Canada killing resource industry goose that laid the golden egg

With the cancellation of TransCanada’s proposed Energy East pipeline – after the company spent $1 billion trying to jump through ever-changing regulatory and political hoops – Canadians should remind themselves where much of our country’s recent economic uptick originated: in resource exploration and extraction.

This was illustrated again, just before the TransCanada announcement in early October, with Statistics Canada’s recent release of key census data.

The data revealed how median Canadian household income rose to $70,336 by 2015, up almost $6,900 from $63,457 in 2005, or nearly 11%.

The provincial breakdowns are even more revealing. Median income went up by $20,161 in Saskatchewan (37%), $18,151 in Alberta (20%) and $15,068 in Newfoundland and Labrador (29%).

As Statistics Canada noted, “An important factor in the economic story of Canada over the decade was high resource prices.” The agency further observed how “that drew investment and people to Alberta, Saskatchewan and Newfoundland and Labrador, boosted the construction sector and more generally filtered through the economy as a whole.”

In contrast to these booming provinces, manufacturing in Central Canada took a hit. Incomes there barely rose: Quebec saw a modest $4,901 rise (8.9%) and Ontario was a national laggard with incomes increasing by a paltry $2,753 between 2005 and 2015 (only 3.8% higher).

And that’s where a caveat should be added to the Statistics Canada commentary that “high resource prices” explain significantly increased incomes. High resource prices – be they for oil, gas, lumber or minerals – help, but only if a province or region allows its resources to be explored, extracted and then shipped to market.

The Maritimes mostly sat out the boom in resource prices because, for example, Nova Scotia and New Brunswick banned onshore exploration and extraction of natural gas. That was unlike Saskatchewan, Alberta and British Columbia, in its northern region.

Unsurprisingly then, New Brunswick’s median income in 2015 was $59,347, the lowest among all provinces. It did record 15% growth over the decade, but that looks less impressive given New Brunswick’s low point in 2005 and its still-lowest ranking today. New Brunswick’s median income in 2015 was almost $8,000 lower than in Newfoundland and Labrador, where incomes soared by almost double compared with New Brunswick. A lack of private sector investment in a profitable energy resource sector will do that.

Quebec provides other examples – of forgone opportunities and the lost potential for income growth – when governments say oui to Canada’s comparative advantage in resources instead of non.

Quebec missed much of the benefit of higher resource prices because of some local and political opposition to oil and gas development. But it’s notable that when the resource sector was allowed to thrive in Quebec, it did. As Statistics Canada observed, “several metropolitan areas in resource-rich areas had relatively higher income growth.” They include Rouyn-Noranda (up 20.4%), Va-d’or (up 18% ) and Sept-Îles (up 13.4%).

The lesson should be obvious: one comparative economic advantage for Canada is in natural resources. And this matters not just for faster-growing median incomes but also for drops in poverty. For example, resource-friendly Newfoundland saw the St. John’s low-income rate fall to 12% from 16%. Saskatoon’s low-income rate fell to 11.7% from 15.2%.

In contrast, Ontario, affected by the loss of 300,000 manufacturing jobs, recorded dramatic increases in poverty rates. That includes London (where low-income rates rose to 17% by 2015 from 13.3% in 2005) and Windsor (up to 17.5%  from 14%).

Some people would still respond to all this with the old line that Canadians should seek to be more than hewers of wood and drawers of water (a phrase that wrongly depicts the forestry and hydro sectors as backward).

That notion makes little sense because Canadians can and do invent, run and expand businesses in every sector, from high-tech to green industries to tourism and finance, in addition to responsible resource development. But it’s clear from the data that resources are a critical driver of employment and incomes in Canada.

Insofar as politicians overlook resource advantages and hobble the sector with endless, ever-changing regulation, they ignore how what’s in the ground helped produce a dramatic increase in Canada’s living standards over the last decade.

To belittle or even attack Canada’s comparative advantage in resources is to neglect the positive effect this sector has on Canadian living standards. Snubbing opportunities in developing natural resources comes at the expense of additional jobs and better incomes for the poor and the middle class. 

Mark Milke is an author, energy analyst and contributing writer to Canadians for Affordable Energy.

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