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Eleven:
Making a Western Living
A
Strategy for Diversification
Some
visitors to the Calgary
Olympics apparently expected
to confirm that Albertans
are for the most part either
cowboys or oil wildcatters.
In fact the 1986 national
census indicates that only
about 100,000 persons in
a work force of 1.2 million
in Alberta are employed
in basic agriculture and
oilfield work: less than
ten percent. Contrary to
another common myth, only
29,000 British Columbians
work directly in forestry
or logging in an active
work population of 1.4 million
persons. In Saskatchewan,
which is still occasionally
thought of in terms of wheat
alone, only 88,310 of a
500,000-person work force
are involved directly in
the primary sector of agriculture.
In Manitoba, the most diversified
western economy, the largest
single industry grouping
is currently "manufacturing,"
with 66,000 persons in a
work force of 542,000.
Over two-thirds
of all Westerners today
are in service occupations
and these are increasingly
of a professional nature.
The
Historical Perspective
During
the "frontier period" between
1870 and 1900, the major
source of economic development
in the West was the relocation
process itself. Furs were
no longer the dominant export
by 1870, but even though
a little export grain left
Manitoba during the 1870’s,
wheat was not yet an important
regional staple on the Prairies.
In British Columbia, gold
had quickly petered out
and the age of forest products
had not yet come. In such
circumstances, expanding
Canada’s frontiers massively
beyond the St. Lawrence
valley was a brilliant and
courageous policy regardless
of whether Sir John A. Macdonald’s
dominant motive was to use
the settlement process as
an engine of growth for
Central Canada or to develop
the potential of the West.
From
the beginning, Ottawa policy-makers
saw grain exports and ranching
in prairie Canada and mining
in British Columbia as the
major future economic activities
of our region. In an era
when agriculture was the
dominant occupation of Canadians
everywhere, western development
along these lines was seen
as essential both in attracting
immigrants to Canada, and
in eventually providing
the exports which would
allow Canada to continue
to attract the investments
from Britain and elsewhere
which had helped to develop
both Atlantic and Central
Canada before Confederation.
Some
large subsidies were provided
by Ottawa for the opening
of the West, including the
free homesteads modelled
on the earlier American
experience and publicity
spread throughout the continent
of Europe. Cash subsidies
paid to the Canadian Pacific
Railway for completing its
continental line were alone
so large by the standards
of the day that they pushed
the debt charges of our
new country to a third of
total revenues by the early
1890s. High protective tariffs
which began in 1879 to maximize
the benefits of frontier
settlement to eastern businesses
were a key feature of the
package of policies which
became known as the National
Policy, which endured essentially
unchanged until the Great
Depression in 1930. In practice,
there was little western
growth anywhere until 1898
because the combination
of declining wheat prices
and high rail transportation
costs in the West discouraged
most immigrants from homesteading.
As late as 1891, less than
two percent of the world’s
wheat production came from
Western Canada.
Several
factors moved dramatically
in the West’s favour after
1898. The region’s population
more than tripled between
1891 and 1911, during what
became known as the Laurier
boom. Other developments
included a drop in the cost
of moving grain to Europe,
advancements in dry-farming
techniques, the closing
of the American homestead
frontier, and the economic
pressures on farmers in
various European countries
which caused many to emigrate
to Western Canada. In response
to western political pressure,
the Laurier government agreed
to build two new continental
rail lines, and these provided
a boost to western coal
mining and construction.
Urban centres sprang up
to serve adjacent farm communities.
Saskatoon -- which did not
even exist in 1891 -- had
a population of 12,000 by
1911, and Winnipeg, with
25,000 people in 1891, had
become the third largest
city in Canada by 1911 with
130,000 people. Vancouver
reached a population of
100,000 by 1911 although
it was founded only in 1886.
Economic growth on the coast
occurred mainly in the forest,
fishing and mining sectors
and, interestingly, 70%
of British Columbia’s forest
products during these years
were sold to the booming
construction industry on
the Canadian prairies.
Before
1911, few Westerners anywhere
questioned the dominant
role afforded to wheat farmers
by Ottawa through such initiatives
as the Crow’s Nest freight
rate even if in practice
they retarded diversification
of the prairie economy.
In grain marketing, for
example, Parliament enacted
before World War I a number
of measures to redistribute
grain profits from the railways,
large grain elevator companies
and other middlemen, but
did little to diversify
the regional economy. As
the economic historian Doug
Owram puts it, the adjustments
made in favour of the West
by the Laurier government
before 1911 "could be made
only within the general
framework of the National
Policy. When the government
did attempt in 1911 to modify
the National Policy by means
of a reciprocity agreement
with the United States,
it was defeated by a combination
of economic self-interest
emanating from manufacturing
circles in Ontario and nationalistic
concern about American influence
over Canada."
