Weak polling on a strong Canadian dollar

When an important issue is complex and poorly understood, it’s tempting to turn to demagogues to clear things up. As bad an option is to leave it to polling firms like Forum Research Inc. to define the question.

Yesterday, the National Post released the Forum’s results on a legitimate national issue: what to do about the Canadian dollar? Its existence and its value are critical to the well-being of every Canadian and to the shape of Canada’s future economy. Unfortunately, they asked a loaded question, reflecting a lopsided, shallow understanding of what’s at stake.

Some 1,800 Canadians were asked: “Which is better for Canada, a high dollar based on resource exports, or a low dollar supporting manufacturing?”

Click on: http://news.nationalpost.com/2012/05/28/ndp-making-huge-gains-as-canada-tilts-leftward-poll/

Predictably, a healthy plurality of Canadians (45% to 35%) favored supporting manufacturing over a “high” dollar. No kidding.

It’s hard to imagine how anyone, not living in a mining town, could turn down the only positive proposition in the question: supporting manufacturing.

Rational economic policy-making can carry on despite the popular myth that manufacturing is our most important sector. It’s been a myth for generations. However, there are elements of Forum’s question that further undermine intelligent discussion.

The question asked about a “high” dollar, implying that something is out of the ordinary. It didn’t ask whether Canadians like having the dollar roughly at par with the US dollar, as it is today, or whether they’d like it to shrink to 80cents, for instance.

Furthermore, it stated as a fact that the high dollar is “based on” resource exports, a widely disputed assertion. 

Most important, it established an arguable beneficiary—manufacturing—of a weaker Canadian dollar, but didn’t identify the downside. This reflects a dimwitted, hoary tendency of seeing economic conflict as a struggle amongst producers, with the consumer out in the cold.

It would have been more accurate in economic terms (and, so, more honest) to ask: would you favor a reduction in your relative standard of living to enhance the profits and, thereby, the growth of traditional exports industries, including resource, energy, and autos?

A Goldilocks Dollar for a cheaper version of Canada

Leadership sometimes points backwards.

Dalton McGuinty would like to go back to the circumstances he inherited when he became Ontario premier in 2003: when Ontario dominated Canada politically, possessed first-rate infrastructure, and, most conveniently, could export its goods with a 30% export price advantage—thanks to a very cheap Canadian dollar.

Yesterday, McGuinty meticulously outlined Ontario’s worn-out case against Western Canada’s “petro-dollar”:

“That has knocked the wind out of Ontario exporters and manufacturing in particular,” Mr. McGuinty told reporters. “So if I had my preferences as to whether we had a rapidly growing oil and gas sector in the west or a lower dollar, I’ll tell you where I stand: with the lower dollar.”

Click on: www.theglobeandmail.com/news/politics/redfords-energy-vision-clashes-with-mcguintys-view-of-oil-sands-benefits/article2351145/

This is divisive bravado and defeatist economics. The man should settle for bland.

McGuinty can’t even divide the country. The office of Premier of Ontario doesn’t have that kind of weight anymore. McGuinty’s resentment toward robust Western development can only help Alberta’s Premier Alison Redford win an election. Simply, the country’s leadership can’t take his advice.

No Canadian federal government could get elected with a mandate to slow the export of provincial energy and natural resources and would have a tricky time constitutionally if it tried. Furthermore, artificially lowering the Canadian dollar without a collapse in resource exports would likely—and legitimately—invite US retaliation.

As important, McGuinty is repeating a creepily reactionary idea about how Ontario should grow and be treated in Canada. Specifically: if the dollar isn’t nicely aligned to serving the interests of Ontario’s traditional manufacturers, it surely must be out of whack—off serving those philistines in the West.

In this equation, Ontario’s interests are boiled down to be the interests of Ontario’s export manufacturers and their old ways of doing business. Other Ontarians and other Canadians—and their purchasing power in the world—are of negligible account.

There is something deceitful and illiberal about trying to talk down the value of the Canadian dollar to make Canadians in Ontario manufacturing richer by making other Canadians poorer.

