Canada is heavily dependent on its energy sector to create underlying wealth. Please understand that fundamental fact as we pursue post COVID economics.
Let’s consider wealth in a region, be it a province, country or any area with boundaries. Wealth is the stock and flow of value that supports quality of life in a region. We can make arguments about whether or not we measure the right things, but for now, deal with our present reality.
We have two types of economic activity: traded and non-traded. Traded activity is mainly the net-export of natural resources, agricultural and manufactured goods to other regions. I also include inbound tourism. On the other hand, non-traded economic activity reflects all the goods and services we provide ourselves within our region. You see, traded activity brings wealth into the region. Non-traded activity does not create wealth, it just moves it around.
I find it staggering that leaders, politicians and even economists rarely describe the economy in terms of its true wealth creation engine. We happily consume our health, education, social and private services without considering that our ability to have these is totally dependent on our smaller traded sectors. Or drawing down accumulated wealth from these sectors without replenishing.
I could tell you how much Canada is dependent on its energy sector, but you probably wouldn’t believe me. So, do the arithmetic yourselves. Go to the National Accounts and add up the size of the traded sectors (see above) which create our wealth, and then figure out the proportion of this wealth creation flowing from energy exports. The answer will surprise you.
By the way, I am not just talking about Canada. Every regional economy works this way but many countries trade more manufactured goods and less natural resources than we do.
Post COVID Economics – Wealth Creation
So, what does all this mean for re-opening our economy?
Well, folks, since our wealth is primarily created by energy, agriculture and manufactured exports, these should be our priorities. This includes significant investment in building and operating energy assets and infrastructure, including pipelines.
Doing this will come as quite a shock to many Canadians who have spent much of the past decade mindlessly trying to close the energy sector down. We have done this without understanding basic economics or the special interests in the U.S. and Russia that have been at work against us.
Yes, I know that in a perfect world we would be without fossil fuels. But in our imperfect world, energy exports create most of the wealth needed by Canadians to maintain our standard of living.