere? And what about simple differences in scale between the two stimulus approaches? But I would be interested in reading a comparison on Canada and America’s stimulus approaches. Harper also dishes on Keystone XL, foreign policy, health-care, Canada joining the Trans-Pacific Partnership, and other topics. Two additional topics worth noting here: Canada’s push for FTAs around the world, and Canada’s “profile challenge” when it comes to addressing tensions in the U.S.-Canadian relationship.

And Canada West Foundation Reports on Water in Stress Points. Could federal involvement in water policy be on its way? This March 2012 Report describes seven stress points in Canada’s water security. The culprits? Agricultural demand for water, shale gas development, oil sands development, uranium mining, urban growth in Canada’s west, the deteriorating health of Lake Winnipeg—which could pose become a thorn in the US-Canadian relationship. One important point brought up by the report: where do aboriginal rights fall into increasing Canada’s water security? Another point not really discussed: assuming the federal government wants to stretch its muscle in this provincial area, in light of the Canadian Supreme Court’s ruling on securities regulation, what shape should it/will it take? Final note: were getting a national water policy in Canada depend on the NDP leadership race?

And Yes, It Is All About Gas. Finally, Metanoodle cuts through some of the noise on what can and can not be solved when it comes to North American energy prices. Key points: (1) gotta think in oil districts and (2) the sexy topic of transfer capacity. And is four cents enough when it comes to the Keystone XL pipeline?