Urban Renaissance Institute

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.

Financial Post
January 31, 2000

Lawrence Solomon responds to a letter to the editor
from Gordon Peeling, president and CEO, The Mining Association of Canada regarding his article on mining subsidies Financial Post, Jan. 31, 2000

Contrary to being a vibrant industry, as the Mining Association’s Gordon Peeling tries to convey, the mining industry is small and getting smaller. The number of mining companies on the TSE 300 is decreasing, as is the number of mines in Canada, as is employment in mining, which was one-third higher at the beginning of the 1990s than at its close. The Prospectors and Developers Association of Canada, which formally decided in November to use the word “crisis” to describe its state, last week told the North West Territories’ Chamber of Mines that “a lot of drilling companies are facing chapter 11 [bankruptcy],” and is asking the federal government for another round of tax breaks in the next budget, this one worth $1.1-billion over three years.

Mining’s contribution to Canada’s GDP drops year after year, and now – despite Mr. Peeling’s claim – it rests below 1% of GDP. His tally inflates mining’s contribution by a factor of four, by counting industries – such as the steel mills run by companies like Stelco – that use minerals. Statistics Canada’s GDP tables classify steel as a manufactured product, and not as part of the mining sector. Mr. Peeling’s export and employment statistics are similarly inflated.

Mr. Peeling states that tax holidays for the mining industry were repealed long ago. In fact, several provinces provide tax holidays, all provinces except P.E.I. provide a host of tax breaks, and no country apart from Canada has flow-through-share tax loopholes. Provincial bodies such as Ontario’s Ministry of Northern Development and Mines build roads for the mining sector. While provinces increasingly require mine reclamation plans and even payments toward mine cleanups, these are often token.

Despite layer upon layer of handouts, the entire mining industry produces minuscule returns for shareholders, and huge economic and environmental liabilities for the public. Without the subsidies – which primarily come from urban residents – and with strict environmental liabilities, our mining industry would be smaller but healthier, and a credit to the country.

Miners doubt the wisdom of Solomon Financial Post, Jan. 31, 2000

Letter to the editor Gordon Peeling, president and CEO, T

he Mining Association of Canada

I am writing to respond to the Jan. 11 column, They Get the Gold, We Get the Shaft. Alas, the mining industry is the latest victim of Lawrence Solomon’s ongoing ill-informed diatribe against Canada’s natural resource sectors.

As executive director of the Urban Renaissance Institute, Mr. Solomon would be well served by examining the significant contribution the mining industry makes to sustaining Canada’s urban centres. Housing more than 650 mining and exploration company offices, suppliers, consulting firms and service providers, Toronto is Canada’s largest mining community. It is also the world’s centre for mine financing and headquarters to some of the world’s largest and most successful multinational mining companies. Montreal and Toronto together are home to some of the world’s leading centres in mining research and development, whose innovations support developments in other major industrial sectors, such as aerospace.

Let me correct just some of Mr. Solomon’s erroneous statements:

– According to Statistics Canada, mining contributes 4% ($26.5-billion) to Canada’s GDP (not 1% as Mr. Solomon alleges); employs one in 40 Canadians; represents 14% of all Canadian exports and as much as 25% of Canada’s trade surplus.

– Specific tax holidays referred to by Mr. Solomon that targeted the mining industry were repealed almost 30 years ago as part of the 1972 tax reform. The mining industry is not advocating their return. – Public support for Canada’s geological surveys is not a subsidy. Governments and the public must know what the natural wealth of the country is if appropriate fiscal and public policies are to be put in place. Every major mineral-producing nation has a research-oriented geological survey.

– Unlike urban transportation, the mining industry builds and pays for development of its own access roads, often using local construction firms, and always after lengthy and extensive environmental permitting processes.

– With more than 300 mining firms listed on the Toronto Stock Exchange and a good proportion of mining-related stocks contributing to the retirement funds of millions of Canadians, blanket statements about bankruptcy in Canada’s mining industry is absurd. Investing in major companies such as Inco, Noranda and Falconbridge is one of the safest and most reliable investments one can make.

