U of C report questions impact of Dutch Disease

A new report released by the University of Calgary’s School of Public Policy claims that the Dutch Disease phenomenon is actually beneficial to Canada’s economy.

Dutch Disease occurs when the price of commodities — in this case oil — increases, causing the exchange rate for a country’s currency to rise. When this happens, other exporting sectors like manufacturing can no longer compete in the global market because their products become too expensive for foreign consumers. This causes employment in manufacturing to decrease.

The report, titled The Canadian Manufacturing Sector, 2002–2008: Why Is It Called Dutch Disease, was written by Laval University economist Stephen Gordon. Contrary to claims that Dutch Disease is a problem, the report argues that it has strengthened Canada’s economy and the job losses in manufacturing are due to decreased hiring rather than layoffs.

“Yes, there has been this shift away from manufacturing employment largely due to the increase in oil prices and other commodities,” Gordon said. “But this has been largely beneficial. Even the employment losses in manufacturing were generally done by attrition.”

The term Dutch Disease was coined in the late 1960s in the Netherlands. During that time, natural gas wells were tapped in the European nation, causing the value of their currency to rapidly increase. Some economists argue that this led to a decline in the nation’s manufacturing sector.

“Why are we calling it a disease?” Gordon said. “The discovery of oil in the Netherlands and the North Sea increased consumers’ buying power by about 10 per cent. That’s good news.”
Economists currently debate whether Dutch Disease has positive long-term impacts on economies. Supporters of high-value currencies cite the strong economy in the Netherlands today as evidence for the phenomenon’s positive effects.

NDP leader Tom Mulcair has argued that Dutch Disease is hurting Canada’s economy, claiming the development of the oilsands in Alberta is harming the manufacturing sector in Eastern Canada and contributing to an increase in unemployment.

The Gauntlet contacted NDP Edmonton-Strathcona MP Linda Duncan regarding the report but her office would not comment.

Saskatchewan premier Brad Wall recently said he disagrees with Mulcair. Wall claimed that the oilsands have brought more jobs to Canada and similar declines in the manufacturing sector have been observed in the United States. He blames job losses in manufacturing on the
global economy.

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