Thank you. Before I joined the Macdonald-Laurier Institute I was chief economic analyst at StatsCan. We'd often be called to these types of committees to provide some background before people got into discussing the issues to get the basic facts right, so I thought I'd take a few minutes to go over some of the basic facts of natural resources and then the specific questions about the current situation. We can elaborate if you have further questions for me.
Looking at the role of natural resources and Canadian economic development generally, Statistics Canada produced a paper that looked at the contribution of natural resources to Canadian incomes over the last 100 years. It found, on balance, we were 18% richer measured by GDI than just GDP because our export prices have risen more than our import prices.
There was a theory going around in the 1950s and 1960s that in the long run the price of manufactured goods would rise and the price of commodities would fall. In fact, the exact opposite has happened over the longer term. It's not just in one decade. This is decade after decade you can see the rise in our terms of trade, with a particularly big push over the last 10 years. The arrival of China and other developed countries in the world markets radically depressed the price of manufactured goods and boosted the price of commodities.
That's one thing to keep in mind. Canada has certainly enriched itself substantially from its natural resources over time.
Second, it's a bit misleading to talk about the current commodity price boom as one entity. The increase in commodity prices has been sequential, not synchronized. Commodity prices don't all move together.
Just this week, for example, I'm sure you all heard about the sharp drop in the price of gold. At the same time, recently we've seen a substantial recovery in the price of lumber, and the price of natural gas has done well. If you look at the four large commodity groups over the boom you see energy take off first, then it levels off, then metals take off, they level off and decline, then agriculture picks up and it starts to level off, and more recently forestry has started to pick up. So they're not moving together. They're not synchronized. They don't all go up and down as one. That provides some diversification with our natural resource base.
The third point I'd make that a lot of people don't appreciate is how much we import natural resources. We aren't just exporting raw materials and importing finished goods, which is the old story. I was just calculating this this morning. Over the last decade, our volume of imports of natural resources has risen 31%, and our exports only 7%. We import things like bauxite to make aluminum. We import gold, refine it and export bullion. We import crude oil and export refined petroleum products. So that's another myth surrounding the natural resource sector that should be corrected from the beginning.
The final point I'll make about resources is a lot of what's happened in the last decade too is repairing damage we did to our resource base in the 1990s. We severely under-invested in resources in the 1990s. Our capital stock literally started to rust away. We hired next to no young people into the industry, employment generally fell, and I would argue that actually laid the basis for the shortages we're seeing today: that we chronically under-invested in resources and weren't prepared for this boom when it took off.
What happened basically in the 1990s was manufacturing led growth and resources were the laggard. We had a bit of a reversal of that in 2002 to 2008 where natural resources took the lead and manufacturing fell behind. Now, since the recovery began, we're seeing both increase, and I think that's the best balance, the best equilibrium for the economy.
To look at the specific question about the energy prices and the benefits of diversification, it's worth noting that in natural gas large divergences in the international price of gas are normal. There's one market in Europe. There's another in Asia. There's another in North America. Prices diverge for long periods of time. There may be some point to taking advantage of that.
In oil it's much more unusual. There's usually one international price. It's very unusual what happened two years ago when the price for western Canadian oil fell relative to the world price. It would be interesting to see if that continues in the longer term or whether that is just a temporary situation. Already we've seen that differential narrow substantially from over $40, or near $40 in the winter, to near $10, so I'm a little more skeptical about whether there are great benefits to be gained from diversifying oil.
Put another way, for decades we exported oil only to the U.S. and it didn't make any difference because there's one price of oil in the world. We may be going back to that. Obviously Keystone’s being approved would help with that.
I would just be careful that diversification is not a goal in itself. Maximizing the value we get from a resource should be the goal.
I don't know how I'm doing on my seven minutes.