The Israel-Iran war highlighted a harsh truth for Canada: Our oil economy has no future
John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.
Look closely, and you’ll see how the war in the Middle East has told us a lot about the future of the world economy, and how Canada might sink or swim in it.
A striking thing about the last few weeks is how little the world oil price moved. It’s been predictably volatile, changing by more than 10 per cent on some days, reflecting the anxiety and fog of war. But its range has remained narrow, within a US$60-80 band. Never did it threaten to go anywhere near the US$100 level analysts predicted it would blow past once the war widened. To look at broader trading on the world’s stock markets, the world’s investors regarded this war as a big nothing burger.
That’s remarkable, and a far cry from the world economy of a half century ago. Then, Mideast war sent oil prices soaring, tipping the world economy into recession and eventually triggering a massive debt crisis across America. This time around, the only major change was a slight but brief drop in the value of bitcoin.
This reveals how much less important oil has become to the world economy. The trend looks set to continue. Moreover, that recent volatility in the world oil price – and worries about security of supply amid war – are two of the variables inducing ever more countries to accelerate their transition away from it.
For instance, while the U.S. can go all in on oil and gas knowing that a secure supply lies just north of its border with Canada, Ethiopia can’t. Its dependence on imports, whose price can surge or whose supply can be cut off at a moment’s notice, has led the government to ban the importation of all but electric vehicles, enabling the country to exploit its abundant hydroelectricity and reduce its import bill. Governments across the developing world are taking similar measures, following China’s lead in electrifying its economy by using renewable energy to reduce their dependence on imported fuel.
Alberta energy sector boosts investment, production as Carney pushes for more resource projects ([url]https://www.theglobeandmail.com/business/article-alberta-energy-sector-boosts-investment-production-as-carney-pushes/[/url])
This casts a new light on recent lobbying by the oil industry about the need for Canada to ease up on its decarbonization goals. With oil and gas being Canada’s biggest export earner, one often hears it should be the government’s focus in reviving the economy. But that’s an odd argument. Had the U.S. applied the same logic at the end of its Civil War, when the country faced the same sort of turning point as Canada does today, it would still be trying to grow rich off cotton exports. Like Benin and Burkina Faso.
Instead, the U.S. became the industrial powerhouse it did largely because the Lincoln administration chose to build northern industry at the expense of cotton, essentially by forcing the southern states to use their cotton revenues to buy northern goods rather than the foreign manufactured imports they preferred.
Proponents of Canada’s oil and gas industry also say it’s the most productive sector of the Canadian economy, and that it therefore holds the key to solving the country’s productivity problems. They’re right about the first point, but it’s not clear the second one follows. That’s because the productivity of the oil patch may say less about the industry than about the rest of Canada’s economy.
If anything, the country’s labour productivity remains so poor – second worst in the G7 – precisely because Canada has put so much weight on the fossil-fuel industry, starving more dynamic industries of capital. In this regard, Harvard University’s Index of Economic Complexity ([url]https://oec.world/en/profile/country/can[/url]) is revealing. Canada’s export profile – heavily dependent on a relatively narrow range of resource exports – not only makes it look backward, but the situation has been getting worse, since gains for the fossil-fuel industry aren’t producing much in the way of economic diversification.
Is the solution to aggressively phase out oil and gas? Not necessarily. But using its export revenues to support the industries that will eventually replace it, as the U.S. once did, offers itself as a solution. In this respect, Canada has a golden opportunity. An anomaly in Canada’s economic complexity is that while its trade ranking is poor, its research and innovation indices place the country near the top of the world tables. Canada has no shortage of innovators. However, they struggle to scale because they’re crowded out by legacy industries that attract the big investment (which some blame ([url]https://www.shiftaction.ca/entrenched-interests[/url]) on the over-representation of fossil-fuels interests in Canada’s pension investment funds).
Canada’s startup ecosystem is a ripe fruit waiting to be picked. As the U.S. once did, the country needs to recycle its resource export revenues into developing new industries, not perpetuating old ones. What the Mideast war has highlighted is that oil’s days are numbered – though it may be with us for a while, it will never enable us to reclaim past glory.
Canada should read that memo now, because this moment of opportunity won’t last.
?
?[url]https://www.theglobeandmail.com/business/commentary/article-the-israel-iran-war-highlighted-a-harsh-truth-for-canada-our-oil/[/url]
John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.