The
1911 election -- which ended
with the two parties changing
places, the Conservatives
winning 134 seats to the
Liberals’ 85 produced a
divided West on the matter
of trade with our southern neighbour, something which
even Westerners frequently
forget today.
The
combination of investments
being repatriated to Britain
in anticipation of the outbreak
of World War I, falling
wheat prices, and rising
freight costs caused a recession
throughout Western Canada
between 1912 and 1915. The
weakened farm sector soon
created collapsing real
estate prices and growing
unemployment in western
cities and towns, but a
boom in the region returned
with the fresh demand for
food, metals and timber
during World War!. Thousands
of new prairie farms were
established between 1916
and 1921, and another period
of long-term western prosperity
seemed assured.
The
clouds on the horizon were
those over the two new transcontinental
railways, the Grand Trunk
Pacific and Canadian Northern,
both of which were teetering
on the edge of bankruptcy.
In desperation, the Robert
Borden government finally
nationalized them in 1918.
From that day until the
present, prairie farmers
have sought not rail expansion,
but maintenance of the branch-line
system already in place.
An
economic bust in the West
followed Armistice Day.
Unemployment in British
Columbia soared to more
than 14%. Deep-seated western
complaints against Ottawa
resulted in 64 seats for
the Progressive Party in
the 1921 federal election,
39 from Western Canada,
on the basis of the need
for a New National Policy
largely written by the Canadian
Council on Agriculture.
The movement’s short-lived
electoral success demonstrated
that Westerners, particularly
farmers, did not feel they
were being treated justly
in Confederation.
The
regional population of the
West grew from 598,000 in
1900 to nearly three million
by the end of the 1920s.
Agriculture accounted in
1927-29 for 55% of the net
value of production for
the four western provinces.
British Columbia received
almost 80% of its net production
value from primary resources
and agriculture, forestry,
fish and furs. Even in Manitoba,
many of the manufacturing
and service jobs were dependent
on a healthy primary sector.
In short, the region’s dependence
on a few primary resources
was becoming ominous.
The
West led the rest of Canada
into the worst depression
in modem history. Wheat
prices had been dropping
since 1926 and the amount
of unsold Canadian wheat
reached 91 million bushels
in 1928. No. 1 Northern
wheat, worth $1.51 a bushel
in 1925, collapsed to as
low as 34 cents in 1933.
Drought, hail, grasshoppers
and diseases ruined millions
of acres of prairie throughout
the thirties. Realized net
farm income dropped from
$363 million in 1928 to
an astonishing minus $10.7
million three years later.
Many western farmers had
taken on large loans to
expand their production
during the 1920s, and even
keeping their farms became
difficult for many of them.
Collapses
in the farm sector were
quickly followed by many
elsewhere in the West; the
provincial governments themselves
were near bankruptcy from
relief payments. Generally
speaking, the less reliant
a district was on wheat
the less it suffered. British
Columbia’s economic position
actually improved relative
to the rest of Canada and
its per capita income remained
in the top two of all provinces
throughout the 1930’s. Saskatchewan,
on the other hand, the most
populous and wealthy western
province during the 1920’s,
became the poorest in the
1930s and out-migration
grew sharply.
Many
thousands of western families
were completely ruined by
the twin calamities of the
economy and the climate.
The impact of this tragedy
was exacerbated by the long-cherished
western view that our region
was the central economic
fly-wheel for the entire
country, as it had been
since 1900, and considerable
bitterness evolved toward
whatever or whomever had
allowed western ruination.
New political parties and
solutions sprang up. Relief
costs for the government
of Saskatchewan had, by
1937, reached $62 million,
more than the total revenues
of the province.
Prime
Minister King appointed
the Rowell-Sirois Commission
in 1937 to examine the situation,
and it quickly became a
lightning rod for western
discontent. The briefs of
all four western governments
displayed an amazing similarity
of concern. Oppressive national
policies were seen as aggravating
large regional differences
in standards of living.
The rail freight rates,
natural resource control
and the protectionist tariffs
were cited as evidence of
deliberate unfairness created
by Ottawa. One of the more
bizarre responses by the
King government was to raise
tariffs in order to protect
a sagging domestic market,
but in the late 1930s the
vulnerability of a western
economy dependent on a few
export products. primarily
wheat, led Western Canada
for the first time to talk
seriously about the need
for diversification. No
real consensus was reached
on how to achieve it, but
even the discussion of it
showed how desperate Westerners
had become.
The
return of adequate rains
and wartime prosperity in
the West masked some changes
from earlier patterns. For
decades, regional prosperity
had depended on the state
of the western agricultural
sector, but a new and expanded
manufacturing base in Central
Canada became the driving
force of the post-war national
economy. Agriculture was
by the mid-1950s clearly
no longer capable of providing
general prosperity to Westerners
for various reasons, including
U.S. farm export subsidies
which cut into traditional
Canadian markets. More than
200,000 prairie farm families
left the land between 1936
and 1961. In the mid-1950’s,
increasing numbers of Westerners
began to urge Ottawa to
divert industrial development
from Central Canada in the
interest of regional justice.
