Author: Sophia Thomas

Nexen-CNOOC – Searching for Canada’s “Net Benefit”

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Next month shareholders of Nexen vote on a lucrative offer from a company owned and controlled by the Chinese government for all of the shares in the Calgary-based, Canadian oil and gas company. If they do not say “yes” it will be a miracle. After all, The Chinese National Overseas Oil Company, or CNOOC as the buyer in known, is paying a sixty-six per cent premium on the price the shares were trading at when the offer was made on July 23, 2012.
CNOOC is so confident of the shareholders’ agreement that it has already asked for federal government approval of the deal, even though the formal vote has yet to be held. Because this would be a foreign takeover of a large Canadian company, the purchase requires the approval of the federal government agency, Investment Canada, before it can go through. The fact that the buyer is a company controlled by the Chinese government means that the pending decision by Ottawa has already attracted a lot of attention and comment.
The Nexen deal falls neatly into two of the five areas on which Canada 2020 is focusing in our ongoing project, “The Canada We Want in 2020.” Launched in the fall of 2011 and followed up with five public sessions in the spring of this year, the project looks at Productivity and Innovation, Income Inequality, Health, Carbon and Energy and the rising importance of the Asia-Pacific region. The Nexen deal clearly falls into the ambit of both of the last two categories and is also of relevance in the productivity and innovation area.
When it reviews the deal, Industry Canada, on behalf of the federal government, will have to decide if there is a “net benefit” to Canada should the sale of Nexen to CNOOC go ahead. Clearly Nexen shareholders benefit, as does the Chinese government. That is why the deal has been tabled. Shareholders get a large premium for their shares and China gets all of the company’s energy resources, not just in the Alberta oil sands but also in the Gulf of Mexico, the North Sea, Latin America and West Africa.
Those supporters of the deal who do not directly benefit from the sale believe it is good for Canada because it attracts much-needed foreign investment to develop the oil sands. This is crucial not just for Canada’s energy needs, but also for the revenues and both direct and indirect jobs the oil sands will create. And, they point out,  saying “no” would represent a big setback to warming economic and political relations between Canada and China, which stand to yield other, larger benefits over time.
But opponents of the deal have a number of arguments as to why the sale should not go ahead.
The opposition of environmentalists who oppose any further development of the oil sands is easy to understand. But others have raised objections on a number of grounds, including that:

  • Nexen operates in one of Canada’s core strategic industries.
  • because CNOOC is owned by the Chinese government, this is not really a business and economic question but one of politics and foreign policy. Even if, as promised, the American head office of CNOOC is in Calgary and a class of shares in the company is traded on the TSE, the company will be an instrument of the Chinese government’s political, economic and foreign policy and the deal must therefore be regarded in that way.
  • there is no Canadian-Chinese reciprocity on such transactions. If a Canadian oil company wanted to buy a Chinese-owned one it could not.
  • the Chinese record on repressing human rights is reason enough to block the sale (opponents cite the Chinese government’s dealings with its smaller neighbours in disputes in the South China Sea, its manipulation of exports of rare earth minerals and its support of both Iran and the current regime in Syria).

The “net benefits” test in the Investment Canada Act was not conceived to deal with such non-economic questions. Yet the rise of  state owned enterprises and sovereign wealth funds that are created and operated by governments, has made these questions at least as – or even more – important than the pure economic questions that were originally envisioned by the test.
A further problem is that the definition of “net benefits” is so vague that it can mean almost anything on any given deal.
Whatever answer is given will set a precedent for how future, similar deals will be judged. This is why there is so much interest in how the Nexen – CNOOC deal plays out and why, at Canada 2020, we are following the developments very closely.

