Dutch Disease not killing Canadian manufacturing sector
The problems are bad management and bad policies
Photo: Bruce A. Stewart
By Bruce A Stewart
Thomas Mulcair may prattle on about “Dutch Disease” killing Canadian manufacturing sector and high-end service jobs, but he’s dead wrong.
“Dutch Disease” is supposedly when a currency, ratcheted higher by having commodities in demand, goes too high for these other firms to survive.
Well, that’s not us.
Instead, there are three big reasons Canada’s manufacturing and high-end service sectors have been hollowing out, and policy choices, plus weak management, lie at the core.
General Motors (GM) announced the closure of one of its two auto plants in Oshawa, Ont., this week.
Did the plant close because of a high Canadian dollar due to oil wealth? Hardly.
If that were true, both would be closing. No, the reason is simple.
GM built full-size, gas-guzzling cars in Oshawa. Gas in the United States is going for $3.25 (Houston, Atlanta) to $3.75 (Chicago, New York, Boston) to $4.25 (Seattle, San Francisco) a gallon.
At an average $32,000 (US) to drive it off the lot, and with most Americans now struggling with “impaired” credit, and a product that gets 15 mpg city, you’re not going to move many.
Wrong product for the times. But not killed by the Canadian dollar. These jobs died because of US-based management that set Oshawa up to fail.
With it may go some parts manufacturers, who tend to be mid-sized firms. But Canada has a much bigger problem in the mid-sized company space.
Not many companies make the journey from small to large in this country.
Many don’t even try. Most jurisdictions give preferential tax treatments to small businesses, that disappear if you cross the magic line into “medium.” So management limits the firm and lets it drift, just to catch the tax break.
Others, who do grow, tend to be acquired by larger competitors, like Canadian Hydro Developers (CHD) recently (TransAlta acquired it). With those acquisitions go the opportunity to develop competent managers and global markets. (Most of the key people who built CHD are out doing the entrepreneurial journey again, from the ground up.)
There’s also a funding problem in Canada: few early stage investors are willing to put in the sums required to do a global strategy for sales and marketing. That means we build great start ups, who either get acquired too soon or who leave the country to grow.
All of these moves — plus the foreign-owned firms, whose key jobs are all out of the country and thus suck the ambitious into their head offices — weaken the quality of Canadian management teams.
That, in turn, is the last job killer.
Research in Motion (RIM) is one example in the news right now. Here we see the long-term impact of having weak management development.
The founders (Balsillie and Lazardis) failed to read the emerging competitive market properly. They failed to bring in management that could (since the pool of candidates wasn’t strong, they stopped trying to find talent). RIM coasted until, today, its most likely future is to be acquired for its patents and install base.
None of these is the fault of “Dutch Disease.”
Instead, Mulcair should champion fixing the real problems.
Bruce Stewart is a consultant, educator and philosopher with a passion for public affairs currently located in Toronto. He is well known across the Internet for his blogs on management (Getting Value from IT) and social affairs (Just a Jump to the Left, then a Step to the Right) and for his daily stream of commentary on Facebook, Twitter and Google+. You can reach him at bastewart.toronto@gmail.com.
Category: Politics
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