Thank you, Peter.
Thank you to the members of the committee.
I apologize to committee members for not having French copies of our presentations. We only have copies in English. We didn't have a lot of time before preparing for this meeting. I'll nevertheless be able to answer your questions in French. Unfortunately, for the moment, we only have copies in English. If you want a copy, we can see about that after the presentation.
As I said, thank you for the opportunity to present here today on short notice. We're very pleased to be able to be here.
Let me start off by saying up front that the manufacturing sector in Canada remains a crucial source of value-added exports and productivity. This committee saw witnesses, I believe on May 16, from a number of important business groups, including the Canadian Manufacturers and Exporters Association, the Council of Chief Executives, and others. They went through a number of the key elements of the importance of manufacturing to the Canadian economy.
To mention a couple of the highlights—I won't go through them again, because I'm sure you were well-briefed in meetings in previous sessions—2.1 million Canadians call the manufacturing sector home for their employment; $610 billion worth of shipments come out of the manufacturing sector in this country; two-thirds of our exports in an increasingly globalized economy and the vast bulk of the exports of this nation are coming out of the manufacturing sector; the highest source of R and D spending in the country comes through manufacturing.
So one of the first things we'd want to say, up front, is that we reject the general notion that Canada is developing a post-industrial economy in which manufacturing is no longer central. We need manufacturing to provide investment, productivity growth, and good-quality jobs for Canadians. I think what you'll see is that the sectors that are most under threat today in Canada are exactly the kinds of sectors every country in the world is eager to have develop in their nation.
The other thing that is not always recognized but is highlighted by the manufacturing sector is the role manufacturing plays as some of the “original dollars” in the economy, if I can use that term, providing both the upstream benefit for sourcing materials into manufacturing and the downstream benefits of good jobs and good paycheques that spin off jobs not only in the services sector but also in supporting the public sector. So again, manufacturing plays a critical role in our economy.
Today the trends in Canada's manufacturing are certainly very negative. The boom in global commodity prices, combined with the impact of the rising Canadian dollar, has sparked a historic reallocation within our economy away from manufacturing towards resource-based industries such as energy and minerals. This trend is visible in one of the exhibits in our presentation, which displays that most of our merchandise exports once again consist of unprocessed or barely processed resource and mineral products.
We've been concerned as a nation since Confederation about diversifying our economy. In many respects today, we are turning back to being hewers of wood and drawers of water. For the vast bulk, we see a shift of unprocessed materials leaving our country, and this is a backward development in the development of our nation. The important thing for Canada's economy and for the future is to continually focus on what some of your previous presenters referred to as capturing a greater share of the value-added in the economy. We don't want to be just shipping out wood and water, so to speak.
Canada's currency is obviously one of the chief concerns for the manufacturing sector today. It's been driven skyward since 2002. Our dollar is now up by 44% compared with the U.S. dollar during this three-and-a-half-year period. This is obviously the fastest appreciation in our currency's history. It partly reflects some global developments such as the rise of commodity prices and the weakness of the U.S. dollar, but it also reflects a number of very important made-in-Canada factors, such as the tough anti-inflation stance of the Bank of Canada.
They're jacking up interest rates even though inflation remains below their target levels. To many observers, it remains rather remarkable that if there's a lesson in basic economics to be observed over the last several years, it's the undoing of the supposed link between high growth, low unemployment, and low interest all feeding into inflation. That has been the primary theoretical underpinning of the Bank of Canada for at least the last decade and a half, and the recent experience tells you that this is not the way the economy is functioning today. There has beem a high-growth, low-unemployment environment, and inflation remains low. That is something we should all be paying attention to. It is in fact engaged in somewhat of a false battle against inflation that isn't appearing.
This is a mistake. The Bank of Canada, in our view, must take a more balanced approach. The Bank claims that Canada is adjusting to change in a marvellous fashion. In our view they must not have visited many manufacturing communities lately. Manufacturing has shed 200,000 jobs since the appreciation began, and at least that many more will disappear in the coming years if they maintain this approach.
It's fascinating to talk about adjusting to change. Of course manufacturers will adjust to change. They'll adjust to change by moving the jobs elsewhere.
I think one of the things that's hidden today in the rise of the Canadian dollar is that we're seeing that people are not generally aware of the time lag in the manufacturing sector, particularly in some of our more value-added areas, such as the automotive industry and auto parts.
The dollar rises by 44% in a short period of time, and you don't pull your tooling and your products out of a plant tomorrow. The decisions about product allocation for 2007-2008 and beyond are being made today. A few years out, you'll start to see the impact of these decisions. They'll hit the unemployment figures, and there'll be a decline in production. Again, we should not be surprised to see the dramatic drop-off in some of these sectors in a few years.
Only one in five of the jobs that were lost to manufacturing in this recent period have been offset by new jobs and resources. So again, it's a myth that manufacturing is down but resources are booming, so therefore everyone's got a nice new job to go to. This is certainly not true. All the rest can only hope for a job at a Tim Horton's or a Wal-Mart, and I would say that's not exactly the kind of new economy we are looking to build.
Thanks in large part to the hard line taken by the Bank of Canada, our dollar has increased more against the U.S. dollar than other currencies, even though Canada is far more dependent on the U.S. market than any other country in the world. This means that our products are less competitive, not only against U.S. producers, but against other global producers.
Again I would think that this committee would be familiar with the fact that the Canadian dollar has risen faster against the U.S. dollar than the euro, the yen, or the Korean wan. Yet at the same time, the American economy is most central to ours.
Against Japanese producers, for example, our products are one-third less competitive than they were in 2002. Yet in Japan, the government and the central bank actively managed their currency to preserve the competitiveness of their exports. If it works for Japan, why can it not work in Canada?
It's quite fascinating when you review the recent history of the Bank of Canada. The bank has been very willing to prop up the dollar when it's considered to be too low. The question remains, why not intervene when the dollar has risen too fast and is too high?
I'll pass it over to Peter.
Thank you.