Venus and Mars Align – Income Inequality Agendas in France and America

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When the President of the most anti-government country on earth and the President of the country that invented dirigisme are converging upon a political narrative, if not a shared policy agenda, something is going on that Canadians better pay close attention to.
Francois Hollande, the newly elected socialist president of France, is defining the early days of his presidency on the issue of income inequality.  Barack Obama, who faces a jaded American electorate in a few months, has decided to make income inequality the central issue of his re-election campaign.  This amounts to the political equivalent of the alignment of Venus and Mars.
Canada lies, both culturally and politically, in the mid- point of these two planets.  And yet oddly enough politicians in this country are saying almost nothing about income inequality.
Hollande has exhibited the most extreme rhetoric and pointed policies on the subject, echoing the language of the Occupy Movement.  He has called “the world of finance” his main enemy. The government Hollande leads plans to introduce a variety of tax increases to level things out on what he has termed “the grasping and arrogant rich”.  These include wealth, financial transactions and inheritance tax rises.  An extra 3% dividend tax on business has been mooted.  Planned increases in value added tax by Nicolas Sarkozy, Hollande’s predecessor—which would have hit hardest on low and average earners—are being cancelled, even though the French government desperately needs the revenue (not having balanced its budget in thirty eight years and with a debt GDP ratio of 86%).  A new 75% top rate tax on incomes over 1 million euros is expected.  Salaries at majority state owned companies, of which there are dozens, will be capped at 20 times the lowest paid worker’s wage, meaning some chief executives could take as much as a 70% pay cut.
All in the name of reducing income inequality.  And all quite popular in the land of liberty, equality, fraternity.
But how can an income inequality agenda be popular in America, the land of the free and the home of the brave, a country that likes to present itself as the world’s beacon of unbridled free market capitalism.  President Obama certainly thinks it can be.  He sees income inequality as the “defining issue of our time”.  While Obama’s points are subtler and less overtly “soak the rich” than Hollande’s, the message is pretty clear.
In his State of the Union Address in January the subject of income inequality featured prominently.  The president said– “No challenge is more urgent. No debate is more important… We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.”  Building on this theme in April, the president said–“What drags down our entire economy is when (sic) there is an ultra-wide chasm between the ultra-wealthy and everyone else.”
So for Obama, income inequality is bad for the economy, which fits well with America’s basic narrative.  And for Hollande and the French socialists, income inequality is an affront to the core French values of egalite and fraternite.  Different strokes for different folks.
President Obama has been shorter on solutions to the defining issue of our time than has Hollande, but he has put a couple things on the table.  Notable among these are extending tax breaks for America’s struggling “middle class”, by which he means everyone but the top 2% of earners, who drive the income inequality gap so wide in America.  And he has expanded tax credits for low income people and put more money into education.
While income inequality has emerged over the past few months as a dominant issue in France and America, the silence among Canada’s politicians on this subject is truly deafening.  This is especially puzzling given that measures of income inequality are much worse in Canada than in France.  And income inequality in this country is rising faster than it is south of the border.
This week the Premiers gather for their annual confab to discuss the major issues they think confront Canada.  Energy, a perennial favourite, is at the top of their agenda.  The Premiers would be well advised to spend a little more of their energies on the defining issue of our time.