Others, accepting the staples
theory, called for the processing
and upgrading of all primary
products in the region.
Manufacturing, much of it
related to the primary products
of forestry, fishing and
mining, began so quickly
in British Columbia that
by 1951 more than 70,000
British Columbians were
employed in that sector.
Alberta’s
population grew slowly until
oil was discovered at Leduc
and Redwater in 1947. By
1961, the oil and gas boom
had almost doubled Alberta’s
population to well over
a million. Capital flooded
in with the new residents,
and the general prosperity
allowed the provincial government
to build a good infrastructure
of schools, roads, and hospitals.
By 1960 in Alberta the mining
sector, which included oil
and gas, was well ahead
of agriculture in terms
of its contribution to the
provincial economy. Saskatchewan’s
dependence on wheat continued
until the late 1950’s only
because it lacked an alternative.
A potash, uranium and oil
production boom hit the
province in the mid-1960’s
and by 1966 a series of
wheat and other sales to
China saw Saskatchewan farmers
regain for the first time
since the 1920s the leading
economic growth in the country.
Manitoba’s mix of agriculture
and manufacturing provided
stability in the 1950s,
but at the price of a decline
in both output and per capita
income and the province’s
share of the national population.
During the 1960’s, Western
Canada was briskly dividing
into two "have" and two
"have-not" provinces.
Urbanization
in all four provinces, which
occurred at somewhat different
rates and intervals, had
a very significant effect
on the regional economy.
British Columbia was more
urban than rural as early
as 1931. Manitoba was 64
percent urban by the mid-fifties,
and Alberta became more
urban than rural sometime
between 1951 and 1956. Saskatchewan
did not become predominantly
urban until the 1960s. The
creation of new service
jobs in all four provinces
closely paralleled this
process.
In
the early 1970s, the marketable
oil and gas in three of
the four western provinces
allowed the region to reassert
itself as the motor of national
prosperity. As Doug Owram
stresses, "the concept of
growth is, however, deeply
imbedded within the western
tradition." The subsidy
created by Ottawa for consumers
of oil after 1973 was seen
by many Westerners as an
attempt to deflect western
prosperity to Central Canada.
The conflict was again clear:
maximizing western potential
for the western region versus
using western resources
for Central Canada’s purposes.
Westerners insisted the
presence of natural resources
must bring a high degree
of related processing in
our region.
The
Regional Economy Today
The
western and northern economies
today still depend heavily
on natural resources, and
we are as sensitive about
them as other Canadians
are about language issues.
Many of us are still actively
involved in the exploitation
of resources or in their
transportation, marketing
or distribution. Even more
of us in the service sectors
depend on resources for
part of our livelihoods.
The
governments of all four
western provinces are aggressively
seeking a greater role in
the international economy.
British Columbia has opened
five new offices abroad;
Alberta has five; Saskatchewan,
four. The governments of
Manitoba and Saskatchewan
each arrange about 25 overseas
trade, investment or tourism
missions yearly, British
Columbia about 40. Alberta
sponsors 100 to 120 trade,
85 investment, and 100 tourism
missions per year. This,
as the American professor
Earl Fry points out, constitutes
a far more vigorous effort
than that made by any of
the thirteen western states.
Much
of the impetus for such
efforts comes from the recent
realization of a long-time
Western Canadian fear: that
all of our economic pillars
could fall at the same time.
The international prices
for oil, grain, potash,
coal and uranium all collapsed
during 1986. British Columbia’s
forest products faced a
continuing threat from new
American duties, similar
to those threatened earlier
against our softwood lumber
and imposed on our shakes
and shingles. The 1982 recession
on the Prairies had lingered
on into 1985 and both Alberta
and Saskatchewan were hit
very hard again when the
bottom fell out of world
oil prices in November,
1985. In 1986, an estimated
40,000 Alberta and Saskatchewan
oil workers lost their jobs.
Prices for grain had already
dropped significantly because
of the ongoing subsidy battle
between the treasuries of
the United States and the
European Community. The
non-stop rain and severe
frost roughly halved the
expected Saskatchewan wheat
crop during 1986. The fact
that Manitoba’s more diversified
economy did better than
the other three western
ones during the year only
confirmed the widespread
western conviction that
it was necessary to diversify.
Figures
released by Statistics Canada
earlier this year confirmed
that the 1982 national recession
has still not ended in parts
of Western and Atlantic
Canada. The limp state of
much of the western economy
since then also ended the
westward shift of population
as so many resource industries
in the region were hit with
falling prices and markets.
