OTTAWA - On the eve of NDP Leader Tom Mulcair's visit to Alberta's oilsands, a new report backs his claim that Canada's economy suffers from a form of Dutch Disease.
A study released Wednesday by the Pembina Institute says Canada has come down with a unique strain of the phenomenon, dubbed "oilsands fever," that is producing near-term economic benefits that are often overstated.
The report says these benefits are spread unevenly across the country and could be hiding economic turmoil down the road.
But another report by a different group says Canada's oil and gas industry is spreading the wealth by using the money earned from booming exports to buy goods and services from the rest of the country.
The two reports were released simultaneously as Mulcair embarked on his first tour of the oilsands.
The NDP chief has been lambasted by western premiers and the federal Conservatives for suggesting oil exports raise the value of the Canadian dollar, which in turn hurts the economy in other parts of the country.
The phenomenon is dubbed the "Dutch Disease" in reference to the manufacturing decline that occurred in the Netherlands after a boom in natural gas exports in the 1970s.
The Pembina study says the Dutch Disease label may be too simplistic.
"It seems clear that Canada is undergoing changes, both positive and negative, that are unique to both the nature of its domestic economy and Canada's role in a shifting global economy," the report says.
"The result appears to be a uniquely Canadian strain of the Dutch Disease that could be called 'oilsands fever' — a strain that is beginning to create clear winners and losers in Canada's economy and could pose a significant risk to Canada's competitiveness in the emerging, clean energy economy."
The report urges the federal government to create a rainy-day savings fund for oil and gas revenues, get rid of tax breaks for oil and gas companies, convene an expert panel on the oilsands and the economy, study regional competitiveness in an era of a high loonie and work on a national energy strategy.
A separate report also released Wednesday by the Macdonald-Laurier Institute came to a different conclusion.
The Macdonald-Laurier study found all provinces will enjoy benefits from oil- and gas-rich western provinces that far outweigh any ill-effects from a higher Canadian dollar.
"While the so-called 'Dutch Disease' mechanism may operate, in practice it is partially (perhaps more than fully) offset by the gains to the overall Canadian economy documented by these studies," the report says.
The two reports came out the day before Mulcair is scheduled to tour Suncor's oilsands project near Fort McMurray.
Alberta Premier Alison Redford has said she won't meet the NDP leader until he visits the Fort McMurray region to educate himself about the oilsands and Saskatchewan Premier Brad Wall has also weighed in with harsh words.
Before departing on his western tour, Mulcair insisted he's not against development, he's only advocating sustainable development. And he stressed that applies not just to the oilsands but to natural resource projects all across the country.
It Began In The Netherlands
In 1977, <em>The Economist</em> coined the term "Dutch Disease" to describe the phenomenon of economies whose industrial bases suffer when large deposits of energy, such as oil or natural gas, are found. The magazine named it "Dutch Disease" because of the rapid deindustrialization seen in the Netherlands in the years after a major offshore natural gas find in 1959.
One of the effects of becoming an energy-exporting country is that speculators will start treating that country's currency as a "petro-dollar." The value of the currency rises (and sometimes falls) with the cost of the country's energy exports, which often means it becomes too high in value for exporters in other sectors. Those exporters then see their sales decline, and manufacturing suffers as a result.
As the energy export sector grows, it attracts workers from other sectors, including manufacturing, leaving fewer skilled people to fill jobs in those areas. This is known as "direct deindustrialization."
The Spending Effect
As money flows to the energy exporters from energy consumers around the world, it increases the amount of spending cash people have. That additional cash increases the demand for non-manufacturing labour -- things such as beauty salons, travel, entertainment -- which in turn sends people into those jobs, and away from manufacturing. This is known as "indirect deindustrialization," or "the spending effect."
Economists are in disagreement about whether Dutch Disease is real, whether it's an important phenomenon, and whether it actually happened in any given economy. Fifty years after the Netherlands' big natural gas find, there is no consensus on whether the country experienced the disease named after it, with many economists arguing excessive social spending was behind manufacturing's decline.
The Canadian Debate
In Canada, Dutch Disease has become a highly polarized political issue. When NDP Leader Thomas Mulcair and Ontario Premier Dalton McGuinty recently referred to what they see as the problem of manufacturing suffering under the weight of a booming oil industry, it prompted accusation of divisiveness from leaders of Western provinces. Economists don't agree either. While a recent study from the Pembina institute argues the phenomenon is real and having a negative impact, others argue the strength of Canada's oil sector is creating internal demand that's offsetting the loss of manufacturing exports. Yet others say Dutch Disease is only a part of the problem, and that other factors -- like offshoring of jobs to developing countries and increases in productivity -- are also to blame for manufacturing's decline.