Policy makers have placed a lot of attention on the Dutch Disease in Canada. Some analysts have noted that for every job created from oil sands, another is lost elsewhere, hence a reason to shut down or slow down the project development.
I've spend much time grinding in my mind on solutions to the Dutch Disease the last few days. Whether you believe in a shut-down or slow-down, I think it's worthwhile to seek solutions beyond the oil sands. Because fundamentally, Canada should take advantage of the high oil price to gear up for the tough times ahead. To resolve the issue, various players in Canada need to cooperate and collaborate: provinces and the fed, oil companies and manufacturers.
The problem of Dutch Disease in the Canadian context is unique thanks to our constitution. The responsibility for natural resources belongs to the provinces, not the federal government. Because of such, the fees and taxes collected are largely allocated to the provincial account. This means that the province could spend the money as it wishes, thus putting upward pressure on inflation and housing prices within the province. At the same time, some transfer payment is made to less-developed provinces, namely Quebec, as an artificial way to balance regional development. However, the positive impact of transfer payment is hardly ever seen. Quebec continues to lose population; it experienced slower growth in the last few decades.
The solution, I believe, lies in changing the industries across the nation. Policy attention should focus on how to make Canadian manufacturers more competitive on the global market such that even if our goods cost, countries will still purchase from us. One way to help the industries is through selective tax-cuts to lower the financial burden for manufacturers to adjust for the changing market. The government could also sponsor training programs to make their workers more efficient, thus offsetting the higher cost of production. Furthermore, R&D credits could also be granted for firms to expand their product line. If Canadian manufacturers are able to become more competitive, the effect of Dutch Disease can be minimized.
On the provincial level, the Albertan government should take advantage of its resources to diversify its industries. By diversifying businesses, Alberta would start to attract skills workers of various backgrounds, which is essential in developing new industries, such as the space, IT, automotive, biomedicine, and renewable energy. The government needs to create policies to lower barriers to entry in these non-oil sectors to help these firms emerge. Moreover, it also makes sense for Alberta to start investing money instead pursuing rapid infrastructure development within the province. By allocating wealth outside of the province, Alberta diversifies risks and achieves a more stable growth. Investments in secondary-education will also help the province in the long run.
Lastly, oil companies need to understand the critical roles they play in Canadian economy. They need to work with local industries to assist them rather than blocking entries. Oil companies should look into providing discounts to domestic industries and expertise. By collaborating with local businesses, they form a network with fluid information flow. This helps non-oil companies better manage risks and thus maximizing output potential.
If the provincial government could collaborate with the fed, and the oil companies cooperate with industries to make Canadian manufacturing more competitive. Not only do these strategies cure but also prevent the Dutch Disease. So when the prices fall and oil runs dry, Canadians would still benefit from a sound and competitive economy.
I've spend much time grinding in my mind on solutions to the Dutch Disease the last few days. Whether you believe in a shut-down or slow-down, I think it's worthwhile to seek solutions beyond the oil sands. Because fundamentally, Canada should take advantage of the high oil price to gear up for the tough times ahead. To resolve the issue, various players in Canada need to cooperate and collaborate: provinces and the fed, oil companies and manufacturers.
The problem of Dutch Disease in the Canadian context is unique thanks to our constitution. The responsibility for natural resources belongs to the provinces, not the federal government. Because of such, the fees and taxes collected are largely allocated to the provincial account. This means that the province could spend the money as it wishes, thus putting upward pressure on inflation and housing prices within the province. At the same time, some transfer payment is made to less-developed provinces, namely Quebec, as an artificial way to balance regional development. However, the positive impact of transfer payment is hardly ever seen. Quebec continues to lose population; it experienced slower growth in the last few decades.
The solution, I believe, lies in changing the industries across the nation. Policy attention should focus on how to make Canadian manufacturers more competitive on the global market such that even if our goods cost, countries will still purchase from us. One way to help the industries is through selective tax-cuts to lower the financial burden for manufacturers to adjust for the changing market. The government could also sponsor training programs to make their workers more efficient, thus offsetting the higher cost of production. Furthermore, R&D credits could also be granted for firms to expand their product line. If Canadian manufacturers are able to become more competitive, the effect of Dutch Disease can be minimized.
On the provincial level, the Albertan government should take advantage of its resources to diversify its industries. By diversifying businesses, Alberta would start to attract skills workers of various backgrounds, which is essential in developing new industries, such as the space, IT, automotive, biomedicine, and renewable energy. The government needs to create policies to lower barriers to entry in these non-oil sectors to help these firms emerge. Moreover, it also makes sense for Alberta to start investing money instead pursuing rapid infrastructure development within the province. By allocating wealth outside of the province, Alberta diversifies risks and achieves a more stable growth. Investments in secondary-education will also help the province in the long run.
Lastly, oil companies need to understand the critical roles they play in Canadian economy. They need to work with local industries to assist them rather than blocking entries. Oil companies should look into providing discounts to domestic industries and expertise. By collaborating with local businesses, they form a network with fluid information flow. This helps non-oil companies better manage risks and thus maximizing output potential.
If the provincial government could collaborate with the fed, and the oil companies cooperate with industries to make Canadian manufacturing more competitive. Not only do these strategies cure but also prevent the Dutch Disease. So when the prices fall and oil runs dry, Canadians would still benefit from a sound and competitive economy.
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