Informetrica on Manufacturing

The United Steelworkers have put out the following press release:

Research confirms value of manufacturing to Canada’s economy

TORONTO, Oct. 4 /CNW/ – An interim report on manufacturing prepared by Ottawa-based econometrics firm Informetrica shows that manufacturing plays an important role in supporting all sectors of the economy, and has been hurt by both the recent appreciation of the dollar and by increased offshore imports.

The United Steelworkers (USW), the Ontario Federation of Labour (OFL) the Quebec Federation of Labour (FTQ) and the Canadian Labour Congress (CLC) retained Informetrica to examine the impact that manufacturing has on the economy. The initial phase of the research is now complete.

The research indicates that economic activity in manufacturing makes a huge contribution to the service sector, the high tech sector and to government revenue. In other words, a strong manufacturing sector is good for all Canadians.

“The research so far confirms what we have said all along about the need for an industrial strategy that preserves a value-added manufacturing economy,” said USW National Director Ken Neumann.

Wayne Fraser, USW Director for Ontario and Atlantic Canada, said the Ontario Liberal government of Dalton McGuinty “has wasted four years while jobs have drained out of the province and the country.”

OFL President Wayne Samuelson added, “Something is seriously out of whack when statistics show that the unemployment rate is low but poverty is increasing. It means good jobs are quickly being replaced by very bad jobs.”

The Informetrica data prove that a strong manufacturing sector creates not only manufacturing jobs, but service sector jobs too. The study shows that if conditions were created so that manufacturing exports over the last four years had increased by roughly 3.3 per cent, about $10 billion in each year, there would be the following impact on employment:

<< 1. a total of 134,000 manufacturing jobs would have been created directly; 2. another 134,000 would have been created indirectly as the exporting manufacturers buy other manufactured inputs; 3. 49,000 jobs would have been created in resource and other goods sectors; 4. some 144,000 service sector jobs would have been created; 5. total jobs created would be 462,000. >>

From 2002 to 2006, manufacturing accounted for between 55-61 per cent of all business spending on research and development. Manufacturers in Canada make up over half of all business spending on R and D even though, as a group, Canadian manufacturers lag behind most of their counterparts in other developed countries. If the future of work is in high-tech jobs, Canada should not only work to strengthen manufacturing, but create policies to encourage manufacturers to do more R&D.

The study shows that a strong manufacturing sector provides a boost to social programs. That same 3.3-per-cent increase in manufacturing exports would have increased government balances by $4.4 billion per year. The balance benefit for the federal government and public pensions would have been $2.5 billion, with the improvement for provinces and municipalities amounting to $1.9 billion. The increase in the amount of money available to the provincial and municipal governments balances in Ontario would be $900 million per year.

Offshore imports replacing North American made products

The two markets that matter most to Canadian manufacturers are the Canadian market and the US market. China’s share of Canadian imports increased from 4.6 per cent to 8.7 per cent from 2002 to 2006. Their share of manufactured imports rose from 5 per cent to almost 10 per cent. At the same time, the US share of Canada’s manufacturing imports went from 65.1 per cent to 58.4 per cent. In the US, Canada provided 18 per cent of imports in 2002, but only 16.4 per cent in 2006. Meanwhile, imports to the US from China increased from 10.8 per cent to 15.5 per cent.

The dollar problem

The rapid increase in the value of the Canadian dollar, especially relative to the US dollar, has been the other big factor. Informetrica simulated the Canadian economy assuming the exchange rate stayed at the 2002 level. There would have been some negative effects, as inflation would have been higher than it was, but there also would have been many positive effects. Corporate profits would have been higher, wages would have been higher and unemployment would have been lower. Their analysis shows there would have been 355,000 more manufacturing jobs today and there would have 582,000 more total jobs.

Job creation in a global economy

Manufacturing jobs can be created in Canada in a global economic environment. In fact, there have been three periods of strong growth in manufacturing jobs in the last 30 years.

In the late 1970s, the late ’80s and from 1995 to 2002, Canada had strong growth in manufacturing employment. In the last period of growth, which ended just five years ago, manufacturing employment grew by 2.7 per cent a year.

Government is not powerless to act, but they must choose to act. There are many ways to encourage a stronger manufacturing sector:

<< 1. Ensure that the “macro” economic environment is growth oriented. There are some drivers of the exchange rate that are beyond the control of the Canadian government, but since monetary policy is a contributing factor – government should keep interest rates low. Canada could also work with other countries to encourage upward revaluation of the Chinese Yuan.

2. Develop a “manufacturing strategy” to encourage value added production by:

a. Providing tax incentives for business investment in plant & equipment and research and development;

b. Strengthening workplace training and education;

c. Developing transportation and communications infrastructure;

d. Implementing “buy Canadian” programs at the provincial and municipal level;

e. Implementing energy policies that ensure low-cost supplies to industrial users.