International education the missing piece of Canada’s innovation agenda

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When asked why they would want to study abroad, most Canadian university or college students give a variation on the following answer:
“It will broaden my horizons, I will make new friends, and I will have fun becoming a global citizen.”
All great things, all true in their own way – but all miss the bigger picture.
A growing body of literature, much originating in Australia (a country with a very significant international education component to its economy), has made the link between study abroad and national innovation performance. The proposition is simple: when students travel abroad during their post-secondary education years, they participate in an economic process that fuses countries, markets, sectors and people together in a productive exchange of ideas and practices, yielding tangible economic benefits.
In short: they do a lot more than make friends.
The key is social capital – the process of cultivating and deriving economic benefit from new environments, experiences and networks. Literature on the concept directly links it to innovation performance. Societies that are innovative place a high premium on social capital building experiences. Right now, the ability to develop social capital is not a skill that Canadian educators and policymakers seem to prioritize and as a result we are suffering from low innovation scores across the board.
Historically, the flow of the international students has been predominantly uni-directional.
Developing economies – think China, India, Brazil and some African nations – happily send their bumper-crops of young students overseas with the hope that higher standards in education, language proficiency and increased market opportunity will yield long-run, national economic prosperity.
Developed economies compete to attract these incoming students. Canada and the US have excelled at this, and it’s no mystery as to why: international students typically contribute anywhere between $6 and $10 billion annually to our economy. The recent South American tour by Canadian university presidents – accompanied by Governor General David Johnson and AUCC President Paul Davidson – underscores how seriously we take this business (though this has not stopped us losing ground to newcomers in the business, such as Australia).
But, given the benefits of study abroad, isn’t it time we placed greater emphasis on sending our own young people out to increase their own understanding and help them develop global ties? Developed economies need the innovation benefits of study abroad too. Were we to do so, we would be far from the front of the pack. Around 33% of German students study abroad. The figure for France is in the mid-20s – heck, even the United States sends 11% of its students overseas, so language cannot be the barrier.
The figure for Canada? An anemic 3%. Each year, only 50,000 Canadian university, college or polytechnique students travel overseas – a mobility rate that has shown no signs of growth over the past 10 years.
Yes, Canada is one of the top destinations for international students choosing to spend time abroad during their studies. Among all OECD countries, Canada has a stay-rate of 33%, which is 8% higher than the OECD average and means that more students who come to study in Canada, stay in Canada afterwards. But when it comes to Canadian students packing their bags and spending time abroad? We’re missing out – big time.
And what’s incredibly frustrating for Canadian policymakers, NGOs and academics interested in turning these low-mobility rates around is that countless surveys reveal a near unanimous level of support for study abroad. When asked if international education would be something they would pursue, Canadian students respond with a decisive ‘Yes’. Even their parents, university administrators and other members of a student’s sphere of influence sing its praises.
So there’s a disconnect. This tells us two things:
First, something – whether cost, safety, time commitment, quality of education, logistics, or other external or internal factors – is stopping students from fulfilling their study abroad goals.
Second, Canada is failing to leverage the partnerships it has developed as a recipient country for international students. Being among the top study destinations among OECD partners implies an extensive network of partnerships with international institutions and programs. Why are Canada’s educators not better at turning inbound student flows into better, easier-accessed opportunities for their own outbound students?
Both must be addressed.
The federal government has a unique role to play in incentivizing study abroad, whether it be through dedicated funds distributed through existing granting councils, or a simple show of leadership by publicly making international study a national priority.
The good news is that in supporting international education, the government can also stand behind its own stated priorities. Programs and subsidies can be geared towards specific countries and needs. Certainly as Canada pivots to meet Asia’s rise, a cornerstone of our engagement strategy should include exposing more Canadian students to the rapidly developing markets in China, India and South Korea.
Canada must act fast to fit in this missing piece of our innovation puzzle. Without it, we will continue to miss out on the global economies of the 21st century.

Green vs. Growth: the false dichotomy

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Earlier this month the UK’s Confederation of British Industry (CBI: the UK’s top business lobbying organization) released a report entitled The Colour of Growth: Maximising the Potential of Green Business.
In Canada we are used to hearing about the conflicts between `green’ and `growth’. This report – authored not by an environmental NGO but by the powerhouses of British industry – argues forcefully that this is a false dichotomy. Indeed, its underlying premise is that green is not just complementary to growth but a vital driver of growth in the UK.
The main messages of the report are that:

  • Green means opportunity.
  • In order to stay ahead and fully exploit green growth opportunities the UK needs a coherent, consistent and strategic policy framework from government.
  • The UK should project an overarching brand in the green economy: government action is critical to this.
  • Consumers will only play their role in the green economy if they receive the right facts and consistent government messaging.
  • Long-term strategies for energy-intensive industries must be developed. These should be sector-specific decarbonization roadmaps that enable such industries to play a role in the low-carbon transition.

