We are lumberjacks and we’re OK

William Watson
Financial Post
February 2, 2000

Well, actually, we’re not. Lumberjacks, that is. Many fewer of us make a living at lumberjacking, or, more generally, in the forestry industry, than in the 1970s, when Monty Python penned “I’m a Lumberjack and I’m OK,” that timeless tribute to the Canadian character. Over a longer haul, the industry’s decline is dramatic: In 1947, forestry accounted for 3.9% of total labour income, last year just 0.6%, the same as its share of employment. As a share of exports, forestry products are down from 16.7% in 1971 to 10.9% in 1998.

In fact, we’re more OK with the idea that fewer and fewer of us are lumberjacks. We’ve always had an ambivalent attitude about living off our natural resources. “Hewers of wood and drawers of water” has a rugged, frontier sound to it. But “rugged” and “frontier” aren’t cool any more. They’re downright Neanderthal. What people admire now is cleverness, and they assume you don’t have to be clever to cut down trees.

The trouble is, God gave us so many trees, He surely intended for us to make at least part of our living cutting at least some of them down. Same thing for water. If He hadn’t wanted us to “draw” it for a living, He wouldn’t have submerged so much of our country. The modern view is almost that we are cursed with our natural resources. When Jacques Cartier said Labrador was the land God gave to Cain, he meant it contained nothing of any use. How wrong he was. There are resources aplenty there, if only Brian Tobin would allow them to be developed. But these days, the feeling is that Cartier was wrong on the facts but right on the bottom line: When Providence wants to do you in, abundant natural resources are what He gives you. The land God gave to Abel presumably was like Japan: lots of people and nothing at all in the way of resources. Of course the Japanese have to be smart as the Dickens to make their way in the world: They have no choice.

In the 1970s, people used to worry about “the Dutch disease.” The Dutch had oil, and when oil prices rose, that pushed up their currency’s value and made their manufacturing uncompetitive. Now we worry about the Sherry Cooper disease: If you produce commodities, as we do, and if commodity prices fall, as they did in the 1990s, that drives down the value of your currency and your manufacturing becomes too competitive. It can undercut competitors without even trying. As a result, productivity and living standards languish. Sales come too easily. Natural wealth makes you soft and lazy. What we need is the tough love of a higher dollar, though just where tough love ends and sado-masochism begins is always hard to say.

With resources, it seems, you just can’t win. Rocks put you in a hard place no matter what you do. Their price goes down, your manufacturers atrophy. Their price goes up, you put too much effort into digging for them, thus forsaking brain work.

So it’s bad news that raw materials prices are up 33.9% over the past year: We’ll be going back to harvesting more of them. Of course, it would have been bad news if raw materials prices had continued to fall: We would have devoted even more of our economy to manufacturing industries whose competitive advantage is based solely on a low dollar.

What’s a resource-rich country to do? Exploit its resources at the expense of its manufacturing sector? Or discourage resource development – which Greenpeace already does a great job of – and focus on the tough stuff, trusting that Canadians have sufficient IQ to compete in manufacturing?

It sure would help if we knew where commodity prices were going in the long run. But we don’t, though you probably have your guess, as I have mine. Here’s a crazy idea: You put your money where you think the payoff will be biggest, and I’ll do the same. We don’t actually need a common strategy.

As for public policy, how about scrupulous neutrality? If an industry pollutes the environment, make sure producers and consumers face the full costs of their actions. But beyond that, don’t favour one industry over another. Don’t provide the kinds of subsidies the Post’s Lawrence Solomon has described in a series of recent articles. (The title of one, “They get the gold, we get the shaft,” tells you all you need to know about mining subsidies.) And don’t provide preferential tax treatment of the sort the Mintz Committee on business taxation found. As of 1997, the effective rate of taxation on the marginal investment in construction was 37%. In forestry it was 28%, in the oil business 5.5% and in mining 8.7%.

If money is to be made hewing wood and drawing water, fine; those are perfectly honourable activities. But if money can be made only because these industries don’t pay the same taxes as everyone else, that’s nuts. A tax system that favours resources in a society that worries about being resource-dependent suggests that, whether lumberjacks or not, we’re definitely not OK.

William Watson is the editor of IRPP’s Policy Options and has taught economics at McGill since 1977.

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