Canadian manufacturing has fallen from grace over the past decade. At the turn of the century, Canada had a thriving manufacturing sector that punched above its weight in world trade. We ranked as the fourth-largest auto assembler in the world, the third-largest aerospace supplier, and enjoyed a critical mass in several other high-tech, high-value sectors.
However, since then we’ve snatched defeat from the jaws of victory — thanks to a combination of global pressures and self-inflicted policy wounds.
Manufacturing accounted for less than 13% of national GDP last year, down from 19% in 2000. More than 500,000 manufacturing jobs, delivering above-average wages and productivity, evaporated in that time. From a balanced trade position in manufactures, we now incur a $90-billion annual deficit in international manufacturing exports and imports. That’s the main factor behind the emergence of a large and chronic balance of payments deficit in recent years.
Some commentators argue the decline of Canadian manufacturing reflects inevitable, universal factors. Superior productivity growth in manufacturing means we can produce more output with fewer workers. Manufacturing is declining everywhere, it is said. And if globalization has undermined Canadian manufacturing, it’s only because we can produce other stuff, relatively more efficiently, to sell to world markets.
This ‘What, me-worry?’ attitude is wrong on all counts. Actual manufacturing output has declined in Canada — it’s not just that we are working more productively. (In fact, our productivity performance was much better in the 1990s when the industry was expanding, compared with the past decade when it was shrinking.) Canadian manufacturing declined far faster since 2000 than in other industrialized countries; in fact, in many countries (including high-wage countries like Germany, Sweden and Korea) output has grown.
Yes, our resource exports (especially petroleum) expanded dramatically. But that growth was more than offset by declining exports from other sectors (including services and tourism, not just manufacturing). Overall, therefore, our exports actually declined: now accounting for 31% of Canadian GDP, down from over 40% in 2000. Hence more Canadians now work in low productivity, non-tradable industries (like low-wage services) than in past years. That regressive structural shift, together with a continuing productivity decline in the resource extraction sector, explains Canada’s consistently lousy productivity performance. The soaring loonie, now trading 20% above its purchasing power equilibrium, has made matters worse.
Despite its trials and tribulations, manufacturing still makes a disproportionate and strategic economic contribution.
Manufacturing accounts for more than half of business research and development. Productivity in manufacturing is well above average, and hence so are incomes. And since most manufactured output is sold into world markets, a stronger manufacturing sector automatically contributes to our national capacity to participate successfully in the global economy. For these reasons, it would be a huge policy mistake to simply write off manufacturing as yesterday’s industry. It is crucial to building a balanced, inclusive and sustainable economy in the future.
Canadian manufacturers and their workers have bent over backwards to defend Canada’s industrial footprint in the face of incredible headwinds. The industry seems to have bottomed out, even winning back a small portion of the work lost in the preceding decade. However, a more fulsome and lasting recovery for the sector requires more than investment, creativity and sweat equity. It needs the active support of policy, too.
Other successful manufacturing jurisdictions have benefited from proactive policy interventions, which enhanced the presence and dynamism of domestic manufacturers. Every tool in the policy toolbox is invoked in pursuit of this goal: subsidized capital, integrated training and skills development, technology programs, supports for medium-sized firms, strategic trade policy to boost exports and limit imports, public procurement and even outright public ownership. With the active co-operation of the state, manufacturers in countries like Germany, Korea, Brazil and Scandinavia are expanding output and exports despite global turmoil. Even purportedly “free enterprise” jurisdictions like the U.S. have been relying on powerful interventions (from Buy America to Department of Energy grants to huge investment incentives) to spark a domestic manufacturing renaissance. Unless and until Canada takes off the Boy Scout’s uniform and starts to promote our own industry with equal vigour, we’ll be left in their dust.
Canada should learn from these global success stories. We have many industries that could be global leaders, contributing to surplus rather than deficit in our international relationships: auto, aerospace, telecom equipment, biotech, mining machinery, transit vehicles. In an appropriate regulatory and fiscal context, we could once again punch above our weight in global manufacturing, instead of relying exclusively on the extraction and export of unprocessed resources to pay our national bills.
Jim Stanford is an economist with the Canadian Auto Workers, and author of Economics for Everyone (Canadian Centre for Policy Alternatives)
With the global economy in a slump, it is more crucial than ever for Canada to optimize productivity. Visit financialpost.com/productive-conversations Tuesdays for more insight from some of Canada’s leading business minds on how our country can overcome its competitive challenges and take advantage of new opportunities. Or, visit our LinnkedIn discussion page to offer your own suggestions and perspectives on this important topic.
