In the federal election just completed, Liberal candidates from Paul Martin down tried to curry favour with voters with frequent reminders that the Canadian economy is humming along nicely.
Unemployment is at its lowest level in years. The dollar is strong. Inflation is low. Interest rates are down. The stock markets are doing well. The housing industry has been enjoying record or near-record years. The federal government has been racking up annual surpluses, the only G-8 country to do so.
Economically speaking, there's scarcely a cloud on the horizon, unless you happen to be in manufacturing.
These days, Canadian manufacturers are struggling. The exception is Alberta, of course, where a red-hot economy has created its own special challenges - like not being able to find the workers necessary to keep pace with demand.
Elsewhere, though, manufacturers are shedding employees. General Motors made headlines last fall when it announced plant closures and layoffs in Oshawa and St. Catharines, and Ford created its own bad news last month by announcing 1,200 layoffs at a plant in St. Thomas.
Dozens of other companies have trimmed their workforces or closed doors over the past year, usually without attracting so much attention.
According to Jay Myers, senior vice-president and chief economist with the trade association Canadian Manufacturers and Exporters (CME), manufacturing employment peaked at 2.414 million in August 2002, which represented about 15 per cent of the country's workforce. One year later, employment had fallen to 2.27 million, and in December 2005 it was down to 2.142 million. That's 272,000 lost jobs and it could get worse.
What's wrong? Plenty, according to Myers. Energy costs are rising because world demand for oil is so high. The price of steel, nickel and other commodities is up. The high value of the Canadian dollar makes our exports more expensive on world markets. At the same time, intense competition among manufacturers from the United States, China, Brazil and other countries is exerting downward pressure on prices.
"I don't think these trends are going to disappear," Myers says. "We're in the eye of a perfect storm. We're going to have a very tough time over the next couple of years."
Some industries, such as pulp and paper, are facing additional difficulties. Demand for paper is falling because people are spending less time with newspapers and magazines. Instead, they're reading more and more on the Internet. As a result, producers worldwide have excess capacity, which means they must close plants and lay off workers.
Myers also points out that something like 30 per cent of Canadian manufacturers are either foreign subsidiaries or are part of global conglomerates. Within such organizations, there is tremendous competition for mandates to manufacture products and for investments in new plant and equipment. That leads to pressure for greater operating efficiencies, as well as the closure of unprofitable or marginally profitable operations.
Meanwhile, some Canadian companies have decided to maintain their head offices here, but they are moving operations to the U.S., Mexico, China and other destinations where manufacturing can be done more cheaply.
"We're seeing much more of that because in many cases it doesn't make sense to produce here," Myers says.
Given all these trends, he predicts that another 50,000 to 100,000 manufacturing jobs will disappear this year and more companies will be investing in automation and technologically based production.
There are also opportunities, though, in resource mega-projects such as the offshore energy developments in Atlantic Canada and the oilsands developments in Alberta. But Canadian companies must do a better job of recognizing and taking advantage of them. To that end, CME will be running workshops across the country this year to bring buyers and sellers together.
"Everybody is running workshops on how to do business in China, India, Mexico, Brazil and even the Middle East," Myers says. "These are important markets, but over the next 10 years there's going to be $120 billion invested in the oilsands. There's tremendous economic potential in this country."
Myers believes that attitudes must change if Canada is to maintain a healthy manufacturing sector. "In the recent election, everybody talked about how you distribute money," he observes. "Nobody talked about how you create wealth. Too often, business and profit are bad words. We need to make a cultural shift."
In other words, Canadians need to put less emphasis on spending the wealth of the nation and put more effort into creating new wealth. They need to stop thinking that jobs and prosperity are a birthright, like clean air and fresh water.
(D'Arcy Jenish can be reached at jenish@businessedge.ca)
