Dutch Disease Study: Harper Government Funded Research Favouring Argument They Ridiculed From Thomas Mulcair

CP  |  By Posted: Updated: 05/21/2012 11:25 am

Dutch Disease Study Conservatives
The Harper government has funded research that argues Canada's economy suffers from so-called Dutch Disease, an economic theory the prime minister and other senior officials ridiculed when raised recently by NDP Leader Tom Mulcair. (CP)

OTTAWA - The Harper government has funded research that argues Canada's economy suffers from so-called Dutch Disease, an economic theory the prime minister and other senior officials ridiculed when raised recently by NDP Leader Tom Mulcair.

Industry Canada paid $25,000 to three academics to produce the lengthy study, which is about to be published in a prestigious journal, Resource and Energy Economics.

The department also helped the trio build a database so they could investigate Dutch Disease, the theory that a resource boom that drives up the value of a country's currency can damage the manufacturing sector.

The paper, "Does the Canadian Economy Suffer from Dutch Disease?," concludes that a third or more of job losses in Canada's manufacturing sector can be attributed to resource-driven currency appreciation.

"We show that between 33 and 39 per cent of the manufacturing employment loss that was due to exchange rate developments between 2002 and 2007 is related to the Dutch Disease phenomenon," says the study.

The research, more than 18 months in the making, was carried out in part by Serge Coulombe, an economics professor at the University of Ottawa, who says Industry Canada was highly supportive of his work.

"At the time, they were interested in knowing about the issue," he said Friday in an interview, noting the final paper was subject to a "very deep external refereeing process."

"This paper has been presented at Industry Canada ... and they have helped us assemble the database."

The contract to produce the Dutch Disease paper ran from 2008 to 2009, and allowed the three authors to publish the work rather than have it remain internal to Industry Canada, which Coulombe said would have raised questions about its neutrality.

A spokeswoman for Industry Minister Christian Paradis said the study does not reflect the views of the Harper government.

"Unlike Mr. Mulcair, our government believes resource development is an important component of the economy and creates hundreds of thousands of direct, indirect and induced jobs, as well as contributing heavily to equalization payments," Margaux Stastny said in an email.

"Mr. Mulcair's politics of division, pitting one region of the country against others, and his ill-informed remarks show that his foolish economic policy will raise prices and cost Canadian jobs."

Coulombe is well-known at Industry Canada, where he was paid as a senior research adviser to the department's chief economist between 2005 and 2008. He has also been given more than 20 research contracts on economic issues by federal departments, including the Finance Department, the Bank of Canada, Statistics Canada and Human Resources and Skills Development.

The Harper government has vilified Mulcair for suggesting the Alberta oilsands have given Canada a case of Dutch Disease. Cabinet ministers have accused the NDP leader of pitting region against region and insulting hard-working workers in the resource sector.

The issue was repeatedly raised Friday in the House of Commons, where Tory House leader Peter Van Loan and MP Kellie Leitch, parliamentary secretary to the minister of human resources, both took jabs.

"Let us talk about issues of disparaging people," Leitch said in response to a question about employment insurance.

"The leader of the Opposition wants to call Canadian employers a disease."

Mulcair has said oilsands development is being carried out without properly accounting for the cost of its environment impact. His comments have triggered the ire of Western premiers, including Alberta Premier Alison Redford.

Alberta's NDP leader, Brian Mason, said Friday that Mulcair will travel to Edmonton at the end of the month for meetings with political and business leaders.

There is no consensus among economists about whether Canada suffers from Dutch Disease.

A report this week from the Institute for Research on Public Policy suggested Canada's strong dollar has hurt 25 per cent of total factory output, mostly in small, labour-intensive industries such as textiles and apparel.

Attempting to debunk the notion that an increased reliance on oil exports is hollowing out Central Canada's manufacturing base, the report concluded that cyclical factors and global competition are mostly to blame for the decline in factory production in Canada over the last decade.

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  • 10. Oil And Gas Accounts For 4.8 Per Cent Of GDP

    The oil and gas industries accounted for around $65 billion of economic activity in Canada annually in recent years, or slightly less than 5 per cent of GDP. Source: <a href="http://www.ceri.ca/docs/2010-10-05CERIOilandGasReport.pdf" target="_hplink">Canada Energy Research Institute</a>

  • 9. Oil Exports Have Grown Tenfold Since 1980

    Canada exported some 12,000 cubic metres of oil per day in 1980. By 2010, that number had grown to 112,000 cubic metres daily. Source: <a href="http://membernet.capp.ca/SHB/Sheet.asp?SectionID=9&SheetID=224" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 8. Refining Didn't Grow At All As Exports Boomed

    Canada refined 300,000 cubic metres daily in 1980; in 2010, that number was slightly down, to 291,000, even though exports of oil had grown tenfold in that time. Source: <a href="http://membernet.capp.ca/SHB/Sheet.asp?SectionID=7&SheetID=104" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 7. 97 Per Cent Of Oil Exports Go To The U.S.

    Despite talk by the federal government that it wants to open Asian markets to Canadian oil, the vast majority of exports still go to the United States -- 97 per cent as of 2009. Source: <a href="http://www.nrcan.gc.ca/statistics-facts/energy/895" target="_hplink">Natural Resources Canada</a>

  • 6. Canada Has World's 2nd-Largest Proven Oil Reserves

    Canada's proven reserves of 175 billion barrels of oil -- the vast majority of it trapped in the oil sands -- is the second-largest oil stash in the world, after Saudi Arabia's 267 billion. Source: <a href="http://www.ogj.com/index.html" target="_hplink">Oil & Gas Journal</a>

  • 5. Two-Thirds Of Oil Sands Bitumen Goes To U.S.

    One-third of Canada's oil sands bitumen stays in the country, and is refined into gasoline, heating oil and diesel. Source: <a href="http://www.nrcan.gc.ca/statistics-facts/energy/895" target="_hplink">Natural Resources Canada</a>

  • 4. Alberta Is Two-Thirds Of The Industry

    Despite its reputation as the undisputed centre of Canada's oil industry, Alberta accounts for only two-thirds of energy production. British Columbia and Saskatchewan are the second and third-largest producers. Source: <a href="http://www.nrcan.gc.ca/statistics-facts/energy/895" target="_hplink">Natural Resources Canada</a>

  • 3. Alberta Will Reap $1.2 Trillion From Oil Sands

    Alberta' government <a href="http://www.huffingtonpost.ca/2012/03/27/alberta-oil-sands-royalties-ceri_n_1382640.html" target="_hplink">will reap $1.2 trillion in royalties from the oil sands over the next 35 years</a>, according to the Canadian Energy Research Institute.

  • 2. Canadian Oil Consumption Has Stayed Flat

    Thanks to improvements in energy efficiency, and a weakening of the country's manufacturing base, oil consumption in Canada has had virtually no net change in 30 years. Consumption went from 287,000 cubic metres daily in 1980 to 260,000 cubic metres daily in 2010. Source: Source: <a href="http://membernet.capp.ca/SHB/Sheet.asp?SectionID=6&SheetID=99" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 1. 250,000 Jobs.. Plus Many More?

    The National Energy Board says oil and gas employs 257,000 people in Canada, not including gas station employees. And the Canadian Association of Petroleum Producers says the oil sands alone <a href="http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/OilsandsaCanadianjobcreator.aspx" target="_hplink">will grow from 75,000 jobs to 905,000 jobs by 2035</a> -- assuming, of course, the price of oil holds up.

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