The upside of parity
Is Canada's high-flying loonie actually a good thing for business?
by Max Fawcett
by Max Fawcett, Managing Editor
Conventional wisdom says that a rising Canadian dollar is bad for our export-driven economy. But Stephen Poloz, the new president and CEO of Export Development Canada, has a different opinion on the economic consequences of our high-flying dollar. Far from interfering with the economic recovery that’s afoot, Poloz believes that it could give it a push in the right direction: greater productivity.
Canada’s laggardly performance on productivity has been a hobby-horse for Bank of Canada governor Mark Carney. The Bank’s deputy governor, Jean Boivin, hammered that point home in a speech earlier this week in Montreal, where he emphasized “the importance of becoming more productive … in a world where we are faced with an appreciation of the dollar.” He noted that despite a comparatively robust recovery from the recession of 2008-09 Canada still trails behind the U.S. in terms of investment in machinery and equipment. Meanwhile, less than half of the drop in investment that took place during the recession has been recovered.
Poloz believes that the strong Canadian dollar may finally get Canadian firms to make the kinds of investments that the Bank of Canada has been encouraging them to undertake. Like the United States during the mid-1990s, Canada’s strong currency may trigger both an outsourcing of low-productivity activities and higher levels of foreign investment abroad, both of which could improve its productivity. By lowering their costs in this way, Canadian firms will be able to do – and sell – more. “By doing that you improve your cost structure, improve demand for your product and then you’re employing more people and doing much more stuff,” Poloz told the Globe and Mail. “We’ve seen it happen in the United States, and I believe we’ll see it in Canada.”
Will there be job losses here at home as a result of this currency-driven outsourcing? Probably, Poloz concedes, but he notes that in the long-term the net benefits for Canadians will outweigh the short-term dislocations. The “outsourcing binge” that went on in the United States during the mid-1990s to the mid-2000s coincided with falling levels of unemployment, and Poloz thinks the same think can happen here. “Manufacturing didn’t wither. It raised its level of sophistication. That’s the same underlying process we’re describing for Canada.”
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