I admire most things about the Netherlands. Dutch society is tolerant, inclusive and egalitarian. The Dutch have virtually eradicated unemployment, largely by shortening the work week. I even love the tulips they send us for liberating them 60 years ago.

But there’s one economic phenomenon I ardently wish the Dutch had kept to themselves. Economists call it the “Dutch Disease,” to describe what happened after natural gas was discovered in the Dutch North Sea in the 1960s. The Dutch currency took off, driven by incoming petroleum investment and outgoing gas exports. But this squeezed out the Netherlands’ long-standing value-added exports (like electronics, machinery and chemicals). The Dutch economy was arguably worse off after the gas was discovered than before.

The Dutch have since cured themselves. The gas boom was relatively short-lived, and their value-added industries (and their many successful global companies) have been revitalized. Unfortunately, another country has caught their bug.

Just look at recent headlines. Last Tuesday, world oil prices leaped two bucks, to a near-record $61 (U.S.) per barrel. In tandem, Canada’s loonie — which has been marching in lock step with global commodity prices — jumped a full cent to 83 cents (U.S.).

The next day, Statistics Canada reported that Canada’s trade balance had slumped to one of its weakest levels in four years. Behind the scenes, the trade numbers were even worse than the bottom-line balance suggested. Our primary industries (especially energy, but also minerals, forestry products and agricultural goods) are riding the global commodity wave. But our value-added industries are mired deep in deficit: $12-billion in the red so far this year, and sinking fast. This value-added trade deficit, combined with interest and dividends payments to foreign investors, has pretty well wiped out the current account surplus that powered much of our growth since 1999.

We’ve lost 100,000 manufacturing jobs in two years. Yes, we’re getting new jobs in energy and minerals, but only 20,000 over the same period, replacing just one in five vanished manufacturing jobs. Most of our “adjustment” to the sky-high loonie is reflected in a big shift of resources into domestic service industries (coffee-shop baristas, Wal-Mart clerks, truck drivers). But these sectors have much lower productivity than either manufacturing or resources, so Canada’s average labour productivity has grown by 0.6 per cent over the last three years. In the United States, productivity is up 12 per cent in the same period.

Economically, Canada has a textbook dose of Dutch Disease. But the scariest headlines of last week came from our policy-makers (not the statisticians). Trade Minister Jim Peterson reaffirmed his faith in continuing trade liberalization. He’s especially keen on free trade with Korea, a supposedly “developing” country which sells us cars and buys our beef.

Bank of Canada Governor David Dodge, meanwhile, acknowledged on Thursday that Canada will continue to lose manufacturing jobs for years to come, as the loonie spurs a reallocation of resources. But don’t hold your breath waiting for the bank to do anything about it. So long as tar sands plants and coffee shops create enough jobs to offset what’s lost in auto, aerospace and electronics, then the bank will stay the course.

For both Mr. Peterson and Mr. Dodge, Canada’s industrial restructuring is a natural, market-driven process, reflecting our inherent “advantages.” I’m concerned that oil wells and shopping malls don’t offer a basis for sustainable prosperity. I’d prefer our policy-makers to lean against market pressures, rather than celebrate them, in the interests of a more diversified, value-added development path.

Our case of Dutch Disease has the potential to alter our economic prospects for decades to come, with effects that — on balance — are negative for everything from trade performance to labour-market structures and productivity. Unfortunately, the doctors in charge haven’t even recognized that the patient is sick.

jimstanford

Jim Stanford

Jim Stanford is economist and director of the Centre for Future Work, and divides his time between Vancouver and Sydney. He has a PhD in economics from the New School for Social Research in New York,...