Industry Committee on Dec. 12th, 2007

[The Chair, Conservative, James Rajotte]

That's all the time we have for that discussion.

Thank you, Monsieur Vincent.

We'll move on to Mr. Carrie, please.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair, and I want to thank the guests for being here.

It's a particularly important topic for me as the member of Parliament for Oshawa. We recently had a layoff at our truck plant; there were 1,200 job losses. It's disheartening, because I see the numbers in Canada, and it appears Canadians are buying more trucks: truck sales were up 14% last year, and I see in the new numbers that Chrysler sales are up in Canada this year.

To what extent are these 300,000 job losses due to the fact that much of our exports in this country go to the United States, where we're seeing an American economy that's really being challenged right now? Are our sales directly being affected by the U.S?

[Dr. Jim Stanford]

Certainly part of our current weakness over the last few months is related to the slowdown in the U.S. economy--the uncertainty surrounding the financial problems there with sub-prime mortgages, and so on. That was relevant in the case you mentioned of the Oshawa pickup truck facility. But the problem we're facing in manufacturing goes back much further than that.

Our manufacturing employment has been falling continuously for over five years, and for periods in that time the U.S. economy was very strong. The main problem with our exports to the U.S. is not this short-term downturn in the U.S. economy. The main problem we face is that our automotive exports to the U.S. are being squeezed out by offshore imports from Japan, Korea, and other offshore producers. That has been by far the more important factor behind our shrinking exports to the U.S. market, and the dollar of course only compounds the problem.

[Colin Carrie, Conservative, Oshawa, ON]

You also mentioned countries such as China, where we have a huge trade deficit, and I was wondering if you could comment. I've talked to manufacturers about unfair international agreements. One that was mentioned to me was Kyoto, for example.

Certain countries like China and Korea are seen as being third world countries, so their manufacturers don't have the same environmental challenges that ours do here. In other words, we can sign agreements to say we're going to improve our environment, but if these other countries that are big emitters don't get on board, how is that going to affect our manufacturing sectors here in North America, particularly in Canada? These other countries aren't going to play by the same rules that we're playing by.

[Dr. Jim Stanford]

I don't think the Kyoto process has had any negative impact on our manufacturing at all. China is part of the process. They don't take targets until the second round of the Kyoto process, but there are many reasons why we have an unfair trade relationship with China. It's all about their low labour costs, their suppression of trade unions, and the ability of global companies to invest there and export to here without buying anything back. That is the source of our problem, not China and Kyoto, frankly.

I think the Kyoto process and the broader effort to address climate change could be an opportunity for Canadian manufacturing, if we provide the resources to the sector that are required to adopt cleaner technologies.

[Colin Carrie, Conservative, Oshawa, ON]

That goes against what I've actually heard from manufacturers. I talked to one manufacturer here who was really discouraged because he sold technology to Korea, which will be receiving credits, and they were a direct competitor to him here. So he had extra costs but was a direct competitor with Korea. They were able to send the goods back over here at a lower cost. I appreciate your opinion on that, but that's not what I'm hearing directly from manufacturers.

[Andrew Jackson]

It's not as if we've imposed any costs anywhere. I think there's some validity in looking at that as a concern moving forward. On what the CLC has said around the climate change issue, as far as setting emission targets for large final emitters, and so on, there should be some consideration given to competitive factors in terms of the costs.

For example, if we're building a new refinery in Saint John, New Brunswick, and the U.S. doesn't match the cost of carbon that goes in, that kind of investment would go south of the border. But I think that speaks to the importance of bringing the U.S. into the Kyoto process as well.

[Colin Carrie, Conservative, Oshawa, ON]

I think it's important to bring all huge emitters into an environmental process, that's for sure.

You mentioned a low dollar and that we'd have to have it in the eighties to be competitive in the long term. Is that realistic? How would you go about doing that? Would you consider pegging the Canadian dollar? We're hearing that it has a lot to do with what the American economy is going through right now, not necessarily Canada's. It has gone up to a certain level, but the American economy and the American dollar are really dropping. How realistic is it for us to have this low-eighties dollar?

[Dr. Jim Stanford]

Let me address the question of whether the Canadian dollar is rising or the U.S. dollar is falling. I think there are a lot of inaccuracies in the general discourse on that subject.

The U.S. dollar is falling globally. If you measure the value of the U.S. currency against the trade-weighted index of the major countries it trades with, and you weight each of its trading partners according to its importance in that bilateral trade, the U.S. dollar has fallen by about 20% over the last four years. The Canadian dollar has risen against the U.S. dollar by 60% during that same time period. That's a three-to-one ratio. In other words, our dollar has risen three times as much as the U.S. dollar has fallen. You could say that one-third of the problem is that the U.S. dollar is weak, but two-thirds of the problem is the uniquely Canadian problem that our currency is strong because of this overheated resource sector and the indirect links onto our currency.

In terms of how you would actually bring the dollar back to the low eighties, I think it's quite sensible. The most common benchmark that economists use to evaluate the fair value of a currency is what's called “purchasing power parity”; that is, a currency should be at a level so that a given amount of money can buy as much in one country as it does in another country, after adjusting for price levels and exchange rates. That purchasing power parity level is in the low eighties. It's around 83¢ to 84¢. I think it's a question of our dollar being driven away from that value by the pressures in financial markets.

I'm sorry for going on so long.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Stanford.