Interprovincial
migration, a noteworthy
feature of Canadian life,
holds particular significance
in the four western provinces,
as both the level and direction
of interprovincial migration
tend to relate to regional
economic conditions. According
to the 1986 census, the
westward shift of population
of the 1970s -- a direct
consequence of the Alberta
resource boom -- ended in
the early 1980s when falling
oil prices brought about
economic stagnation and
Ontario replaced Alberta
as the preferred destination.
Between 1981 and 1986, more
than 70,000 Albertans had
moved to Ontario. The net
loss of population for Alberta
due to inter-provincial
movements equalled 30,000
people, for Manitoba 1,550
and Saskatchewan almost
3,000. Only British Columbia
experienced a small gain
of some 10,000 people.
The
serious demographic problems
created for Western Canada
between 1981 and 1986 are
clear. According to studies,
inter-provincial migration
tends to consist of younger,
skilled and energetic persons.
Emigration from any region
reduces local employment
and the standard of living
whereas newcomers usually
add to both. As Atlantic
Canadians know so well,
inter-regional out-migration
reduces productivity and
results in higher taxes
for a shrinking population
in order to maintain public
expenditures from a reduced
tax base. Because a smaller
population decreases local
demand for goods and services,
some estimate that for every
five persons who leave a
region two additional jobs
will also be lost.
A
Western Strategy
Contrary
to the view that the major
economic assets of Western
Canada are wheat, rocks,
trees, oil, and so on, the
evidence is overwhelming
that our real strength is
the nature and quality of
our approximately seven
million residents. Our economic
models should be Switzerland,
West Germany and Japan.
Each has achieved a high
general standard of living
and relatively full employment
by producing a range of
high-quality finished products
which are exported with
real marketing skill and
first-class service to customers.
All three populations know
that success today depends
on intelligence, quality
control and technology and
act accordingly.
Economic
life in all four western
provinces has historically
depended heavily on natural
resources: fish, fur, wheat,
beef, forest products, coal,
oil, gas and minerals. Each
still plays an important
role in one or more parts
of our region. A boom in
one resource often carries
many of us forward on its
wave, just as a subsequent
bust leaves many of us beached.
Booming and busting have
been too long the economic
lot of Western Canadians.
There
is a strong consensus in
the West that we must build
boldly on our comparative
economic advantages by strengthening
and adding new components
to our natural resource
and other existing sectors.
A
more efficient management
of our natural resources
could bring large gains
in terms of jobs with high
pay to Western Canada. A
recent study by the Institute
for Research on Public Policy
says that Western Canadians,
as owners of their resources,
by pursuing some aggressive
reforms could receive substantially
more economic value from
that sector. Six resource
industries, nickel in Manitoba,
potash and uranium in Saskatchewan,
hydroelectricity in British
Columbia and Manitoba, the
forest industry in British
Columbia, and the Pacific
salmon fishery, were examined.
Grouping their conclusions
around maximization of resource
rents, distribution of these
rents, and political markets,
the study concluded: "Despite
the problems associated
with resource-based economies,
the comparative advantages
that Western Canada currently
enjoys in staples and the
potential gains from improved
management are so great
that policy-makers should
be more concerned with rational
resource management. For
reasons of efficiency and
equity, governments must
give priority to the collection
of resource rents. Efficient
rent collection and rational
resource policy is admittedly
a demanding task, fraught
with decisions made under
uncertainty and political
bargaining. But abandoning
the task assures a less
desirable future for all
concerned."
Diversification
The
goal of economic diversification
should be to equip Western
Canadians to compete more
effectively in the emerging
global economy and to minimize
regional unemployment and
instability without harming
long-term job growth and
average job earnings. A
paper in 1985 prepared for
the Economic Council of
Canada by economists Harry
Postner and Leslie Wesa,
based on a study of the
period 1970-83, concluded
that a reallocation of manufacturing
and services in the four
western provinces could
meet these three criteria.
In the case of Manitoba,
for example, the study concluded
that some employment redistribution
to sectors such as transportation/communications/utilities,
trade, finance/insurance/real
estate, food and beverages,
printing and publishing,
clothing, electrical and
chemical products would
be "winners." Other sectors
with relative instability
included mining, construction
and commercial services.
Machinery- and transportation-equipment
manufacturing industries
were seen as "losers" in
an optimal diversification
scenario for Manitoba. There
appear to be considerable
similarities here for Saskatchewan,
Alberta and British Columbia.
The oil sector in Alberta
is not one which can be
reduced because its long-term
employment growth rate and
average earnings are the
highest in the province.
The
study, noting in passing
that the four western provinces
are less diversified than
the central provinces, concluded
that the four provinces
could, in the long term,
reduce their employment
instability as follows:
British Columbia -- 24%,
Alberta -- 17%, Saskatchewan
-- almost 30%, and Manitoba
-- 22%. In British Columbia,
for example, more and further
processing of forest resources
would be useful both in
providing diversification
and reducing economic instability.
