First of all, it isn't only manufacturing that has lost jobs through this process that I call resource-driven deindustrialization. As a result of the indirect impacts of a staples boom and then the financial market implications, particularly through the exchange rate of that boom, it's also affected any other tradeable industry in Canada. Manufacturing has been especially hard hit, for sure, but tradeable services industries have lost work. Tourism, actually, has been hit proportionately worse than manufacturing because of the overvalued currency, which in part—not exclusively, but in part—is clearly related, empirically, to the boom in Canadian petroleum and mining exports.
The net impact across the goods-producing sector as a whole has clearly been negative. Yes, there are new jobs associated with export production in petroleum and some other mining industries, but the number of those new jobs, given the limited labour intensity of that production, is more than outweighed by jobs that have been lost in other export-oriented, goods-producing industries.
Part of the problem there is that the employment intensity of production in the petroleum sector is uniquely low. Each $1 million of GDP in the petroleum extraction sector supports only half a job. Compare that to other goods-producing industries, such as manufacturing, which is more like 10 jobs per $1 million of GDP, and even more in tradeable services.
The net impact of shifting our exports from a more diverse composite of value-added products and services, more increasingly into staples, mineral extraction, has clearly been negative on the employment side.
How do you manage that situation? What is the policy response? I think in part it is to control the pace of resource development. No one at this table, as I'm aware of, is going to shut down the oil sands—far from it—but to more carefully regulate the pace of development and export, to take measures that would enhance the Canadian value-added content of the inputs and supplies that go into the petroleum sector. For example, we purchase billions of dollars of machinery and equipment to work those mines. The vast majority of it is imported internationally. In fact, an increasing share of it is imported from the U.S. and elsewhere. There has been no concerted strategy to enhance the Canadian value-added linkages.
We talk a lot about how there are spinoffs felt by all the provinces, but in fact the data we have, which isn't very good, suggests manufacturing inputs from the rest of Canada to Alberta have in fact shrunk significantly, even as the oil boom continued along, in part because of a lack of policy response.
In addition, we'd like to see a policy strategy to enhance value-added at the downstream, in terms of using the resource, processing it, refining it, including upgrading, including refining, including petrochemicals. This is where the logic of the position to use more of the production in Canada comes from.
Finally, we need a strategy to manage the macroeconomic effects of it all. In particular, I think the key link between the oil boom and the overvalued exchange rate is experienced not through trade effects per se, but more through capital market and financial market effects. My suggestion in policy has been to more carefully regulate foreign investment in the resource sector as a way of breaking the link, in the minds of currency traders, between the price of oil and the Canadian dollar.
I think there's a range of policy tools that could be taken to enhance the benefits and reduce the side effects or unintended costs of the resource expansion.