Published in the Toronto Star on Feb. 9, 2012
By Daniel Schwanen
The closing of Caterpillar-owned Electro-Motive Diesel’s London, Ont., plant, and the loss of some 500 jobs that came with it, is one of many such disruptive events that have befallen Canadian manufacturing in the past five years. The closing earlier this year of Mabe’s household appliance plant in Montreal, putting more than 600 employees out of work, is another example.
In both cases, the inability of the plant to compete on labour costs with other North American facilities and workers were key factors in the decisions. Canadian dollar wages have in many cases become uncompetitive with those set in the United States, notably because of the loonie’s climb versus the greenback.
Charges that politicians are “useless” in the face of such changes are true, insofar as trying to prevent change due to shifting global competitive conditions — rather than adapting to those changes — is a mug’s game.
Neither public subsidies nor a tougher application of Canada’s “net benefit” test applied to large foreign direct investments can prevent these changes in the medium-term. Indeed, policies that would prevent companies — whether Canadian or foreign-owned — from doing what is necessary, within the confines of Canada’s laws and regulations, to adapt to these changes, would only result in Canada’s economy shooting itself in the foot.
Some commentators have also bemoaned the loss of “our” expertise and intellectual property, since Caterpillar purchased valuable Canadian-developed expertise to help expand locomotive manufacturing in the United States. However, Electro-Motive and the intellectual property that came with it were previously owned by General Motors, another large U.S.-based multinational. The jobs that existed there for decades would not have been there without foreign investment.
Prime Minister Stephen Harper rightly expressed his desire to see Canadians get more bang for the buck from publicly supported research and development. But to prevent foreigners from acquiring privately owned expertise developed in Canada and using it where they want in the world after they’ve properly paid for it, would in the long run almost certainly hurt rather than encourage innovation in this country. After all, many thousands of jobs in Canada depend on the application we make here of foreign-owned intellectual property.
To be sure, Canada’s policy framework should aim at fostering private-sector investments, including in patents that can create and sustain good jobs in Canada. But the notion that our manufacturing sector could be helped by restricting international investment or international trade — typically the source of high-paying Canadian jobs, including in the service economy — or by imposing onerous conditions on them, or trying to financially prop up uncompetitive businesses, flies in the face of logic and experience.
Yes, the number of jobs in Canada’s manufacturing sector has been declining, as it has in virtually every advanced economy. But relative to the size of its economy, Canada has lost far fewer jobs in that sector over the past 20 years than most of its peers, including such economic powerhouses as the United States, Germany or Japan, or others often held up as examples such as Sweden.
Canada has and will continue to create new manufacturing jobs in areas in which it has unique advantages, and where it can combine technical competence, intellectual property, innovative design and hard work — and attract the employees that bring these qualities. Meanwhile, the number of jobs in other goods-producing industries, or in goods-related service industries such as transportation and logistics, will continue to grow.
The higher Canadian dollar is, in fact, a signal for resources to move to higher value uses. Many Canadians are doing this, and reaping the benefits. The same high resource prices that put upward pressure on the Canadian dollar are also the source of many of the more than 1.8 million manufacturing jobs in Canada, including companies providing technologically sophisticated goods for the oilsands.
Six years ago, a pulp mill in Lebel-sur-Quévillon, Que., permanently closed, throwing 425 people out of work. Last week, Vancouver-based Fortress announced it would invest hundreds of millions to reopen and upgrade the facilities, converting them to higher grade products for export to China. The plant will directly re-employ more than 300 workers.
Canadian governments may need to do some soul-searching with respect to a decent transition for those affected by plant closures, including transition towards jobs in growing sectors. But they need to stop throwing good money after bad in preventing, rather than facilitating, adjustment to global competitive forces.
Daniel Schwanen is associate vice-president, international and trade policy, at the C.D. Howe Institute.