The
diversification strategy
for the West should therefore
operate closely with the
four provincial governments
to invest both significant
funds and a robust political
will of a long-term kind
in a number of directions
of economic policy. I intend
to outline only some of
the possible directions
the western economy could
follow with the main central
challenge to all of them:
building
on existing strengths.
Tax
Reform
Western
Canadians are certainly
in favour -- as is everyone
-- of a simpler and fairer
system which would significantly
increase the take-home pay
of individuals through a
better balance among the
three major elements of
the federal tax system --
personal, corporate and
sales tax.
It
is patently unacceptable
that, as was true in 1983
for example, 64 companies
which each earned profits
of more than $25 million
paid no corporate tax whatsoever.
Small businesses, which
have created most of the
new jobs across the country
in recent years, paid taxes
for 1982 at almost double
the rate of businesses with
assets of more than $25
million. As a result of
tax concessions mostly to
large businesses, the share
of the income tax burden
paid by companies slumped
from 50% to 25% between
1950 and 1985, while the
share paid by individuals
and families increased correspondingly
from 50% to 75%.
The
administration of the federal
sales tax has resulted in
large distortions of economic
decision-making and badly
needs reform. Ours is evidently
the only developed country
whose tax system favours
foreign producers at the
expense of domestic ones.
We impose a sales tax on
exports which averages about
one percent, whereas imports
are currently taxed at roughly
one-third less than comparable
domestic goods. Major change
is clearly needed here.
There appears, however,
to be considerable opposition
in Western Canada to any
business transfer tax applicable
to services and food. For
example, a tax on transportation
services would reduce both
the competitiveness of many
of our exports and add significantly
to the cost of consumer
goods trucked or sent by
rail from Central Canada.
Western
Canada will benefit, in
my judgement, if tax reforms:
-
remove
the biases which currently
favour industrial sectors
over service work;
-
relax
the definition of what
constitutes research
and development for
income tax purposes
and provide to small
firms the same tax incentives
for R & D as large
manufacturers now enjoy;
-
provide
incentives for investments
in human resources,
which are to the service
sector what capital
goods are to manufacturing,
possibly through a tax
credit for adding employees;
and,
-
create
strong disincentives
to mergers of companies
above a certain size,
on the premise that
these usually lead to
lay-offs, an undue concentration
of ownership, and inefficiencies.
(On the subject of efficiency
it may be noted that
there are disturbing
indications that only
3 or 4 percent of Canadian
small businesses grow
rapidly, compared with
12 to 15 percent in
the U.S.A.)
Agriculture
Unfortunately,
agriculture in the final
years of the century is
declining in its contribution
to western output. There
were approximately 174,000
farms in the four western
provinces in 1982, contributing
about 5.2% of the overall
regional output and involving
less than 8% of Western
Canada’s total population.
The dropping number of full-time
western farmers because
of low grain prices, drought,
cash-flow and credit-related
problems represents a very
serious problem for the
region. Western farm families
have been forced by events
to earn much of their income
from sources away from their
farms. In British Columbia,
outside earnings were as
high as 80% during 1980.
A
major reason for this, as
the Edmonton economists
Terrence and Michele Velman
point out, is our ongoing
cheap-food policy, under
which Canadians generally
spent in 1982 only 16.3%
of disposable income on
food. Growth, in short,
depends largely on foreign
markets for grains, oil
seeds, and red meats. As
recently as 1982-83, wheat
alone comprised about three
quarters of our grain and
oil seeds exports but the
prospects for wheat are
important and problematic.
The governments of both
China and the U.S.S.R. have
indicated they will reduce
wheat imports in the years
ahead. The continuing obscene
grain price-war between
the United States and the
European Community is also
causing severe problems
for Canada in some of the
sixty nations to which we
currently sell grain.
The
best longer term hope for
our grains and oil seeds
lies in better penetration
of new and existing markets,
especially the newly industrialized
countries of the Pacific
Rim, but new strategies,
like the development of
agricultural byproducts
such as ethanol, are clearly
required for western agriculture.
Expanded research into the
growth of non-traditional
wheat types would help us
to market better in developing
nations, which prefer lower
quality wheats and those
appropriate for popular
products such as noodles.
Many studies indicate that
agricultural research spending
repays itself rapidly, and
the Western Diversification
Office (WDO) should allocate
considerably more funds
for research of this nature.
WDO funds should also be
directed towards helping
to restore the soil quality
in various parts of the
Prairies.
Something
is clearly wrong when the
Natural Sciences and Engineering
Research Council has to
inform researchers -- as
it did in 1987-- that, because
of budget cuts, "new applications
will not be accepted" in
the research areas of energy,
food-agriculture and oceans.