As one commentator put it: `In essence, the CBI is calling for a policy framework that is both simpler and more ambitious – a system of regulation that is streamlined, stable, and sharply focused on giving businesses the confidence they need to invest.’ (James Murray http://www.businessgreen.com).
UK business (or at least a significant section of it) has clearly bought into the economy of the future and is pushing the government to provide the right incentives and enabling environment for innovation and success. What stands out in the report is the need for consistency and predictability in the policy environment.
Would that were all we needed in Canada. Consistency here is sorely lacking (witness the flip-flopping on home energy retrofits and feed in tariffs, battles over electricity prices as well as the far bigger problem of a government that is committed to facilitating ever-increasing fossil fuel extraction while still paying lip service to a 17% reduction in carbon emissions over 2005 levels by 2020). But our problems run deeper. We also lack a meaningful overall commitment to decarbonization, a sensible debate about the facts and opportunities of the green economy, and any shreds of the international credibility that might enable us to develop a green Canada brand (one of the key proposals in the paper written for Canada 2020 by Stewart Elgie and Alex Wood in The Canada we Want in 2020).
Indeed, while the CBI bemoans a lack of green brand in the UK, a report by the American Council for an Energy-Efficient Economy, also released this month, ranked the UK as no.1 overall in energy efficiency (which must enhance the brand somewhat). Canada came a dismal 11 out of the 12 largest economies, beating out only our old foe, Russia. And while the UK is home to over 75% of all carbon market trading desks, our current federal government has firmly rejected the idea of carbon markets in favour of a slower, far less efficient, regulatory approach. (This, in response to the fact that the public apparently has no appetite for carbon taxes: unsurprising if there is neither leadership nor good information on these topics issuing from government.) It comes as no shock, then, that we pick up all those fossil awards and are currently battling for the future of what the European Union would like to designate as `dirty oil’.
The CBI report states that `In trying economic times, the UK’s green business has continued to grow in real terms, carving out a £122 billion share of a global market worth £3.3 trillion and employing close to a million people. ‘ This is real growth in a dynamic market, something that should motivate all politicians in the current environment. Furthermore, a high concentration of UK green exports go to Asia (around 20%, including 12% to China and Hong Kong), a priority area for Canadian trade.
So where do we start? We do have green business in Canada and we are not doing badly in renewables, despite the pro-fossil fuel stance of our federal government. Ernst and Young recent rated Canada as coming 8th (out of 40 surveyed countries) in terms of `renewable energy country attractiveness’  (the UK ranked 5th, China came out top). It cited the Ontario election result and our relative strength in wind, as well as ambitious plans for harnessing wave power in BC, as key factors in this ranking.
When it comes to green investment, we are well behind European countries and the US. Not only have we been at it for a far shorter time, but we also have far less money invested in the green economy. Investeco, Canada’s first environmental investment company currently manages just $35million for over 100 Canadian Investors. Compare with the UK where just this year a government-sponsored Green Investment Bank that aims to release 3bn (sterling) to fund green infrastructure was incorporated.
So now is the time to cash in on the hidden advantage of playing catch-up: we do not need to reinvent the wheel. Let’s start by heeding the CBI’s advice ….just substitute Canada for UK below:

 `If we are to capture the full value of the low-carbon transition …. we need to think about what a smarter approach looks like within the context of a broader industrial strategy. We should look to build up and promote UK strengths, identify strategic opportunities and ensure that we have the right institutions and intellectual infrastructure to underpin these activities. In doing so, we can make sure that the UK is best placed to supply – and export – the solutions.’
(The Colour of Growth: Maximising the Potential of Green Business, p.6).