– All new mines are required to prepare mine closure plans, including posting bonds to guarantee mine site rehabilitation. The science, research, technology, investment, and related benefits of mining are and will continue to be very exciting for future generations. The mining sector, like the urban community, faces numerous challenges. If we are to find the best solutions, Mr. Solomon’s Urban Renaissance Institute should focus its efforts on what it knows best, rather than “giving the shaft” to thousands of rural and urban residents.

National Post
January 24, 2000

Get rich quick . . . without making money
The Northern Miner, Jan. 24-30, 2000

The mining industry has been a whipping boy for environmentalists and anti-mining organizations for the past decade, but a recent column titled “They get the gold, we get the shaft,” in the National Post, takes the exercise to a mean-spirited extreme.

We could just shrug off the mounds of misinformation amassed by Lawrence Solomon, executive director of Urban Renaissance Institute, who accused an entire industry of making bank robbers look like bumbling fools. We could roll our eyes, sigh and move on . . . and we will, but not without trying to correct a few of the missive’s most egregious fallacies first.

To hear Solomon tell the get-rich-quick tale, the pillaging industry takes far more from the Canadian economy than it returns, with short-sighted federal and provincial governments acting as aiders and abettors. On the one hand, he accuses the industry of having all sorts of underhanded means to “strike it rich,” mostly at the public’s expense. On the other hand, he says the entire mining sector represents a mere 1% slice of the country’s gross domestic product. “Worse, that slice is one of the least profitable,” earning only $1.2 billion in an average year, “an amount exceeded by the tab mining companies leave behind for taxpayers to pick up.”

It took some doing to follow the logic, because getting rich quick from an unprofitable industry seemed like a contradiction in terms. But it isn’t really, Solomon point out, not when an industry has a big bag of “secrets” that must be closely guarded, “for fear others will jump its claims.”

The first “secret” is to get governments to pick up the cost of geological surveys and infrastructure, such as mining roads, to the tune of about $400 million per year. That one has us puzzled, because we couldn’t think of any mining road any government had paid for in the last decade. As for geological surveys, what is being said here? That we shouldn’t know where the next earthquake might hit, where volcanos might erupt, or where valuable oils and gas resources might lie hidden?

The suggestion that the Geological Survey of Canada and its provincial counterparts are pawns of the mining industry is insulting. Credible geoscientific information benefits all Canadians. Indeed, the surveys are more important than ever, providing a crucial baseline against which we can measure environmental and climatic changes.

Furthermore, much of the basic mapping of the nation’s geology has already been done, freeing the surveys to collect information related to public safety and land-mapping. Research into the environment has been greatly increased, along with research into natural hazards, such as earthquakes, landslides, magnetic storms, volcanoes, floods and ground instability. Industry-related research has been greatly reduced, kept alive in some cases by cost-sharing programs and collaboration initiatives. Solomon is way off base on this “secret”.

He’s way off base on mining’s economic contribution, too. In 1998, minerals and metals exports were valued at $45.2 billion, representing 14.2% of the nation’s total exports. The industry contributed $26.5 billion to the Canadian economy in 1998, an amount equal to 3.7% of the gross domestic product. The $1.2 billion quoted by Solomon reflects the industry’s trade surplus, which, in 1998, represented 6.5% of Canada’s $19.6 billion trade surplus.

We could go on refuting other inaccuracies in Solomon’s missive, which cited all manner of tax incentives and environmental rules which, he says, have made Canada “the destination of choice for big-time polluters skilled at extracting incentives for governments.” But to do so would take up the entire newspaper.

Solomon is quite right about a few things though. Mining has not been highly profitable for quite some time – a consequence mainly of declining commodity prices and increasing oversupply. It hasn’t always been the most savvy either, sometimes getting caught up in its own hype and paying too much for projects that fail to produce as much profit as expected. Admittedly, the mining industry has a predilection for optimism, and yet, given the ups and downs of metals prices and investor sentiment, this can only be seen as a necessary survival mechanism.

The industry also has its rogues and rascals and spectacular failures, too. We’ve watched companies such as Royal Oak Mines start off promisingly only to sink in a sea of reckless debt, leaving environmental liabilities and unpaid bills behind. But to lump in the entire industry as corporate ne’er-do-wells is to go too far.

