Canada Stricken With Dutch Disease

A blog about business and economics.
Aug. 15 2012 1:27 PM

"Dutch Disease" in Canada

I remember that years ago when I visited Maine I'd hear all about locals who would deliberately travel to Canada to buy things. The issue was that the Canadian dollar was weak compared to the U.S. dollar, leading to low wages for Canadians and therefore some cheap prices in some labor-intensive industries. In effect Canada was exporting retail services to Maine. But this was only of limited economic relevance, because while a large share of the Canadian population lives near the U.S. border, few Americans live near the Canadian border.

Yet the same trend in reverse is now impacting the North American auto industry, where for a long time the "Detroit" supply chain has been partly in Ontario, Canada. In recent years Canada's been riding a wave of high natural resource prices and strong resource exports. That's pushed the value of the Canadian dollar up, making Canadian wages high and turning Canada into a pretty unattractive location for auto-parts manufacturing.

Advertisement

This phenomenon whereby resource wealth crowds out domestic manufacturing is known as "Dutch Disease," though I believe it's never been entirely clear whether the Dutch actually suffered from it. The other thing that's never really been clear is whether this disease is an actual problem. If it's cheaper for Canada to get manufactured goods by employing labor in natural resource extraction and then trading resources for manufactured goods, then maybe that's what Canada should do. After all, any given place is bound to specialize in a few things. Why shouldn't resource extraction be one of them? In an economic development context there's a pretty clear case that the disease really can be a problem. Export-oriented manufacturing facilities can be a mechanism for the transfer of technology and know-how. Even a very lowly factory gets you on the ladder of economic development in the way that a mine arguably doesn't. But it's much less clear that this logic applies to an advanced economy such as Canada's.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Students Aren’t Going to College Football Games as Much Anymore

And schools are getting worried.

160 Countries Host Marches to Demand Action on Climate Change

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

Why a Sketch of Chelsea Manning Is Stirring Up Controversy

How Worried Should Poland, the Baltic States, and Georgia Be About a Russian Invasion?

Trending News Channel
Sept. 19 2014 1:11 PM Watch Flashes of Lightning Created in a Lab  
  News & Politics
Weigel
Sept. 20 2014 11:13 AM -30-
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Tv Club
Sept. 21 2014 1:15 PM The Slate Doctor Who Podcast: Episode 5  A spoiler-filled discussion of "Time Heist."
  Arts
Brow Beat
Sept. 21 2014 2:00 PM Colin Farrell Will Star in True Detective’s Second Season
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Bad Astronomy
Sept. 21 2014 8:00 AM An Astronaut’s Guided Video Tour of Earth
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.