What is Dutch Disease and has Canada got it?

I first came across the term “Dutch Disease” in the 2008 report from the Organization for Economic Cooperation and Development (OECD) to the Government of Canada. I was fascinated.  Here were the economists working in this big establishment, elite economic grouping, comprising all the industrialized countries, warning Canada that Dutch Disease was skewing our economy and costing us jobs.  The OECD was recommending as an economic prescription that Canada slow down expansion of the oil sands. The term was coined in 1977 by The Economist magazine to describe what happened when the Netherlands first began rapid expansion of a natural gas field in 1959.  As the export of gas climbed, so did the Dutch currency, the guilder.  With the guilder climbing, manufactured goods and other exports from the Netherlands became less competitive.  The boom in gas led to a collapse of jobs in other sectors.

In Canada, we got Dutch Disease by ignoring the kind of economic plan for bitumen sands development that former Alberta Premier Peter Lougheed had put in place.  He wanted a planned development.  His successor, Ralph Klein, wanted rampant expansion.  So does Stephen Harper.  Meanwhile, the Canadian dollar has crested above the value of the US dollar from time to time, and stays close to parity.  Even before the 2008 recession, we had lost hundreds of thousands of jobs in manufacturing and pulp and paper. Some economists estimate that for every job created in the Athabasca oil sands, another job was lost somewhere else in Canada.  We have Dutch Disease.

An executive summary of the OECD report can be found at http://bit.ly/yQpDMW, and an economic assessment of the Northern Gateway Pipeline by Robyn Allan can be found at http://bit.ly/w34ARp.