Thank you, Mr. Carrie.

I want to indicate to members, and to the witnesses as well, that the bells are ringing. I'm attempting to find out exactly what time the vote is. I don't know if it's a closure motion or not.

But we will continue. We'll go to Ms. Nash, for six minutes.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Mr. Chair.

Welcome to the witnesses.

I'd like to use my time to explore the relationship between the job losses in the manufacturing sector and growing poverty in Canada.

I'm from the city of Toronto. We had a recent United Way report that talked about how poverty is dramatically on the rise. We've lost about 125,000 manufacturing jobs in our city. We hear from some quarters that while there are job losses in the manufacturing sector, it is being offset by growth in other sectors.

I'd like to ask the witnesses about the impact of the loss of manufacturing jobs, the growth of poverty, and your views on whether the growth of the service sector is going to help reduce poverty in Canada.

[Dr. Jim Stanford]

Perhaps I'll go first, since Ms. Nash is my MP, and my former colleague at CAW. It's lovely to be able to engage in this discussion with you, Peggy.

In terms of manufacturing job losses being offset by service job creation, I think we are very fortunate in that the decline in manufacturing in the last few years has been at a time when the spending conditions in the domestic economy, such as retail, construction, and public services, have been very strong. That has allowed us to endure the decline in manufacturing without experiencing an overall recession, which is what happened the last time our manufacturing sector went into crisis in the early 1990s. We've been very fortunate on that scale.

However, it would be very wrong to conclude that manufacturing doesn't matter or that jobs lost here will inevitably be picked up somewhere else. I do not expect that to continue. Manufacturing is still very important to the base of our economy. It is an export-oriented tradeable good. As Andrew said, we have to be able to produce those things to pay our way in global markets.

The quality of jobs that are offered in manufacturing are superior in terms of the productivity. Income levels are more than 20% higher than average levels. It is the kind of job where working-class people can earn a middle-class income for themselves and their family.

The loss of those jobs, even if they're made up for with service sector employment, which in the private sector tends to be inferior in terms of income, will still contribute, as you mentioned, to the rise of poverty in our communities.

[Andrew Jackson]

The one thought I'd add, if I could, is that I was pretty struck by that recent United Way report. It's striking how large a proportion of the job losses in Ontario are in the greater Toronto area. Actually, I think there is something in the area of 100,000 jobs now in manufacturing that have been lost in the GTA.

One thing that often gets lost sight of is that a lot of those jobs have been held by relatively recent immigrants. About 25% of recent immigrants are employed in the manufacturing sector, compared to about 15% of the rest of the public. These aren't necessarily great jobs. They're not necessarily auto industry jobs. But for many recent immigrants they are a kind of foothold in the job market compared to the other kinds of employment opportunities available in Toronto as described in that report. They at least tend to be full-time and so on.

In many ways the human face of what's going on is being lost, and we need to bring that much more to the front in terms of specific groups being impacted.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Can you also give your view on the relationship between the manufacturing sector and the service sector? One of you mentioned that 55% of research and development is done in the manufacturing sector. I'd like your opinion on the relationship with the overall service sector. For example, when we say “service sector”, we often think immediately of food and beverage or the hospitality sector. But we are doing another study on the service sector. It's much broader than that. There are all kinds of higher-skilled jobs in the service sector--telecommunications, computer software, engineering jobs, for example.

What's your view of the dependency of some of those higher-skill jobs, especially, on the manufacturing base of the country?

[Dr. Jim Stanford]

Perhaps Andrew can take the first kick on that one. I've been getting more than my share here, I think.

[Andrew Jackson]

I'll just take one very concrete example that struck me recently. I guess it was the latest report in Report on Business Magazine, looking at the forest industry and comparing the forest industry in Canada to that of Finland, where there's a very large research and development component. They've really developed quite a thriving biotechnology sector on the basis of the primary forest industry. So certainly, in terms of this argument about adding more value to our resources, sort of leveraging off important industries, in Finland they have a very strong sector that builds forestry machinery and equipment for export to other countries. They are building pulp and paper plants around the world. That's a service sector providing specialized engineering services.

The argument would be that you need the production base to lever a lot of that high-value service spinoff out of it.

There is a level where we discount the importance of manufacturing by just taking it as a percentage of the labour force, where it clearly has been falling, and part of that is from higher productivity growth. But partly it's just that the manufacturing sector has outsourced to other firms a lot of functions that used to take place, everything from cleaning to specialized payroll services. We count quite a lot in services now that used to be included within the manufacturing sector itself.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Nash.

Members, I'm being sent e-mails saying we're supposed to proceed to the House immediately for a vote. I understand there is a vote at 4:50. I'm terribly sorry about this. It's an excellent discussion, and there are a lot of members up for questions. But as the chair I have to say when the House beckons, we have to go.

There is an option. We have votes at 5:30 as well; we have six votes. So we're fairly limited in what we can do.

[Andrew Jackson]

I appreciate that. I'm happy to have had a hearing.

[The Chair, Conservative, James Rajotte]

If members request it, we'd certainly ask you to come back, and if there's anything further you want to submit, please feel free to do so to me or to the clerk.

Thank you very much for coming in. I certainly apologize for the short time, though.

Thank you

[Dr. Jim Stanford]

Thank you very much, Mr. Chair.

[The Chair, Conservative, James Rajotte]

The meeting is adjourned.