Basic food and agricultural
research needs more funding,
not less, and the WDO must
do something really substantial
here for the West.
As
was suggested in a study
by the Canada West Foundation,
horticulture (including
flowers, fruits and vegetables
in greenhouses; plant and
tree nurseries; vegetable
seed products) offers major
potential. Careful WDO investment
should also encourage such
products as berries (notably
strawberries), sod, purebred
livestock, horses for recreation,
rabbits for meat, and goats
for milk and meat.
There
are policy initiatives beyond
those already suggested
for western agriculture
which would assist growth.
Virtually every related
study indicates that agricultural
research brings very high
returns, yet both the federal
and western provincial governments’
contributions to it are
inadequate. More research
on key matters such as the
best production strategy
for dry land agriculture
in Western Canada, higher-yielding
wheat and barley varieties,
the indicated change in
consumer preferences for
red meat and the relative
merits of intensive versus
less intensive production
methods are required. The
Velmans contend that improving
"the skills, abilities and
management capacities of
farm families in western
agriculture should be emphasized
as of the highest priority
in any long run growth strategy
for the agricultural sector....
More attention must be given
to soil and water conservation,
and production systems which
are ecologically sustainable
in the long run must be
developed." On water management,
they call for "alternatives
including the introduction
of pricing for water and
the reform of water rights
systems."
Aside
from the very serious reality
of drought in large parts
of Saskatchewan and Alberta,
the livestock industry is
enjoying good prices and
sales. The economics of
the industry are changing
and, as the Calgary economist
William Kerr has pointed
out, markets in the United
States and the Pacific Rim,
especially Japan, rather
than the Canadian market,
will provide most future
growth. Between 1976 and
late 1984, the western beef
industry showed no real
growth and in fact was characterized
by low prices, ranch bankruptcies
and a shrunken western slaughter
industry. Livestock processing
still ranked as the largest
manufacturing industry during
1984 by volume of sales
in both Saskatchewan and
Manitoba, and was second
only to oil refining in
Alberta.
For
the Prairies as a whole,
livestock processing is
the largest manufacturing
employer, has the biggest
payroll and is a major consumer
of fuel and electricity.
It is also a major value-adding
industry, using local cereals,
but it has considerable
excess capacity. Canadian
beef suppliers could do
more to develop markets
in California. The shortfall
in the California beef requirement
is so large that if Western
Canada could supply even
10% of it, as Kerr points
out, "this would equal a
22% increase in Alberta
production." Much of the
shortfall is now supplied
from east of Omaha but transportation
costs from Calgary are about
three percent cheaper than
the rates from Omaha to
San Francisco.
In
Japan, quotas and very high
tariffs still restrict the
entry of foreign beef, but
a liberalization of these
practices could offer enormous
opportunities for western
beef. A reason for Canada’s
accounting for less than
one percent of Japanese
beef imports as recently
as four years ago is that
our beef is too lean for
Japanese tastes and fails
to meet their difficult
cutting specifications.
Other growing markets of
the Pacific Rim require
a cheaper grass-fed product
than is now produced in
Western Canada. The grain-fed
lean and young beef preferred
by Canadians is simply not
sought after in the Pacific
Rim, and Westerners should
address this problem quickly.
Some
funding should be directed
towards better equipping
people in our meat industry
with training and knowledge
of selected foreign markets,
and toward helping to modernize
the processing side of the
industry at some locations
in Western Canada.
The
Western Grain Transportation
Act’s current method of
payment of the Crow Benefit
directly to the railways
retards diversification
in western agriculture because
returns to grain producers
are higher by about $23
per tonne if they commit
their products to export
markets. Westerners who
wish to diversify into livestock
feeding and processing,
high carbohydrate crops
such as sweet sorghum, canola
crushing, adding value to
grain, and so on, thus lose
much of our comparative
regional advantage. The
current payment method has
a negative impact on the
development of a domestic
market for feed grains and
additional investments in
plants and technology for
western meat packing and
processing.
Western
grain producers should be
able to choose to have the
Crow Benefit paid directly
to them on an experimental
basis: this would provide
a major incentive to our
value-adding agricultural
industries. There might
be a different view on this
issue in each of the prairie
provinces, so it would seem
reasonable to permit all
producers to decide by referendum
how they wished the payment
to be made. Precedents such
as medicare and the Quebec
Pension Plan already exist
for tailoring programs differently
for different provinces.
Forestry
The
major recommendation of
the 1984 study by the Economic
Council of Canada on western
forestry was that the "stock
of mature timber in British
Columbia be harvested at
a faster rate than present
policies permit, as soon
as (and whenever) market
conditions make it profitable
to do so, and that this
be done with full provision
for environmental protection."