Look closely, and you’ll see how the war in the Middle East has told us a lot about the future of the world economy, and how Canada might sink or swim in it.
A striking thing about the last few weeks is how little the world oil price moved. It’s been predictably volatile, changing by more than 10 per cent on some days, reflecting the anxiety and fog of war. But its range has remained narrow, within a US$60-80 band. Never did it threaten to go anywhere near the US$100 level analysts predicted it would blow past once the war widened. To look at broader trading on the world’s stock markets, the world’s investors regarded this war as a big nothing burger.
That’s remarkable, and a far cry from the world economy of a half century ago. Then, Mideast war sent oil prices soaring, tipping the world economy into recession and eventually triggering a massive debt crisis across America. This time around, the only major change was a slight but brief drop in the value of bitcoin.
This reveals how much less important oil has become to the world economy. The trend looks set to continue. Moreover, that recent volatility in the world oil price – and worries about security of supply amid war – are two of the variables inducing ever more countries to accelerate their transition away from it.
For instance, while the U.S. can go all in on oil and gas knowing that a secure supply lies just north of its border with Canada, Ethiopia can’t. Its dependence on imports, whose price can surge or whose supply can be cut off at a moment’s notice, has led the government to ban the importation of all but electric vehicles, enabling the country to exploit its abundant hydroelectricity and reduce its import bill. Governments across the developing world are taking similar measures, following China’s lead in electrifying its economy by using renewable energy to reduce their dependence on imported fuel.
Alberta energy sector boosts investment, production as Carney pushes for more resource projects ([url]https://www.theglobeandmail.com/business/article-alberta-energy-sector-boosts-investment-production-as-carney-pushes/[/url])
This casts a new light on recent lobbying by the oil industry about the need for Canada to ease up on its decarbonization goals. With oil and gas being Canada’s biggest export earner, one often hears it should be the government’s focus in reviving the economy. But that’s an odd argument. Had the U.S. applied the same logic at the end of its Civil War, when the country faced the same sort of turning point as Canada does today, it would still be trying to grow rich off cotton exports. Like Benin and Burkina Faso.
Instead, the U.S. became the industrial powerhouse it did largely because the Lincoln administration chose to build northern industry at the expense of cotton, essentially by forcing the southern states to use their cotton revenues to buy northern goods rather than the foreign manufactured imports they preferred.
Proponents of Canada’s oil and gas industry also say it’s the most productive sector of the Canadian economy, and that it therefore holds the key to solving the country’s productivity problems. They’re right about the first point, but it’s not clear the second one follows. That’s because the productivity of the oil patch may say less about the industry than about the rest of Canada’s economy.
If anything, the country’s labour productivity remains so poor – second worst in the G7 – precisely because Canada has put so much weight on the fossil-fuel industry, starving more dynamic industries of capital. In this regard, Harvard University’s Index of Economic Complexity ([url]https://oec.world/en/profile/country/can[/url]) is revealing. Canada’s export profile – heavily dependent on a relatively narrow range of resource exports – not only makes it look backward, but the situation has been getting worse, since gains for the fossil-fuel industry aren’t producing much in the way of economic diversification.
Is the solution to aggressively phase out oil and gas? Not necessarily. But using its export revenues to support the industries that will eventually replace it, as the U.S. once did, offers itself as a solution. In this respect, Canada has a golden opportunity. An anomaly in Canada’s economic complexity is that while its trade ranking is poor, its research and innovation indices place the country near the top of the world tables. Canada has no shortage of innovators. However, they struggle to scale because they’re crowded out by legacy industries that attract the big investment (which some blame ([url]https://www.shiftaction.ca/entrenched-interests[/url]) on the over-representation of fossil-fuels interests in Canada’s pension investment funds).
Canada’s startup ecosystem is a ripe fruit waiting to be picked. As the U.S. once did, the country needs to recycle its resource export revenues into developing new industries, not perpetuating old ones. What the Mideast war has highlighted is that oil’s days are numbered – though it may be with us for a while, it will never enable us to reclaim past glory.
Canada should read that memo now, because this moment of opportunity won’t last.
?
?[url]https://www.theglobeandmail.com/business/commentary/article-the-israel-iran-war-highlighted-a-harsh-truth-for-canada-our-oil/[/url]
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