Lawrence Solomon's Next City Part One: Globalization equals urbanization

Lawrence Solomon
National Post
May 9, 2002

This is the first in a five-part series on what should be done about our cities. Part One: How free market forces overwhelmingly favour urban economies.

British Columbia’s mining industry eked out a profit last year, its first in four years. The reason for the turnaround? Instead of wasting precious electricity producing metal worth vanishingly little, Teck Cominco cut back production at its Trail, B.C., smelter and instead sold the power to urban customers. In 2001, Teck’s power sales provided it with over $300-million in net revenue. Compare that to the mere $60-million in profit earned by the entire B.C. mining industry, according to PricewaterhouseCoopers’ annual survey of the province’s major operations.

Teck Cominco’s power bonanza aside, the news in PwC’s mining survey, released last week, was all bleak. Three more mines ceased operations in 2001, including the legendary Sullivan mine at Kimberley, B.C., once among the world’s largest zinc and lead producers. With those shutdowns, more mining jobs disappeared, part of the rural decline that has proceeded, almost uninterrupted, for decades. No reversal of fortunes is in sight, either. Last year, B.C.’s mining giants invested all of $10-million – or next to nothing – into new mine exploration. "Without further exploration," the PwC report warned darkly, "it is unlikely that there will be another Sullivan mine."

Many fingers can be pointed to explain the demise of what was once a major industry. Some blame government regulations or the threat of Indian land claims for discouraging investment; others blame the high wages – over $81,000 on average – that the unionized industry pays. PwC’s John Bowles, a lead author of the report, astutely attributes the industry’s state of affairs to a far larger force – globalization. "We are totally, totally subject to worldwide metal prices," he says, explaining that the mining industry epitomizes the dominance of global markets. The B.C. government can try to buck the globalizing trend – and Lord knows, it has done its best to heap one subsidy after another on this troubled industry – but in the end these subsidies do little good for mining and much harm elsewhere in the economy. Quite simply, says Mr. Bowles, global factors "reduce the ability of local industry to compete." He might have added that when an industry produces a raw commodity – whether metal, wheat, lumber, or any other product that has nothing distinctive about it – price becomes its sole selling feature. No local producer in a modern, high-wage economy such as Canada’s can expect to remain competitive for long producing low-tech products widely available throughout the world, including in poor, backward countries and in countries closer to major markets. Globalization will quickly kill off any local commodity industry that can’t compete, and it will bring down any regional or national economy that tries too hard, or for too long, to support its uneconomic commodity producers. The hope that metals and other commodities will soon make a comeback is just that: Commodity prices have been in general decline for 100 years.

That globalization, and not peculiar factors associated with British Columbia, has spurred its mining industry’s demise can be seen by looking south of the border. In the U.S. Northwest, 10 aluminum smelters shut down more than a year ago in order to sell the subsidized electricity into the power-short California market. Now that California’s power shortage has disappeared, two smelters have partially reopened and three others intend to start up. Five may stay shut permanently, wiping out half the 10,000 small-town smelting jobs that once propped up the Northwest’s rural areas, as investors place their bets where they’re likely to fetch higher returns.

More and more, those higher returns can be found in the cities. While the resource-dependent rural economy shrinks to irrelevance – farming, fishing, logging, mining and the rest of Canada’s resource sector now accounts for just 6% of GDP – urban industries are booming. Montreal’s economy equals that of the rest of Quebec, Winnipeg’s is larger than that of the rest of Manitoba, Vancouver’s than the rest of British Columbia. Cities are thriving, partly because they’re able to draw the best and the brightest from rural areas, and mostly because they represent the flip side of the rural economy. Rather than providing raw commodities of ever-diminishing value, cities provide added-value products that are ever appreciating. These include the products of a vast media and cultural industry, and they include the medical products and services that can only be found in large centres. They include financial services, and they include the retailing colossus. Each of these predominantly urban industries exceeds any Canadian resource sector in size, and each relies on raw commodities for a small fraction of the final product that customers purchase. Urban added value – in the form of new financial instruments that extend the value of capital, or in the form of new styles that define a new era – transforms cheap commodities into precious property. As globalization relentlessly removes the supports that our uncompetitive rural industries need to survive, the trend to urbanization will continue.

Resource industries, pumped up by subsidies and protected from competition by government policies, are usually worth less than the sum of their parts. The mining industry is able to capitalize on some of the power surplus to its real needs by making it available to urban customers, who prize it more highly than the metal it would otherwise produce. In the same way, a right-sized farm sector will someday recognize that the water it now uses to irrigate many low-value crops is worth more to urban customers than the crops. And the forestry industry will recognize that its forests are worth more intact, as recreational lands for urbanites, than as fodder for a pulp or saw mill.

Much of this realization is already happening. Kimberley, B.C., home to the just-retired Sullivan mine, is reinventing itself as a tourist town, as is Tumbler Ridge, B.C., a former coal-mining town. In other cases, the last, best use for a remote community will be a fiery end: Kemano, a money-losing Alcan-owned resource town in northern B.C., was carefully shut down in 2000 and, for the good of the country, deliberately burned down in 2001 – school, community centre, houses and all. The fires provided invaluable experience for more than 700 firefighters in fighting major fires, and also helped fire investigators, police, insurance crime prevention specialists and the National Research Council of Canada.

Other articles in this series:
Lawrence Solomon’s Next City Part Two:
Don’t tax, toll
Lawrence Solomon’s Next City Part Three:
One million more Torontonians
Lawrence Solomon’s Next City Part Four:
Learning the wrong lessons from U.S. cities
Lawrence Solomon’s Next City Part Five:
Advice to cities: take control of your province

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