The mining industry helped build this nation and it remains a major contributor to the standard of living most Canadians take for granted. Given that, it’s hard to get kicked in the teeth and stay quite. We had to say something, even if to the converted.
__________________________________________________
Miners doubt the wisdom of Solomon
Financial Post, Jan. 31, 2000
Letter to the editor
Gordon Peeling, president and CEO, The Mining Association of Canada
I am writing to respond to the Jan. 11 column, They Get the Gold, We Get the Shaft. Alas, the mining industry is the latest victim of Lawrence Solomon‘s ongoing ill-informed diatribe against Canada’s natural resource sectors.

As executive director of the Urban Renaissance Institute, Mr. Solomon would be well served by examining the significant contribution the mining industry makes to sustaining Canada’s urban centres. Housing more than 650 mining and exploration company offices, suppliers, consulting firms and service providers, Toronto is Canada’s largest mining community. It is also the world’s centre for mine financing and headquarters to some of the world’s largest and most successful multinational mining companies. Montreal and Toronto together are home to some of the world’s leading centres in mining research and development, whose innovations support developments in other major industrial sectors, such as aerospace.

Let me correct just some of Mr. Solomon’s erroneous statements:

– According to Statistics Canada, mining contributes 4% ($26.5-billion) to Canada’s GDP (not 1% as Mr. Solomon alleges); employs one in 40 Canadians; represents 14% of all Canadian exports and as much as 25% of Canada’s trade surplus.

– Specific tax holidays referred to by Mr. Solomon that targeted the mining industry were repealed almost 30 years ago as part of the 1972 tax reform. The mining industry is not advocating their return.

– Public support for Canada’s geological surveys is not a subsidy. Governments and the public must know what the natural wealth of the country is if appropriate fiscal and public policies are to be put in place. Every major mineral-producing nation has a research-oriented geological survey.

– Unlike urban transportation, the mining industry builds and pays for development of its own access roads, often using local construction firms, and always after lengthy and extensive environmental permitting processes.

– With more than 300 mining firms listed on the Toronto Stock Exchange and a good proportion of mining-related stocks contributing to the retirement funds of millions of Canadians, blanket statements about bankruptcy in Canada’s mining industry is absurd. Investing in major companies such as Inco, Noranda and Falconbridge is one of the safest and most reliable investments one can make.

– All new mines are required to prepare mine closure plans, including posting bonds to guarantee mine site rehabilitation.

The science, research, technology, investment, and related benefits of mining are and will continue to be very exciting for future generations. The mining sector, like the urban community, faces numerous challenges. If we are to find the best solutions, Mr. Solomon’s Urban Renaissance Institute should focus its efforts on what it knows best, rather than “giving the shaft” to thousands of rural and urban residents.
__________________________________________________
C. Warren Hunt, Calgary,
Financial Post, Jan. 31, 2000
Letter to the editor
You say mining is not profitable. In about 1965 I read a Stats Canada summary of profitability of various industries, which concluded that rock quarries are the No. 1 most profitable industry in the country: most revenue for least investment. I started the Gold Strike Mine in Nevada in 1974. Today, it turns out over a million ounces of gold a year at a fraction of spot bullion prices. Not profitable?

All real industry is based on raw materials extracted from the ground or the biosphere. Mining not needed? Of course, there are many profitable businesses that are not real industry, as such (information, law, medicine, teaching, organization, charity, religion, government, etc.). But none could operate without the basic production of goods by real industry.

Your imputation that a mining industry should not occur due to pollution and lack of real need for its products is both loony and destructively critical – cynical, one might say. You might bridle at such a question as what does an executive director of an urban renaissance institute produce that is worthwhile for society? But uninformed meddlers from the past have been shown as destructive and self-serving for their executive promulgators (e.g. Greenpeace, Sierra Club).
__________________________________________________
Douglas Pollitt, Pollitt & Co. Inc.
Financial Post, Jan. 31, 2000
Letter to the editor
Mr. Solomon contends on the one hand that “Canada’s mining industry knows how to strike it rich,” yet on the other hand concedes that the industry “is one of the country’s least profitable.” Square that circle.