Can you imagine the Governor of Michigan or the Mayor of Chicago blaming their economic woes on the US dollar and strong export sectors elsewhere in the US?

Imagine ambitious American politicians asking Ohioans to sell less food to the world or asking Californians to cut back on the $billions they earn selling films and music internationally!

The United States has been holding its own—around 20% of the world market in manufacturing for the last 20 years—without the help of a US dollar that has been thoughtfully aligned to serve the interests of its manufacturing sector.

Dalton McGuinty should accept that Canada has no better alternative: accept the benefits, along with the demands, of a Canadian dollar effectively at par with the US dollar and get on with his job.

Trade diversification: a Canadian way of looking away

When economic and political conditions in the US become uncertain, it looks respectable, even far-seeing for Canadian governments to dust off Pierre Trudeau’s 1970’s “Third Way.”

Last week, Stephen Harper visited Brazil and Honduras and talked up trade diversification globally and stay-the-course fundamentals at home. This weekend, the Premier of Ontario Dalton McGuinty promised that he’ll double the number of premier-led international trade missions if he’s re-elected.  

The Harper government is in active negotiations with the EU and India and is reported to be gearing up to pursue some fifty bilateral trade deals globally. The only doubts that have been raised about this priority have been about its sticking power. Looking for new friends and influence is uncritically accepted. The Globe and Mail portrayed this multi-directional approach in imperative terms.    

“The Prime Minister, eager to diversify Canada’s trade away from the ailing U.S. economy, is on a four-country Latin American tour to open doors for Canadian businesses.”

Click on: www.theglobeandmail.com/news/politics/harper-reopens-free-trade-with-costa-rica-offers-security-aid/article2126105/

How can you quarrel with that? Are two political animals as different as Dalton McGuinty and Stephen Harper chasing a small idea? Yes.

As a platitude, it’s fine. Keeping public servants busy “thickening” relations around the world and the rest of us reading about expanding world trade beats protectionist alternatives lurking below the surface. 

Risk mitigation activities often make sense. There’s nothing wrong with Russian capitalists and Saudi Princes swelling Swiss bank accounts. But let’s not dignify the “Third Way” as problem-solving.

Trade missions to new markets do not solve basic economic problems.  Furthermore, addressing Canada’s fundamental competitive problems—lagging productivity, innovation and entrepreneurship—without regard to the fate of the United States is futile economically and rather cowardly.

The impetus for this “let’s-grow-somewhere-else” commercial strategy has proven, time and again, to be false. The United States is ailing, but it isn’t waning as a market or as an advanced economy.

It is experiencing a painfully slow recovery and is bitterly torn about how to resume sustained growth. Nevertheless, its productivity as a manufacturer and as a generator of high income jobs leads most of its competitors. Indeed, America’s productivity per worker is consistently 20% to 25% greater than Canada’s.

The US government has no grand government strategy to escape the North American market. Nevertheless, it’s beating Canada on the ground as a trade diversifier. Last year, according to The Economist’s Pocket World in Figures, 5.6% of US exports went to China. Despite Canada’s fabulous resource advantages and longstanding determination to broaden its trade relations, only 2.3% of Canadian and only .04% of Ontario exports went to China.

Last year, 77.7% of Canada’s and 78.8% of Ontario’s export of goods went to the US. Only a 1 or 2% decrease in the value of that market would wipe out a doubling of Canadian sales in South America. A 50% increase in sales to Western Europe (a heroic assumption) wouldn’t offset that shortfall either.

Canada and the United States both champion free trade and can compete internationally. Nevertheless, their high value sectors are already significantly integrated and their prospects internationally are significantly bound up in how well they perform as one open economy.

Trade diversification—that is, trading a little less next door and relatively a little more elsewhere—may be a long-term outcome of globalization. But, it will most likely succeed for Canada as a North American partnership.  

Globalization should bring Canada and the United States closer together. Scurrying around the world is no substitute for political leadership to break down barriers in North America caused by nationalist politics in North America.