A number of knowledgeable
Westerners have criticized
both the analysis and the
conclusion. H.V. Lewis,
an economist with the British
Columbia Ministry of Forests,
pointed out that British
Columbia timber harvests
"have followed United States
housing starts with reasonable
accuracy over the past decade
or more, particularly if
the effect of the exchange
rates is taken into account."
He added that a substantial
increase in British Columbia’s
timber harvests would make
future harvest reductions
much more probable with
a range of consequences
for cities and regions dependent
on forest products. If its
analysis was dismissed,
the Council at least drew
attention to a range of
choices in forest policy.
Most
forests in the West are
owned by their provincial
governments which either
contract with private firms
to manage them or do so
through provincial forest
services. David Haley of
UBC’s Forestry faculty contends
that in the first model
there are inadequate incentives
for efficient long-term
management of the resource,
and in the second the tendency
is increasingly for forests
to be seen as "public utilities"
rather than as businesses
producing an essential raw
material for an important
industrial sector which
must sell the bulk of its
product in increasingly
competitive world markets.
Haley argues that transferring
title would result in more
efficiently-managed timber
production.
World
timber consumption is expected
to increase by about 50%
over the next three
decades, but before Canadians
can expect to benefit from
the estimated 300,000 new
jobs the industry could
create over the next twenty
years, many of them in Western
Canada, further major improvements
in forest management are
required. The distinguished
British Columbia forester,
Les Reid, estimates that
25,000 new jobs can
be created in forest renewal
alone, an additional 75,000
through the increased manufacturing
of wood products resulting
from better harvests.
In
close collaboration with
the ministers responsible
for forests in the four
western provinces, the WDO
should include the following
initiatives:
-
further
encouragement to harvesting
energy from forest biomass,
which could provide
an economic boost to
our forest industries
and help Canada to become
a world leader in biomass
energy technology;
-
additional
federal support to our
western forestry schools
(located at the Universities
of British Columbia
and Alberta);
-
the
recruitment to public
and private forestry
service of more scientists,
policy analysts and
economists; and
-
substantially
more federal funding
for western forest renewal
through renewed Forest
Resource Development
Agreements with all
four provincial governments.
Manufacturing
The
economist Douglas North
argued three decades ago
that four types of manufacturing
can locate successfully
in peripheral regions: material-oriented
industries; equipment manufacturers
for extractive industries;
industries producing consumer
goods for local markets;
and footloose activities
in which transportation
costs do not influence location.
Meat and fish packing, flour-making,
and petrochemicals are examples
of material-based manufacturing
in Western Canada which
exist because of the degree
of reduction in the bulk
or weight of a primary product.
Oil and gas machinery manufacturers
in Alberta and transportation-equipment
producers in Manitoba are
instances of makers of equipment
for regional extractive
industries. Dairy and bakery
products, construction materials,
furniture, commercial printing
and such products are examples
of local consumer goods
manufacturers which have
located in our larger western
regional centres. The growth
of biotechnological centres
in Saskatoon and other technology
centres in Western Canada
appears to offer the best
hope for footloose future-oriented
manufacturing jobs in Western
Canada. More effort is clearly
needed to develop more footloose
industries in all four western
provinces.
In
particular, as the geographer
Neil Seifried has pointed
out, if Alberta is to diversify
industrially, its manufacturing
output must become less
oriented to its dominant
oil and gas sector than
it was during the 1967 to
the 1970 period, and more
oriented to external markets.
Manitoba manufacturing over
the same period, particularly
its clothing, transportation
equipment and electrical
products, was focussing
more successfully -- from
a diversification standpoint
- on markets external to
the region, including Ontario,
Quebec and the United States.
The
1984 Economic Council of
Canada development scenario
for the West asserted that
manufacturing cannot contribute
much to the regional economy
because our manufacturing
base is too small. A 1985
study by Winnipeg economists
Norman Cameron, James Dean
and Walter Good was far
less pessimistic. Examining
49 clothing and 44 transportation
equipment firms in Manitoba
on the basis of the volatile
years between 1970 and 1984,
they concluded that manufacturing
is not robust enough to
drag the rest of the western
economy along after it.
On the other hand, a rising
western population would
create large enough regional
markets to allow manufacturing
to become cost-competitive
with manufactured products
from outside the region
or Canada itself. In both
clothing and transportation
equipment, a substantial
reduction in western imports
has resulted; Cameron, Dean
and Good believe that textiles
and clothing should be added
to printing and publishing,
metal fabrication, wood
industries and furniture
and fixtures as sectors
with particularly good western
prospects. Among the factors
which they consider favour
additional manufacturing
in Winnipeg are an entrepreneurial
pool, good employee productivity,
local receptiveness to business
and industry, an efficient
transportation system for
raw materials and finished
products, and favourable
local taxes. This would
appear to be equally true
of many other urban centres
across Western Canada.