These striking-it-rich companies that can’t seem to make money might account for the better part of $10-billion per year in sales. In and of itself, this is not chicken feed; the more substantial economic benefits, however, are felt in the various support industries. Do engineering consulting firms, manufacturers of heavy equipment, municipal curling rinks and mine finance houses create and support mining operations? Or is it the other way round? Mining activity is a high-multiplier activity, and governments understand this. They see the tax cheques roll in – and hence are supportive of the industry after a fashion.

I say “after a fashion” because government policy is by no means unanimous in its support. The bank of Canada has adopted a policy of selling gold beneath the cost of local production. This has had the effect of further depressing prices in an already extremely depressed market.

Striking it rich? On the back of government policy? I invite Mr. Solomon to leave his offices and take his message to Val d’Or or Yellowknife or Timmins.
__________________________________________________
Ben Ainsworth, Vancouver
Financial Post, Jan. 31, 2000
Letter to the editor
The Wisdom of Solomon is not in the mind of the Urban Renaissance Institute executive director when he comments on who gets the gold and who gets the shaft. Libel is easy when you attack an entity with little political ability – the mining industry is too busy trying to survive the Depression-type metal prices to put up a real front against the noisy Greens. A dollar’s worth mined from the ground is a dollar, yen or pound according to the world price of the commodity.

A dollar paid by the taxpayer to feed Mr. Solomon is the product of fractional banking. Our central bank prints money in an amount based upon what it thinks it can get away with, based on some notion of national assets value. The bank lends this printed money, which has no real value, to the commercial banks, who then lend more than 50% against the assets, which are government paper that has no real value.

This is actually a not-so-subtle walk out on the gangplank of risk. If we do not have the resource dollars coming in, and that includes the dollars from farmers, fishermen, miners, oilmen and loggers, the basis of the national assets’ value will decline catastrophically.

Mr. Solomon is a user who enjoys libelling those who toil to make a good and honourable living in the resource sector.
__________________________________________________
Rob Boyce, Smithers, BC
The Interior News, Feb. 16, 2000
Letter to the editor
I was disturbed to see, on the Opinion page of your Feb. 2 issue, the article by Lawrence Solomon titled “They get the gold, we get the shaft,” which slams the mining industry.

I can only hope that by printing this, you intended to stimulate discussion, and did not endorse his views. This piece is so full of exaggeration, generalization, out-of-context references and inaccurate figures; that I was compelled to respond. I will mention only four points of the many that need addressing. The editorial in The Northern Miner newspaper of Jan. 24-30 is recommended reading.

Mr. Solomon suggests that the mining industry is an insignificant one per cent of Canada’s Gross Domestic Product, earning only $1.2 billion annually. In fact, it produces 3.7 per cent of GDP, at $26.5 billion; and represents 14.2 per cent of Canada¹s exports, at $45.2 billion.

He states governments “confuse economic activity with true wealth creation” in legislation that he feels favours mining. It is Mr. Solomon who is confused. Mining is a true wealth creator, not the current darlings of the stock market who merely trade currency, information and shares. Mr. Solomon suggests that publicly funded geological surveys benefit only the mining industry. Does he think such surveys in other countries are all private enterprise? And would he rather have Canada’s professional scientists practise in Zimbabwe? Much of the work done by these survey organization is in the areas of public information, natural hazards and environmental studies. Many mineral deposit studies are jointly funded by industry.

Finally, he characterizes, “Canada the destination of choice for big-time mining polluters skilled at extracting incentives from governments.” Incentives? Mr. Solomon has his head in the sand if he hasn’t seen that mining and exploration are way down, as most companies have left for Latin America and other areas, where there is a lower burden of taxation and egulation.

The mining industry has provided a livelihood for my family and many others. It has been a driver of our local economy for decades. To characterize the entire industry as looters at public expense is ridiculous. Anyone who reads Mr. Solomon’s article should note the word at the top of the page,”‘Opinion,” and realize that it is not based on facts.

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