Inequality at the top of everyone’s agenda

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Not two years ago, income inequality was a pretty obscure topic. Not so today.
Earlier this year the World Economic Forum identified income inequality as a top global risk and in late 2011 President Obama called growing inequality “the defining issue of our time”.
In March, polling by Ekos found that 57% of Canadians felt that they would be worse off in 25 years’ time than they are today. In April, a Broadbent Institute poll found that three quarters of Canadians felt that the growing income gap in our country was a significant problem, a finding that was confirmed by a Forum poll for the National Post in May. Perhaps it should not have come as a surprise, then, that at the end of April, Liberal Finance critic, Scott Brison succeeded in securing cross-party support in the Canadian Parliament for his motion to form a committee to review income inequality in Canada.
Fast forward to June and the theme continues…..with the economists in the vanguard. The Presidential address at the annual Canadian Economics Association Conference was about trends in top income shares (and why these might matter) and just last week Nobel Prize winning economist, Joe Stiglitz published his latest book, The Price of Inequality: How Today’s Divided Society Endangers our Future.
The debate is over, we all fall in with the President: this is a serious issue that policy-makers ignore at their own peril.
The difficulty lies in knowing what to do about the problem. Addressing inequality is not the same as addressing poverty, something that we have done with varying success for many decades now. It is likely to take action at all levels of the income spectrum (dampening growth at the top, shoring up the middle and actively transferring at the bottom). It also requires a whole new dimension of thought when designing health policy, education and training policy, labour policy, youth policy and policy on corporate governance.
It is action in these areas that will help create a world in which equality of opportunity becomes more meaningful and growth becomes more inclusive. Without such changes, the already substantial degree of public alienation from the institutions of state is only likely to grow, possibly with highly disruptive consequences.
Let us hope, then, that when our Parliament’s Standing Committee on Finance reports in one year from now, it has some firm and inspiring recommendations on how best to improve the equality of opportunity and prosperity for all Canadians. In the meantime, we at Canada 2020 will also be working away on the topic. So, if you have any views, please do share them with us. Left unattended, this is a problem that will certainly not go away.

Searching for a new progressive narrative

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In the last few years, commentators have remarked upon the narrative of Canada developed by the Harper Conservatives, emphasizing patriotism that supports the military, Tim Horton’s and the North. More recently we have heard calls for a new progressive narrative as an alternative to this Harper version.
What could form part of this narrative, and how could it gain a broader appeal with Canadians?
Much of the current conservative narrative concerns “freedom”, especially the freedom of markets that contrasts with the control that progressives supposedly want to exercise on Canadians through taxation and government programs. The truth is, though, that government services have in many instances increased the freedoms enjoyed by Canadians. Unemployment insurance allows them to feed their families when they are out of work, public education enables people fully to exercise their talents, safety regulations mean that people can work longer and be more productive, minimum wage laws have increased the purchasing power of the poor and socialized medicine allows Canadians to spend more of their money on items of their choosing. Canada’s social safety net has freed many Canadians to pursue their goals and exercise their talents.
A new progressive narrative must, though, make it clear that government action is not the only solution. Private action and enterprise are just as worthwhile. Indeed, society functions best through a combination of individual effort and collective action. Private donations and government programmes complement each other in helping the poor, while governments and markets compensate for one another’s weaknesses. The approach should be more nuanced than the “market-first” consensus of the current narrative.
There are real questions about the way in which the Harper Conservatives have managed the economy. A progressive narrative could point to the fact that the government did not foresee the recession in 2008, that the Conservatives have run up large deficits and that it was the Opposition that forced the Government to develop its Economic Action Plan to stimulate the economy. In addition, it is noteworthy that the regulations that prevented Canadian banks from suffering the same fate as their American counterparts were put in place not by Harper, but by previous governments.
A new progressive narrative could, therefore, challenge many of the stereotypes of progressive ideas and the people who advocate them, while also pointing out the weaknesses of many current conservative ideas and policies. In doing so, however, it should avoid blanket condemnations and insults, whether of conservatives, private business or any other group of people.
In the early 1990s, the Reform Party was often ridiculed for its policies, the implication being that its supporters were somehow un-Canadian. Many Western Canadians were offended by this: the attacks reaffirmed their support for the Reform Party as it became the Canadian Alliance and now the modern Conservative Party. At the same time, the stereotype developed that many progressives were hostile and insulting to anyone who disagreed with their agenda.
A new progressive narrative can not only debunk the negative stereotypes about progressives and counter the narrative of the Harper Conservatives, it can also help build a more positive dialogue in our country. Canadians frequently defy political stereotypes: Conservative voters show compassion for the poor and care for the environment, while Liberal, NDP and Green voters put in long hours of hard work and show entrepreneurial spirit. Indeed, many entrepreneurs have run as Liberal or NDP candidates over the years.
A new political narrative that recognizes this and helps to bring us together as a country, rather than worsening the tensions that currently exist, would provide an extremely valuable service to Canada and to all Canadians.
Jared Milne is a policy researcher and analyst from Alberta with a strong interest in Canadian history, Canadian politics and Canadian public policy.