There
are advantages for some
other traditional manufacturing
operations which might locate
themselves profitably in
our region as well. The
WDO could be a major catalyst
here by targeting some high
unemployment areas in the
West for enterprise zones
similar to the Enterprise
Cape Breton model, which
provides a package of incentives
for new manufacturing operations
locating in Cape Breton.
It can also be helpful in
providing marketing information
and assistance about foreign
markets for threshold exporters.
Domestic opportunities for
western firms should be
helped by initiatives to
ensure that full information
is provided to them about
federal government procurement
and tendering practices.
Elemental fair national
play requires that both
federal government and national
institutions, public and
private and including the
chartered banks, must in
future ensure that their
procurement and other activities
each year reflect the reality
of the country. Much improvement
in regional equality is
needed for both Western
and Atlantic Canadians.
Oil
Sands, Coal and Natural
Gas
A
paper presented to provincial
energy ministers in 1986
estimated that without new
sources of supply Canada
will require imports to
meet one-quarter of its
light crude oil needs by
1990 and more than half
by 2000. It seems to me
to follow that Western Canada
should aim to become the
technological world leader
for oil sands energy development.
A new mined oil sands project
at Fort McMurray to start
in 1996 and an upgrader
in Lloydminster to start
in 1993, recently announced
amid much controversy as
to its economic viability,
could become important components
of a prairie manufacturing
base in the overall national
interest.
The
private sector is understandably
reluctant to undertake such
projects because of the
uncertainty of price, but
might go ahead if Ottawa
negotiated a guaranteed
price for a fixed volume
of the product. The difference
between the negotiated price
and the world price would
become either a loss or
a gain according to the
package negotiated between
the successful consortium
and the various governments
involved. Security of future
supply is so critical that
the risk appears warranted.
The U.S., for example, now
has a strategic oil reserve
of about 515 million barrels,
which at $20 (U.S.) per
barrel represents a $10
billion investment in oil
security without including
carrying charges on the
investment.
Ottawa
must also recognize that
the oil sands sector badly
needs help in other spheres.
For example, new oil sand
extraction technologies
appear. to hold real promise
for efficiency and reduction
of water and air pollution
when compared to the hot-water
processes now used by Syncrude
and Suncor at Fort McMurray.
Imaginative new research
and development programs
funded by Ottawa should
assist the more promising
of these technologies with
a view to enhancing existing
western strengths. World
leadership, with all its
spin-offs in terms of exports
of services, should be the
goal.
Western
Canada’s coal reserves are
virtually limitless, and
available data indicates
that its liquefaction for
fuel becomes economically
viable in the $25 (U.S.)
price range. At present
there are more than 20 promising
methods on the horizon.
Ottawa should select for
research funding perhaps
ten not already being funded
by provincial governments.
After a period, the two
levels of government might
together choose the two
or three most promising
for further development.
Ottawa should also support
research on new technologies
for co-processing coal with
bitumen/heavy oil.
Major
new markets for Western
Canada’s coal now appear
to exist in Western Europe.
One recent estimate is that
Europeans might fairly soon
absorb up to ten million
tonnes of Western Canadian
coal yearly, shipped through
Port Churchill by rail from
northern Alberta and B.C.
Again, Ottawa should seek
to become a catalyst.
Substantial
growth for gas exports from
Western Canada was predicted
in a late 1986 study by
the National Energy Board.
If, however, the Board does
not permit exports beyond
1991, as is a possibility,
a cost-benefit analysis
by the Alberta Research
Council predicts a virtual
calamity for exploration
and development in this
important western industry.
It estimates that the present
value of a no-export policy
after 1991 for Canadian
consumers, because of resulting
lower prices, would be $8.8
billion between 1988 and
2003, but the net present
loss to Alberta producers
alone would be $25.3 billion,
making a net loss to the
economies and governments
of the western provinces
of $18.3 billion over the
period. Given the indications
of large quantities of gas
still to be found within
the western provinces, it
is surely in the general
national interest to continue
exports beyond 1991. Ottawa
or WDO might usefully address
this issue, if only by funding
further research on the
employment and other costs
to the West of alternative
gas export policies.
High
Technology
A
major comparative advantage
of Western Canada lies in
biomass (energy, forest,
agricultural) and it is
probably in that large area
that our best technology
prospects lie. WDO can help
us to seek world leadership
in a series of carefully
chosen niches here, just
as Northern Telecom did
in telecommunications. It
will have to fund part of
the necessary research and
development, just as Canadian
Bell Telephone users paid
for a good deal of the research
which led to Northern Telecom’s
success.
A
study done for the governments
of the four western provinces
in 1986 by the Science Directorate
of the Organization for
Economic Cooperation and
Development (OECD) assessed
our general strengths and
needs. It concluded that
Westerners are well equipped
for a knowledge-intensive
economy for many reasons:
regional pride; our strong
desire to prove that we
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