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The curse of oil, Canadian style.

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The curse of oil has been hitting Canada quite severely recently, no thanks in part to certain pipeline.

What is the curse of oil?  I have been using the expression in class without defining it properly, which is not very nice to my students, who have to guess what I’m referring to.  Being lazy, I was putting off writing about it – until I learned about new developments in the Gateway file that really caught my attention.

The curse of oil is an attack on society along two fronts: the destruction of manufacturing jobs, and the erosion of democracy.

The problem of economies relying on natural resources exports has been dubbed the “Dutch disease”, after what happened to the Dutch manufacturing sector following the discovery of oil and gas in the North Sea.  In the pre-Euro era, the Dutch currency at the time, the Gulden, became so expensive that no-one could afford Dutch exports.  The Dutch DAF company made a little compact car that pioneering the continuously variable transmission now commonplace on hybrid cars.  But the car division of DAF went belly-up after the North Sea oil took off.

High oil prices reduce the ability of an oil exporting country to build its manufacturing sector.  The main oil exporting nations are not known for their finished products.  The decline of the manufacturing sector in Britain paralleled the rise of North Sea oil exports, and the rise of the British pound (ok, so Austins and Morrises were never great cars in the first place, but still…).  Recently Condoleeza Rice lamented the fact that the Russian economy is dominated (80%) by natural resources exports, mainly hydrocarbons, while it could be at the forefront of the knowledge industry.

But the more insidious aspect of the curse of oil is the democracy deficit.  This concept was first articulated by Michael Ross in a 2001 article entitled ‘Does Oil Hinder Democracy?’,  documenting five negative effects of oil.

First, there is what he calls the taxation effect.  Oil-rich governments don`t have to raise taxes to bring in revenue; this means that they don`t have to be accountable to the public, either.  Secondly, there is the spending effect: this leads to patronage, which corrodes democratization.  Then there is the group formation effect: the oil-rich government uses its cash to prevent the formation of groups that are independent from the state.  Oil revenues can also fuel a repression effect, that is, a situation where police or secret forces choke democratic movements.  And, of course, there is the anti-modernization effect, which is a corollary of the Dutch disease.

In a later essay (Oil, Islam, and Women) Ross shows how oil-rich regimes tend to repress and under-educate women.  This may be controversial (several aspects are at play, and it may not seem to apply to countries like, say, Venezuela) but the point is made that oil revenues often undermine democracy and social justice.  Some countries may be relatively prosperous but have social equity issues (Saudi Arabia), while other countries that should be thriving have neither wealth nor social justice, but instead are plagued by corruption and unrest (Nigeria).  This is so widespread that the recent discovery of oil in Uganda has led commentators to worry about the future of the country.  Some also see the Arab Spring threatened by the curse of oil.  Ross summarizes the oil curse as leading to authoritarianism, economic instability, corruption, and violent conflict.

What does this means for Canada?  Canada is not immune to the curse of oil, on the contrary; but I was still surprised to read the following Wikipedia entry under “dutch disease“:

Canada’s rising dollar hurting the manufacturing sector in the 2000s due to foreign investment in oil, particularly the Athabasca oil sands.

After the value of oil skyrocketed in the last decade from  about $40 a barrel to above $100 in 2008, the value of the Canadian dollar followed suit, moving from a low of about 65 US cent to above par.  During that period, the Canadian auto industry saw its profits drop precipitously; the Hamilton steel industry shut; countless other Canadian manufacturers struggled or closed shop altogether.  In the service sector, the competitive advantage of the movie industry, for one, was nearly destroyed.

Of course, several other factors have contributed to this decline, including the recession starting in 2008.  But a low dollar would have cushioned the drop and protected some of our exports; as it were, the manufacturing sector was dealt a double blow.

Canada (or Alberta) is pursuing the construction of two pipelines, one to the States and one through BC to Asia, to export Tar Sands crude.  Not only is this risky from an environmental point of view (tar sands crude is harder on pipelines and quite corrosive), but doing so constitutes a net export of jobs.  Even conservative figures like former premier Peter Lougheed are opposed to the construction of the XL pipeline for this very reason.

Andrew Nikiforuk has documented the impacts of the oil industry on Canada and Alberta in particular.  In a recent series of articles, Nikiforuk lists ten reasons why tar sands crude should not be exported and the pipelines not built – otherwise, we risk suffering the worse impacts of the curse of oil.  He notes that the enormous size of the project is such that risks are also enormous, and the project lacks resilience.  The pace of development is frantic and unjustified.  Of course, the developments are causing Dutch Disease effects on the rest of the Canadian economy.   He also notices the failure to save money (Alberta`s Heritage Fund is gone, and the province risks becoming a ghost town when the oil is gone) and the fact that Canada should not be in a rush to export what is ultimately its future guarantee of energy security.  The tar sands energy return on investment (EROI) is low; the amount spent on innovation is pitiful (less than 0.3% of sales goes to R&D, as compared to, say, over 15% in the auto sector);  the questionable partnership with China over oil exports; the climate impact; and, ultimately, what Nikiforuk calls the `dysfunctional petro-state effect`.

Alberta seems to have been hit the hardest by the democracy deficit effect. It has been run, in effect, as a single-party province with low voter turn-out; and its brand of politics has now been exported to Ottawa, in the form of a Harper-led, Alberta based government bent on ignoring environmental impacts (or any inconvenient scientific evidence, for that matter, be it in muzzling its own scientists or destroying Census Canada, among other examples).

A good illustration of this democracy deficit, Alberta style, may be found in the wonderful article written by Robin Rowland – a scathing critique of an article written in the November 4th issue of the Calgary Herald by columnist Deborah Yedlin.  Yedlin argues that freedom of speech at the Gateway hearings should be curbed.  In her opinion, the approval of the pipeline is already a done deal, and oral submissions should be curtailed, so the project can get on with construction.

There you have it: a journalist who is advocating muzzling freedom of speech – denying the very essence of her profession.  Corruption and authoritarianism, here we go.  And the Gateway pipeline is to run through the territory of First Nations, who have consistently refused such an intrusion.  If the hearings are turned into a farce and the pipeline into a fait-accompli, as Yedlin advocates, can violence be far behind?  This is the very scenario that gave us Wiebo Ludwig, only with much bigger stakes.

The rush to develop the oil sands is insane, but the push for the pipelines is even worse.  The curse of oil, Canadian style.  We are not immune, and we better watch out and smarten up.

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Written by enviropaul

November 9, 2011 at 9:54 pm

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