Canada must adjust to the Asian century

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Over the coming decades, Asia will become the global centre of aspiration, innovation and technology. Canada’s long-term prosperity and security will increasingly depend on its ability to understand and seize economic opportunities in the region – particularly in the twin giants of China and India – as well as in countries such as Vietnam and Indonesia.
What’s more, Asia’s influence is spreading globally. New, non-Western webs of power are emerging, exemplified by the growing Brazil-China relationship, meaning that Canada’s success in other regional markets will depend on how much we matter in Asia.
Despite – or, perhaps, because of – their manifest success, Asian countries are at the forefront of the biggest collective action challenges of our time. These range from critical shortages of water, energy and food, to a need to fill education, health care and infrastructure gaps and to address climate and other environmental concerns. Outsiders who offer practical, targeted assistance to Asian countries to overcome these problems will be well-placed to reap the economic and political benefits.
To succeed in this environment, Canada needs to be visible, useful and creative. Competition for Asia’s attention is intense and Canada has fallen behind. Our reputation as a gateway to natural resources may open the door to Asia, but we need to be resourceful and identify additional roles to keep that door open – be it in education, health care, environmental stewardship or elsewhere.
We must also recognize that Canada’s businesses, academic institutions, non-governmental organizations, provincial governments and citizens are already active in Asia and are important faces for Canada. These new diplomats need to be empowered to work on Canada’s behalf.

What does this mean in practice?

To start, the federal government should double-down on its bilateral and regional engagement. Any strategy for Asia must be led, and seen to be led, from the top – especially in countries such as China, South Korea and Singapore, where the state plays a major role in the economy.
There has been rapid progress in the past year. Stephen Harper’s high-profile visit to China yielded many new initiatives, among them a joint study to examine potential for a trade agreement. Negotiations are moving swiftly to conclude a Comprehensive Economic Partnership Agreement with India by 2013, and Canada is lobbying hard for member status in the nine-country Trans-Pacific Partnership. The challenge will be to sustain our attention and follow-through. We must not allow our fiscal woes to distract us from this.
Secondly, Ottawa should identify and deploy smart investments to develop Canada’s brand image. Among these should be a Canada Brand Equity Foundation, in partnership with the provinces and private sector, to manage and measure perceptions of Canada in key hubs, cities and regions in Asia. For example, expanding the CBC’s presence in Asia with content targeted at local markets would be a low-cost way to enhance Canada’s “mind-share” in Asia.
Canada’s brand could also be enhanced by associating with iconic, highly visible projects in Asian countries. For example, Ottawa should push to achieve partner-country status for the Delhi-Mumbai Industrial Corridor, Asia’s largest building project (Japan is already there). It’s also time to revisit the argument to build a Sovereign Wealth Fund by pooling our resource rents. Such a fund would enable us to invest at scale in Asia and put us at the top table of global capital partners for Asia’s leading companies and governments.
Third, the federal government needs to find better ways to source and co-ordinate leadership from below. This could include a “wiki events” calendar that would share itineraries and allow groups to “self-organize” events and partner in real time.
Competitions and contests are another tool to engage this sector. For example, for a small sum, we could offer a “Canadian X-Prize” and motivate smart crowds to work on Canada’s behalf. This would involve picking a country and specific problem in Asia (for example, rural electrification in a given Indian region) and offering a prize in conjunction with Canadian universities and leading Canadian companies.
Finally, an overarching part of Canada’s Asia (and global) strategy should be serial experimentation. Not all the ideas outlined here will work, but we need to experiment to see what gains traction. We should follow the lead of the smartest companies that rely on “fast failure” to find their way in a fast-changing world.
Canada is behind in Asia, but we’re catching up. We should build on current efforts by using new, cost-effective tools of diplomacy to show Asia that Canada is an indispensible partner.

