Mulcair's Misdiagnosis of Dutch "Disease" Won't Help our Economy

05/22/2012 07:39 EDT | Updated 07/22/2012 05:12 EDT

Thomas Mulcair's theory that Canada is suffering from the "Dutch Disease" has caused a national stir. Mulcair is arguing that Canada's natural resources sector's boom has artificially elevated the value of the Canadian dollar which in turn made Canadian manufactured goods more expensive, placing downward pressure on our manufacturing sector.

True to form, instead of engaging in a thoughtful discussion about this subject, the current Canadian political landscape does what it does best: It flattens the debate and turns it into simple sound-bites that avoid the crux of the matter. The replacement debate has now become whether you are pro-oilsands or anti-tarsands.

This is quite unfortunate. The original question is worthy of an informed and intelligent conversation.

Is our dollar over-priced? Is increasing international demand for our natural resources adding upward pressure on our dollar? What is the real impact of an inflated dollar on our economy including our manufacturing sector?

It's reasonable to conclude that the Canadian dollar is experiencing increased international demand which is raising its value. Much of that demand comes from the fact that the world needs our natural resources. Not just oil, but minerals and potash among others. It's also reasonable to conclude that the stability of our financial sector is also increasing demand for our dollar; meaning that there are other factors that influence the price of our dollar beside the natural resources sector.

But let's assume that our dollar is higher due to our natural resources sector, should our government do anything about it?

Here is where Thomas Mulcair fails. His prescription is to make "polluters pay" and that the natural resources industry should fully account for its pollution.

And then what? How is that going to reduce pressure on the dollar? How does that help other industries? Does he want to implement a selective "polluter pays" policy that target only the natural resources sector and exclude the manufacturing sector?

Frankly, Mulcair has little credibility on this issue. In the 2008 election campaign he campaigned against the idea of placing a price on carbon and against "polluter pays." But I digress.

The economically and environmentally sound policy idea of "polluter pays" will not suddenly decrease international demand for Canadian natural resources and will not automatically reduce the value of our dollar. "Polluter pays" would also cover all industries, not just natural resources. It will place smart incentives to reduce emissions and create a marketplace for energy efficient products but it will not reduce global oil prices.

Unless Mulcair is advocating to isolate Canada from international markets and stop all exports, the "polluter pays" policy will not relieve pressure off our dollar.

Mulcair is correct though when he calls for "polluter pays" to be implemented today before tomorrow. It is regrettable that the Conservative government keeps stalling its implementation. Not only for moral and environmental reasons, but also as a fair economic policy.

But what about the pressure our natural resources exports is placing on our dollar and by extension on our manufacturing sector? "Polluter pays" is as effective to help other industries as trying to solve an algebra equation by chewing bubblegum -- to quote the famous sunscreen song.

Some will argue that the government shouldn't do anything and let the market determine what industries succeed or fail.

Along with implementing a "polluter pays" policy, a wise federal government would take advantage of the probably cyclical success some sectors are experiencing by investing tax revenues from those sectors into education, infrastructure and other investments that would prepare other sectors in the economy and enable them to become more competitive.

Regional economic successes is not a zero-sum game. The success of one region should not be seen as taking away success from another. As a country, we succeed and fail together. The government's job is to ensure the creation of a sound and sustainable business framework that protects the interests of its citizens and invests in their future.

A visionary leader would see this as an opportunity, not a disease.