Finance Minister Bill Morneau in the House of Commons. Photo: Adam Scotti/PMO

When Finance Minister Bill Morneau stood up in the House of Commons on Wednesday, November 21, this is the economic update statement he dared not deliver.

Mr. Speaker, Canada has a huge economic problem, and as a government, we don’t know what to do about it.

As a result of the 1988 trade agreement with the U.S., Canada became part of the U.S. energy market. In the ensuing 30 years, while U.S. multinationals closed branch plants in Ontario and Canada lost much of its manufacturing industry, Western Canadian oil and gas production increased greatly.

Currently, 99 per cent of Canadian oil exports go to the U.S. The general health of the Canadian economy is linked to the fortunes of the expanded oil and gas industry that has flourished in Alberta and Saskatchewan, and offshore in Newfoundland and Nova Scotia.

No Canadian government expected the U.S. to recover its position as the world’s most important oil producer, ahead of even Russia and Saudi Arabia. Yet, after watching domestic U.S. production shrink and languish since the 1970s, that is what has transpired. A decade ago, the U.S. produced less than 5 million barrels a day; in 2018, it produces more than twice as much — more than 11 million barrels a day in July for the first time ever.

The U.S. had even agreed to permit exports of oil and gas, after years in which exports were banned. Now, for instance, the U.S. is the largest foreign supplier of oil to Quebec.

As an exporter, the U.S. does not need to take additional Canadian oil. Indeed, low-cost U.S. production is displacing Canadian exports.

No Canadian government anticipated that the U.S. would put its water table in danger, increase the risk of earthquakes, and throw the environmental precautionary principle out the window to undertake a massive expansion of fracked shale oil and gas production, but it has happened.

The U.S. is not just the market for Canadian oil and gas, it is now our biggest competitor in that market.

New investments in U.S. fracked oil and gas can be done short term. The resources available will peak in about 2035.

Investments in the high-cost, carbon-heavy Alberta bitumen sands are long term, and have dried up. Most of the sector is American owned. Short of nationalizing the resource, there is little a government can do to take back control.

Under prime ministers Mulroney, Chrétien and Harper, most capital spending on investment projects in Canada was in bitumen production.

The rapid rate of expansion of bitumen production did not take into account the possibility that the price of bitumen would have to be discounted to account for Indigenous land claims, greenhouse gas emission targets, liabilities for ecological damage, U.S. regulatory barriers to pipeline expansion, the high cost of rail transport, and hostility on the West Coast to added oil tanker traffic.

The Conservative opposition parties in Edmonton and Ottawa are blaming our Liberal government for the downturn in oil and gas prices. Due to an inept communications strategy orchestrated by PMO operatives that are not up to the job, Prime Minister Justin Trudeau has become the story, not market conditions in the U.S., an indication of a PR failure we did not need in the run-up to the election next October.

Calgary oil industry titans are calling for government-ordered cutbacks to oil production in the hope that limiting supply will arrest falling prices. In Ottawa, we are happy to let Premier Notley take on that necessary, but unpopular policy.

I would like to stand before you today and announce that we have other avenues to pursue to replace the lost revenue facing Canada because natural gas prices are at a 30-year low and bitumen is being sold at a loss. Unfortunately, this is not the case.

Other bad news is that while Canada has been signing major trade deals with South Korea, Europe, the Pacific, the U.S. and Mexico, and another 13 countries including Israel, Canadian exports of goods other than energy have been flat for 10 years.

While international trade has been growing, the Canadian share has fallen from five per cent of world trade to two per cent.

While previous governments were busily signing trade deals, Canada failed to build a balanced economy that would serve Canadian needs, and produce goods and services that were attractive around the world.

The worst may be yet to come. The leading economic indicators collected by the OECD all point down. The IMF issued a warning about how a world economic downturn could affect exports. The Economist magazine has a front-page story on the bleak international economic outlook.

I now realize we made a hollow promise when we emphasized the government’s commitment to increase Canada’s export capacity by 50 per cent.

Moreover, I wish to apologize for our negligence of the pocketbook issues that matter to Canadians. In my defence, I just wish to say that I had never heard of Lars Osberg. The figures in his new book, The Age of Increasing Inequality — showing that from 1982 until 2015, the bottom 50 per cent of our population experienced a fall in average real market income — came as news to me. After all, I am part of the top one per cent, and our average real market income went up by $320,040 in those 33 years.

Duncan Cameron is president emeritus of and writes a weekly column on politics and current affairs.

Photo: Adam Scotti/PMO

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Duncan Cameron

Duncan Cameron

Born in Victoria B.C. in 1944, Duncan now lives in Vancouver. Following graduation from the University of Alberta he joined the Department of Finance (Ottawa) in 1966 and was financial advisor to the...