There is no cure for Dutch Disease

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Thomas Mulcair, leader of the federal New Democratic Party, says Canada has Dutch Disease. Ontario Premier Dalton McGuinty has implied similarly.
Canadians over 50 are forgiven if they run out and hire an arborist for confusing this ailment with Dutch Elm disease that wiped out so many trees in Canada two generations ago. The economic illness to which Mulcair refers is in fact much more serious than a gardening problem.
Dutch Disease occurs when one part of the economy — in Canada’s case, the oil extraction segment — becomes ridiculously popular on world markets. Cash flows in as foreigners buy up the resource, pumping up the exchange rate. This in turn makes it much harder for other parts of the country’s economy to sell goods and services abroad, as the higher currency makes their products more expensive in world markets.
The term was coined after the Netherlands discovered natural gas, which coincided with an appreciation of the guilder and a decline in the Dutch manufacturing sector. These three phenomena were linked by some analysts, leading The Economist magazine in the late 1970s to label the whole mess “Dutch disease.” The logic was that the natural gas find had increased demand for the guilder such that the exchange rate appreciated significantly, thereby damaging the competitiveness of the export-oriented manufacturing sector.
Mulcair believes Central Canada’s manufacturing sector — which has shed hundreds of thousands of jobs in the past number of years — is suffering the same fate today that the Netherlands faced decades ago. A Canadian dollar equal to the greenback, according to this analysis, is the by-product of the boom in the oilsands and high international demand for this commodity, which is allegedly killing the manufacturing sector’s export competitiveness.
But even if we agree with Mulcair’s analysis — and some economists do — there is almost nothing realistic that governments can do about it, which makes raising this economic bogeyman rather pointless and unnecessarily divisive.
Essentially, there are four ways to cure Dutch Disease.
The first — and most draconian — is to adopt a fixed exchange rate at a level to enhance export competitiveness, say 75 cents to the U.S. dollar. At such a value, Canadian goods-makers could keep selling abroad even in the face of a resource boom.
That policy, however, also throws out any ability of the Bank of Canada to control interest rates. In a fixed-exchange rate world, the sole goal of the central bank’s monetary policy would be to keep the loonie at 75 cents. There is little chance that any Canadian government would give up national economic sovereignty to fix an exchange rate. Moreover, Washington would never accept a Canadian dollar peg that was flagrantly designed to improve Canada’s manufacturing competitiveness at the expense of American companies. We would face all kinds of trade retaliation from the Americans were Canada to go down this road.
The second way to combat Dutch disease is to establish a large sovereign fund that would hold oil revenues offshore, bringing them into Canada gradually to “sterilize” them, which in theory should ease upward pressure on the loonie. Even abstracting from the highly divisive regional politics of creating an offshore fund designed to help Central Canada’s manufacturing industry at the expense of Western Canada’s resource industry, it is hard to see how such an instrument could even work technically in today’s world of massive, hyper-fast financial flows.
A third strategy for alleviating Dutch disease is the development of an activist industrial policy aimed at improving manufacturing productivity. A national industrial policy, however, would take such a long time to have a measurable effect on a manufacturing sector suffering Dutch Disease that the patient would probably be dead before the disease was cured. Worse still, if “industrial policy” turned out to be just a euphemism for protectionist measures, like tariffs or non-tariff barriers, the program would provoke so much trade retaliation that any beneficial effect on the economy would be totally nullified.
The final way to fight off Dutch disease is to impose much higher taxes or royalties on the extraction of the oil, coupled with severe restrictions on foreign ownership of Canadian resource companies and assets, thereby reducing the sector’s value, which would cause the dollar to depreciate. It is a strategy otherwise known as “making Canada poorer,” and would have all of the political appeal that slogan implies.
Canada may or may not have Dutch Disease. The disease itself might not even exist — many Dutch economists don’t believe the Netherlands actually ever had it. But, if we have caught this insidious virus, Canadians need to understand that it is kind of like a bad cold. There is no reasonable cure; you just have to let nature run its course.

