A recent headline in the Toronto Star reads “Ontario needs to refocus economy away from manufacturing” (http://bit.ly/xtiuHy).  The article argues that with growth increasingly driven by Western Canadian resource exports, and with reduced demand for autos and other manufactured goods, Ontario needs to turn its focus from manufacturing towards tech startups to create another RIM, or Nortel – and train people for ‘jobs of the future’.

This short summary probably doesn’t do full justice to the entire article, but the article itself doesn’t do justice to the future opportunities for Canadian manufacturing.  Most critically, it fails to draw important linkages between energy and other resource developments in Western Canada and the manufacturing economy of Ontario and other regions of Canada.

There is an important ‘national’ dimension to the western ‘regional’ story, and it is not about wealth transfers from the “West to the Rest” via governments.  The real economic effect is found in significant, growing supply chain linkages stretching thousands of kilometers and billions of dollars across Canada, creating high-quality employment in dozens of communities.

To illustrate the point, let’s work backwards: by reversing the process, starting with:

•  A petroleum engineer fills her automobile at a gas station in Edmonton
• The gasoline was stored in large steel tanks at the refinery, itself a large complex of tanks, pipes, and controls manufactured in various Canadian cities;
• Crude oil was delivered to the refinery through hundreds of kilometers of pipelines originating in western Canadian oil and gas reserves.
• That feedstock was extracted using specialized steel pipes that may have been manufactured at steel mills and other facilities in Calgary, or Regina, or Sault Ste Marie.
• These pipes are manufactured by processing steel which may have been rolled in Hamilton or Sault Ste Marie, or from steel ‘billets’ produced at a steel mill in Sorel/Tracy
• The steel in those coils or billets started as iron ore mined in central Quebec; but would also contain some of the 7-8 million tonnes of steel recycled in Canada on an annual basis.  Metallurgical coal from British Columbiamay have also been used in the process.

This is a simplified rendition of a Canadian energy supply chain.  The details are less important than this key fact – due to such supply chain linkages, western resource development drives demand for many types of steel (and other Canadian goods and services).  Through these integrated supply chain linkages, Canadian steel producers in other regions contribute to the success of the energy industry and benefit from it.  So too do their workers.

To be fair, the article makes valid points about the loss of manufacturing jobs partly because demand patterns have shifted, but also because technological innovation has led to productivity gains.  These innovations are necessary to compete globally and keep costs down in the face of a rising currency.  But these trends are not a death knell for manufacturing; in fact, for the decade prior to the recession,Canada’s steel industry output was relatively stable and has made a sizeable rebound since the recession hit in 2008.  Moreover, investments make in innovation and productivity mean that manufacturing jobs are becoming more sophisticated and knowledge-intense all the time.

The question is therefore not whether Canada will have natural resources or new technology startups instead of auto or steel plants.  It’s not about policies that assume which industries will ‘win’ or ‘lose’.  It’s about building and supporting the linkages across industries.  Steel producers do face tough competitive challenges, and sound public policies can help – but steel and other manufacturing will continue to be a core part of the future Canadian economy.

Thus, when the news article says we need to make sure we’re training people for the jobs of the future, manufacturers agree – because there are important, challenging and sophisticated jobs ahead.  A recent study for the broader steel industry identified a need for thousands of new highly-skilled and well-paid workers over the next five years,  Further economic growth in Western Canada will help drive that demand in several regions.

And speaking of driving – that car at the filling station in Edmonton– may well have been assembled by autoworkers in Ontario.

-Ron Watkins