Never mind the Dutch, we need a cure for Greek disease

Federal NDP Leader Thomas Mulcair alleges that Canada is suffering from the so-called Dutch disease – a divisive and misleading diagnosis that is readily disproven and hopefully will be rejected by Canadians east and west.

According to Mr. Mulcair, the strong demand for petroleum produced from oil sands is largely responsible for the high dollar and the decline in manufacturing jobs, especially in Central Canada.

The facts, however, (as pointed out in a recent study by the Institute for Research on Public Policy) are this:

    Exchange-rate movements are being driven by high demand for all commodities, not just oil, including strong demand for the output of the mining sectors of Ontario and Quebec.
    Fifty-five out of 80 factory sectors in Canada are either unaffected by or even benefit from the high dollar, with no appreciable damage being done by a strong dollar to the food, auto, aerospace or heavy-industry sectors.
    The decline in manufacturing jobs in Canada is primarily a result of low multi-factor productivity and intense international competition, particularly from Asia.

Far more worrisome for Canada than the Dutch disease Mr. Mulcair is focusing on is the fact that some provinces, especially Quebec, are beginning to show symptoms of the “Greek disease,” of which the NDP is a primary carrier.

The Greek disease refers, of course, to a political and economic situation characterized by politicians promising social entitlements to the public (in particular, education, health and pension benefits) that the economy is unable to sustain; governments continuously borrowing to cover the resulting shortfall until lenders refuse to lend unless drastic measures are undertaken to curtail spending, balance budgets and reduce debts; refusal by the public (including refusals by public-service unions) to accept such measures; and the demonstration of such refusal by rioting in the streets and support for politicians who deny the problem and reject remedial policies.

Evidence of the Greek disease taking hold in Quebec is unfortunately not hard to find. The Quebec government has accumulated deficits of $12.4-billion since 2008-09 and its net forecast debt of $178.5-billion (51.5 per cent of GDP) for 2012-13 makes it Canada’s most heavily indebted province.

Because Quebec’s population is aging more quickly than that of the rest of Canada, the Quebec pension plan and health care system (which is already consuming over 50% of the provincial budget) are not sustainable in the long run unless drastically reformed. And now, when the Quebec government has determined that it cannot continue to subsidize higher education at previous levels and has called for increases in student fees, what has been the reaction? Riots in the streets, just as in Greece, and Quebec-based politicians like Mr. Mulcair, whose party has been in the forefront of advocating social-entitlement expansion without regard for economic sustainability, diverting attention from these symptoms of the Greek disease by misguided ramblings about the Dutch disease.

Rather than allowing ourselves to be divided on a regional and sectoral basis by politicians seeking short-term partisan gains, Canadians, including Quebeckers, need to unite behind measures to sustain the current economic recovery for the benefit of all parts of the country. This means balancing budgets, paying down debts, keeping tax levels competitive, pursuing social service and regulatory reforms, removing barriers to interprovincial trade (for example, between Quebec and Ontario), expanding Canada’s international trade, especially with the Pacific Rim, and improving productivity and competitiveness through science- and technology-based innovation.

Original Article
Source: the globe and mail
Author: PRESTON MANNING