We can save money and improve health care

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Ontario needs to find $2 billion in annual health care savings.
Provincial premiers and health care stakeholders had been gearing up for a noisy battle with the Conservative government around renewal of the 2004 Health Accord.
Confounding expectations, in December 2011, Finance Minister Jim Flaherty announced a unilateral renewal of federal health funding. The “deal” provides six per cent annually for the next five years, and after that no less than three per cent per year. This unanticipated federal generosity leaves the provinces with the ability to manage federal health care dollars as they choose.
It also deprives them of the federal government as a convenient scapegoat.
It places full responsibility on the provinces for shaping the future of health care delivery within the universalist and public principles of the Canada Health Act.
The Ontario government is committed to holding spending growth in health care to 2.1 per cent per year, down dramatically from a historic, eight-year growth rate of 7.4 per cent. To meet its target, Ontario will need to find $2 billion of annual savings. The recent Ontario Health Action Plan highlights aggressive bargaining with doctors and health care unions as well as lowered drug costs as key cost-saving strategies. However, even if real zeros can be achieved in these areas, such strategies will yield only about half the required savings.
What other cost-cutting measures might the provinces consider that could improve patient care?
Fewer health organizations
Ontario’s Drummond Commission questioned whether the 2,500 separate governance bodies in the Ontario health care system actually result in effective governance. His answer: probably not.
More importantly, we should ask whether more governance means better health care.
Individual governance bodies are largely concerned with the quality of the care in their own institutions. Transitions of care are not governed by anyone; no single organization is responsible for the patient journey across many health care settings. The one per cent of patients with multiple conditions who account for 49 per cent of total health care costs, are under-managed. Many simply fall between the cracks.
Reform is therefore required not only for cost-saving reasons, but also to improve quality of care.
Get rid of processes that are unnecessary orredundant
In Saskatchewan, Premier Brad Wall is implementing the Toyota Corporation “lean” philosophy as a way of removing unnecessary and inefficient processes from health care delivery. Significant savings are being achieved.
At the same time, Ontario patients being discharged from hospitals may undergo as many as three home-care assessments, all before a single home-care visit takes place (one by the hospital to determine if home care is needed; one by the Community Care Access Centre to determine the appropriate kind and number of visits; and another by the actual home-care provider).
We are spending a disproportionate number of public dollars in the management and assessment of need rather than on the care itself. The government should cut out duplication, streamline administrative layers and put the money into front-line care and home-care visits.
Reduce unnecessary readmissions to hospitals
Unplanned readmissions to hospitals are significant and, according to various studies, often avoidable. Shortened hospital stays mean that patients may be discharged quicker but sicker. In Ontario, the readmission rate is around 15 per cent. This is high. Many different problems can emerge for patients post-discharge. However, a study conducted by the University of Toronto found discharged patients were about 28 per cent less likely to be readmitted to hospital within seven to 30 days if they had a home-care visit within one day of discharge. That statistic alone merits action.
Use health care professionals more effectively
In Ontario we operate on the assumption that each medical emergency call means an ambulance dispatch to the ER. In Nova Scotia, calls are triaged and dispatched by paramedics through one centralized system. A medical communications officer determines the right service for each patient, whether it is ground or air ambulance or an extended care paramedic (ECP). ECPs have advanced training in geriatric care and can treat elderly patients for things such as stitches, replacing catheters, etc. in their place of residence. One year into the program, more than 70 per cent of callers avoided a trip to the ER.
Move services out of hospitals
Today, about 80 per cent of all hospital surgery is conducted as day surgery on an outpatient basis. This represents a vast cost improvement for the hospitals. However, we are still conducting surgeries in the most expensive setting — one constructed to house infrastructures required for complex care and in which labour costs and staffing levels are very high. There are more than 700 Independent Health Facilities licensed in Ontario. Some of these facilities could provide uncomplicated procedures with higher efficiency and volumes.
It is also well known that volumes lead to better outcomes — practice does make perfect. At the Kensington Eye Clinic, for example, the volume of cataract surgery has led to economies as well as greater access.
Innovative change can curb health care cost growth while improving outcomes and patient safety. The challenge is to make innovation work for patients and for taxpayers.

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