3. Develop trade strategies that will create more jobs at home.

a. Negotiating measures in trade agreements that encourage value added production of resources before they are exported.

b. Tougher application of anti-dumping and countervail laws,

c. Aggressive application of environmental and health related standards on imports.

d. Negotiate trade agreements with requirements that exporting countries must meet ILO Labour Standards.

e. Create domestic trade laws that allow Canada to define unfair trade in broader terms.

For further information: Ken Delaney (USW), (416) 544-5952; Mike McCracken (Informetrica), (613) 238-4831

6 comments

  • This Informetrica report will give us some valuable ammunition in the fight for a manufacturing strategy.

    But what is this gratuitous partisan shot in the 5th paragraph of the news release? The report targets McGuinty, and doesn’t even mention Harper, even though the key drivers mentioned by the report (macro environment, interest rates, the dollar, and trade policy) are all clearly federal.

    Scanning the (sensible) list of 11 specific action recommendations in this news release, only the items in Section 2 have any relevance at all to things the provincial government can and should do (and even on those, provincial responsibility is partial at best). No credible case can be made that provincial decisions (good or bad) are the key drivers of manufacturing success or failure. And it’s not at all clear to me that the McGuinty record on most of the points listed (taxes, infrastructure, skills, energy) has been bad. The exception is the “Buy Canadian” issue, where the CAW (and others) have called for much stronger Canadian-content rules in procurement decisions. In other areas (auto and advanced manufacturing investments, critiquing the Korea FTA) the government has been good.

    Don’t worry, I’m not voting Liberal in this election (and I am voting yes on the referendum). My riding has an NDP incumbent, and no Tory threat, so there’s no strategic voting issue — although if I get one more tax-bashing leaflet from her I just might vote Green (“Trust us to protect your hard-earned tax dollars.” “McGuinty broke his promise and imposed new taxes.” “Unlike the other 2 parties, we will freeze local property taxes.” etc etc etc)

    I think our research work can make a huge difference in fighting for a badly-needed new policy direction. But if our research work is seen as disguised NDP campaign literature, it will not have the credibility, nor the influence, it deserves.

  • I agree that the manufacturing crisis is not mainly the result of provincial policy and can assure you that Informetrica’s report does not disproportionately target provincial governments. No one will mistake it for NDP campaign literature based on the single negative reference to McGuinty in this USW press release.

    However, it is worth noting that McGuinty’s line during the election campaign has not been to acknowledge the manufacturing crisis and blame Harper for it. Instead, he has glibly denied that the problem exists by claiming to have created three jobs for each one lost. His emphasis on sheer numbers of jobs, as opposed to the quality of those jobs, defends the federal Conservative record as much as the provincial Liberal record.

    With Tory’s campaign imploding, another McGuinty majority may be the likely outcome. Nevertheless, there is no doubt that a minority legislature with the NDP holding the balance of power would be far better. Whatever the NDP’s shortcomings, it is clearly left of the Liberals on (virtually) every issue and extremely close to labour on most issues. Given the absence of a serious provincial Conservative threat and the presence of a superior NDP option, I am not sure why we would want to defend the Liberal record.

  • I would have to disagree with Jim on his assessment of McGuinty’s potential role in helping alleviate the manufacturing losses. Having the largest share of manufacturing as a percentage of employment, McGuinty and his rulers should have been ubiquitous in their approach with Mr. Harper with regard to the manufacturing meltdown. You cannot suggest that the province does not carry some significant political weight when it comes to lobbying the feds and influencing macro policy. As far as I recall, only once did the finance minister for Ontario make headlines pressing the tories for restraint when it comes to interest rates. There should have been (and should still) be concerted lobbying efforts pressing many of the points outlined in the Steelworker document. It would seem to me a bit short sighted to believe that the largest province in Canada has such a limited role as suggested, when it comes to federal jurisdictions and the policies therein.

    Potentially the Steelworker report should have expanded their coverage a bit wider to implicate the Feds with more enthusiasm.

    paul

  • Is it possible to get a copy of this report?

  • Hi Paul, I do absolutely agree that the provincial government in a major manufacturing region like Ontario can and should do a lot to address the crisis, and use whatever tools are in its domain to improve the situation. And I think that the list of specific policy responses in the Informetrica report is a very good one. All that irked me was the suspicious targeting of the whole report at McGuinty six days before a provincial election.

  • I was just trying to minimize feathers from being ruffled, especially seeing how the election turned out. I believe this election might have been a good test before the Federal to see which way the labour winds are blowing and how strong they might be. I guess at the Fed level we’ll maybe see more concerted action directed towards the common foe. My hope is that we see some common fronts at least in that direction.

    pt.

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