It’s been nearly a century since political economist Harold Innis popularized the phrase “hewers of wood and drawers of water” in decrying Canada’s dependence on natural resources.
Mr. Innis drew that phrase from the Old Testament. The Book of Joshua describes how the Israelites relegated the Gibeonites to subservience as, yes, hewers of wood and drawers of water.
For much of the last 90-plus years, that Biblical phrase has been the rallying cry of misguided economic nationalism and protectionism in Canada – right up to the current day, and the unfolding debacle of massive subsidies for a hoped-for electric vehicle industry.
Underpinning that cry is the (wrongheaded) assumption that natural resources such as mining, agriculture and energy are second-grade economic activity, less desirable than manufacturing. Canada needs value-added industries to take the place of messy natural resources: so goes the mantra of Mr. Innis’s latter-day disciples.
Sometimes that mantra is implicit, such as the federal Liberals’ drive to give birth to, subsidize and protect a domestic electric vehicle industry. Slapping 100-per-cent tariffs on Chinese EVs and then maintaining those tariffs at the expense of Prairie canola farmers was a price that Ottawa was willing to bear, at least until the Carney government reversed course.
Electric vehicles at China's Yantai port. After reaching a trade deal during his trip to Bejing in January, Prime Minister Mark Carney said Canada will allow 49,000 Chinese EVs to be imported under new, preferential tariff rates.AFP/Getty Images
Sometimes that mantra is explicit, such as when British Columbia Premier David Eby inveighed last month against an oil pipeline to the Pacific coast. Instead, Mr. Eby said, Canada should focus on building a refinery rather than shipping out “raw resources out as quickly as possible.”
Unspoken or spoken, the mythology is the same – a dismissal of the role of Canada’s natural resources sectors. That mistake is the foundation for (far too many) public policy blunders over many decades.
The numbers demolish that myth, and tell a very different story, one in which energy, mining and other natural resources sectors create enormous economic value and are globally competitive.
The cry for ‘value added’
Mr. Eby is far from the first, and is unlikely to be the last, politician to mistakenly assume that processing natural resources domestically is somehow inherently economically superior. University of Calgary economics professor Trevor Tombe has dismantled that fallacy, both in a 2015 paper and more recently, in an analysis published on The Hub last month. The analysis below works within Prof. Tombe’s framework.
What does “value added” mean? Politicians rarely get that specific, but Prof. Tombe does. Value added, if it means anything, must surely reflect the income generated by an economic activity. And, with extremely rare exceptions, all economic activity adds some value. That is, the value of the output exceeds the cost of inputs. The question is one of degree.
As this first chart of selected economic sectors shows, natural resources have a commanding lead when it comes to adding value. Potash mining, for instance, generates more 83 cents in income, or value, for every dollar of output.
And the automobile sector, which has preoccupied federal governments for decades, from the Auto Pact through to the Great Financial Crisis, and now Donald Trump’s tariff war? That sector generates far less value per dollar of output, just over 11 cents.
Iron ore mining, the oil sands, agriculture and forestry: each one generates more value for each dollar of output than the manufacture of light vehicles. (Parts makers, as you can see, generate more value but are still outpaced by several natural resource sectors.)
That is not the end of the story. Value added is an (overly) broad measure. It does not, for instance, have much to say about the income that workers receive in each sector.
Indeed, much of the economic value generated by the oil sands is used to replenish the enormous amount of capital needed to turn bitumen-soaked dirt into crude oil.
This second chart zeroes in on the wages, salaries and benefits for each dollar of output of the economic sectors in the first chart. The commanding lead of the natural resources sector shrinks when the focus is narrowed to employee income.
Auto brake manufacturers, for instance, leap to the top of the list, followed by aerospace manufacturing. But the hewers of wood (forestry and logging) are in third place. And light vehicle manufacturing still sits well back in the value-added pack.
And the refineries that Mr. Eby thought would be a better bet than the oil sands? Right at the bottom of the list of selected sectors, trailing the oil sands.
The pluses of productivity
Ultimately, the value-added statistics are not the best, and certainly not the only, measure of an economic sector. There is the question of labour productivity: How efficient is the workforce in a particular sector?
