Canadian Industrial Strategy: We need it. It’s complicated.
Industrial strategy has three players… Federal, provincial and Indigenous governments; all of whom have to learn that the future lies in reaching a consensus and not simply out litigating each other.
In our last article we rang the alarm bells regarding Canada’s lagging record with respect to productivity. In part, the cause that has us falling behind is the lack of investment in key industries to ensure we are adopting and leveraging leading edge technologies in production. However, if we take another step back and look at how our economy is functioning we find we have not evolved from being the hewers of wood and drawers of water[1]. Today, while banking is the leading generator of revenue in Canada, the Oil and Gas sector is by far our largest economic activity when you combine all aspects of the industry (extraction, refining, distribution, retail).
Heavy reliance on fossil fuels may make sense in the short-term from the perspective of milking an important cash cow, particularly for Alberta, but it is obvious that Canada’s Industrial Strategy has to point us in a new direction to ensure as an important global economic player Canada is able to continue to compete with others. Of course, the central problem is that we do not have, and in fact have never had, an industrial strategy that has been widely adopted, accepted by every important stakeholder and is readily identifiable.
When we think of Canada it remains difficult to identify an industry or a handful of industries that we excel in on a world-wide scale. We have too long been a branch plant economy dependent on our neighbours to the south to throw us the odd bone. Otherwise we simply allow others to come to our country and extract our resources and reap the benefits.
Canada is, for instance, considered as a mining superpower to some extent. We have more mining companies headquartered here than in any other country. Each year we host the huge Prospectors and Developers Association Conference which is one of the premier mining events and draws upward of 30,000 visitors to Toronto. However, no Canadian company is represented in the Top Ten mining companies by capitalization (Australia has three including the largest and second largest (BHP and Rio Tinto respectively)). Given our resource base, our education system and access to markets one would think mining would be an industry that we absolutely should be dominant in, including not just in extraction but in terms of all the supporting services and industries. This points to how we have failed to articulate an industrial strategy that is aligned with our natural strengths as a country.
We have to commend the federal government’s efforts partnering with labour, industry and the provinces (chiefly Ontario) to attract key investments in the automotive sector to ensure that Canada is a player as the world transforms from internal combustion engine cars to EVs. But providing subsidies to companies in one sector is hardly a comprehensive industrial strategy.
Even with respect to the automotive sector there are key elements that have not been addressed and which continue to be managed in a reactive way. For example, while Canada is an important player in the mining sector we have not figured out that in order to properly exploit our natural resources and become a leading producer of critical minerals for emerging EV technologies and other renewable energy projects, we need to stop being followers and begin to invest in a leadership position in renewable and sustainable technology. As a big natural resources’ producer, we are ideally suited to be the leaders in finding new ways to exploit our resources that leave an enviable legacy of sustained development. It is shameful to think of how complete communities have been abandoned once a mine has been mined out. This is exactly the issue being raised by many indigenous leaders in remote communities. It’s not that they are against natural resource extraction, rather they want to find ways to develop the resources so that in the future we still have a sustainable and desirable way of life left behind.
In Ontario the announcements that batteries for EVs and battery components will be built in the province is great news. But how does that impact on the complete supply chain for EVs? Getting right to the point, there remains a significant disconnect between the federal and provincial governments and many Indigenous groups when it comes to resource ownership and development. While the federal government was patting itself on the back for winning the Volkswagen battery manufacturing plant for St. Thomas, Ontario, at the same time members of Treaty 9 were launching a lawsuit over the lack of proper consultation regarding the development of the Ring of Fire where the critical minerals needed for the production of these batteries could come from!
If the governments cannot wrap their heads around how these things are connected we will never have a proper comprehensive industrial strategy. In fact, we would argue that one starting point is to ensure full inclusion from representatives of indigenous groups across Canada. Involving these groups is going to require a complete rethinking of resource ownership and the allocation of resource revenues. In the meantime, we have a potential major dispute brewing between the Western Provinces and the federal government regarding resource revenues and both parties seem to be ignoring the other participant (the indigenous peoples) in the debate.
The controversy over resource ownership stems from the 1930 Natural Resources Transfer Act[2] that set up resource management agreements with the Prairie provinces without Indigenous consultation. Unfortunately, the speed of government is not up to the arduous task of sorting out exactly how to define resource ownership. The differential treatment between provinces is not acceptable but more importantly the Act ignores the inherent and traditional rights that Indigenous people have over the use of the land. This is a complicated subject that demands a proper political answer and that hinges on the development of a national consensus that ultimately will define what Canada is. Our challenge is government lacks the innate capability of arriving at a long-term strategic solutions. So we see this issue being relegated to the judicial system to resolve through an endless series of litigation. This is hardly the stuff of proactive future thinkers.
A close second to ensuring active participation from all indigenous communities, the governments collectively need to be thinking about labour supply. We have covered the issues before, collectively we must address labour scarcity, the need for skills development within Canada and the absolute need to ensure key skills shortages are connected to immigration policy. Again, the essential element that is required is to have a comprehensive Canadian approach which requires consultation and consensus across all provinces and including all the key stakeholders. We are not going to develop resources in the requisite direction unless we agree amongst ourselves where and how we are going to get and train the people to do the work.
One of the frustrations I have had as a Canadian is the contradictory nature of our economy. We have one of the most educated workforces in the world, yet we have steadfastly stuck to primary industries as the basis of our economy. We seem unwilling to insist that those who invest in our country be obligated to creating added value here. For example, the U.S. prohibits the exportation of crude oil, thus ensuring that all oil produced in the U.S. (or imported from Canada) is refined in the U.S. In Canada we sit idly by while the policies of other nations strip us of opportunities to create value and grow home-grown experience and expertise.
Yes, we have some presence in the manufacturing of automobiles and airplanes but let’s be honest - we remain a branch plant economy when it comes to the manufacturing footprint we do have. We must have an industrial policy that creates an economy that defines Canada and its unique attributes.
A proper consultation regarding what the industrial strategy ought to be will answer the question regarding what it should look like in the future. And before we get into the finer detail we have to think of our core values as Canadians. We need to challenge the way we typically go about resource exploitation and selling off the public interest for a discounted price because we have led ourselves to believe that allowing private interests to profit from our resources is the best solution and is consistent with Canadians’ belief in “capitalism” as the best form of economic activity. It is not.
In fact, this results in an unfair distribution of wealth to Canadians and completely ignores our commitments to Canada’s indigenous peoples and young people. Instead we should be looking to other countries (Norway for example) to ensure that the windfall profits from luckily sitting on important resources like petroleum and critical minerals are used for the greater good to ensure all our obligations to the people of Canada are being met. As we examine the possibilities along this vein we will realize that equity participation by indigenous groups is one way to start to meet those obligations.
We are not Americans; nor are we Europeans or any other group. We are uniquely Canadian. Let’s be confident and bold and own this identity and define our 21st century industrial strategy accordingly.
[1] The phrase “hewers of wood and drawers of water” comes from the Bible, but it was the Canadian economist Harold Innis who used it in his 1930 book, The Fur Trade in Canada, to describe our traditional economic dependence on resource production.
[2] See for example federal Justice Minister David Lametti’s remarks to the AFN in April 2023. https://www.ctvnews.ca/politics/pm-trudeau-slams-prairie-premiers-for-trying-to-elevate-fears-over-resource-rights-1.6352497