Highly productive sectors are preferable, although there are caveats. (More on that in a moment.) As this third chart shows, the hewers-and-drawers sectors fare very well on the measure of labour productivity.
Petroleum refineries top the list, reflecting the capital-intensive and job-light nature of the sector. But the next eight spots are natural resources sectors. Motor vehicle and motor vehicle parts making are much less productive, coming in just ahead of the economy-wide average. Some natural resources, such as forestry and logging, fall below that national average.
In an interview, Prof. Tombe noted that a high sectoral productivity does not necessarily mean that capital necessarily should flood into that area of the economy. A key question, not appearing in the data above, is marginal productivity – how productive would one additional hour of labour, or dollar of capital, be?
Still, the notion that manufacturing industries are inherently superior to natural resources is not sustained by the data.
But productivity is not the same thing as pay: a highly productive workforce could see much of the value it generates paid out to the owners of the enterprise. So how do the size of paycheques in those various sectors compare? This fourth chart seemingly improves the standing of manufacturing industries, as crop production, aquaculture, and fishing, hunting and trapping drop toward the bottom of the rankings.
But that drop is likely misleading. Many farmers and fishers run their own operations, and take their compensation as profits rather than wages. That adds up to a difference in accounting, not performance. But, even setting aside that likely distortion, the aerospace and auto sectors are still only mid-ranked.
Jobs, jobs, jobs
Manufacturing may not generate the most value, or be the most productive, or generate the biggest paycheques. But what about employment?
Even on that front, the aerospace and auto sectors do not have a clear edge, as this last chart shows. Animal production and crop production employ more Canadians than either motor-vehicle parts manufacturing, aerospace or light-vehicle assembly.
And, the relative weight of the auto industry within the Canadian economy has declined in the last three decades. In 1994, the sector accounted for 1.2 per cent of jobs in the Canadian economy. By 2024, a much-reduced auto industry made up half that share, at just under 0.6 per cent. To be fair to the auto sector, part (but only part) of that decline was due to the continuing rise in the services sector. Still, employment fell not just on a relative basis, but in absolute numbers.
The glitter of technology
Part of the continuing allure of manufacturing is the technology on display. Surely, a sophisticated assembly line must be a higher order of economic activity than growing canola or pumping oil?
That conceit fundamentally misunderstands not only the economic data, but the role of technology in the natural resources sector. Canola, for instance, is a brilliant example of Canadian technological innovation. Rapeseed, as it was then called, was once only fit as a lubricant. High levels of erucic acid rendered the plant not only foul-tasting, but toxic.
In the 1970s, Canadian farmers developed new strains that had much-reduced levels of erucic acid. That invention gave birth to the (rebranded) canola industry, now worth billions of dollars annually.
The oil sands have a similar story to tell. It took decades of technological innovation, and hundreds of billions of dollars in capital, to create Alberta’s oil sands industry. Without science and dedicated capital, bitumen would remain trapped in the sand, a geological curiosity.
A pumpjack near a canola field in Cremona, Alta. Data shows that Canada's energy, mining and other natural resources sectors create enormous economic value and are globally competitive.Jeff McIntosh/The Canadian Press
As with any economic question, there is a downside. The natural resources sector is more volatile; commodity prices tend to surge, and then to crash.
But that downside has its own upside, as Heather Exner-Pirot, director of energy, natural resources and environment at the Macdonald-Laurier Institute, points out. The global nature of a commodity industry necessarily makes for more competitive Canadian firms.
None of this is to argue that Ottawa should start subsidizing or otherwise protecting the natural resources sector. That would be merely copying the mistakes made time and again in manufacturing.
Instead, the lesson should be this: the federal government needs to get itself out of the way of some of the strongest parts of the Canadian economy. Stop subsidizing inefficient sectors. Stop raising protective tariffs that harm other parts of the economy. Focus on rolling back unjustified regulatory barriers that harm the ability of the entire economy, particularly globally exposed natural resources sectors, to compete.
And, most of all, stop undervaluing Canada’s great natural advantage in natural resources. Hewers of wood and drawers of water should be made into a badge of national pride.