How to become better hewers of wood and drawers of water – by James Munson ( – October 9, 2012)

Outside advice keeps pouring in as Canada tiptoes closer to becoming a commodity economy, and nothing has provided such a wide-ranging shake-up as a report released this week by the Canadian International Council.

A carbon tax, more provincial sovereign wealth funds, looser foreign investment restrictions and fewer temporary foreign workers are just some of the policies inside The 9 Habits of Highly Effective Resource Economies, a report released by the CIC Tuesday.

The report’s author Madelaine Drohan looked around the world at how countries govern their resources and posed the question: how can Canada better manage its natural resource wealth?

“There was no perfect model,” said Drohan, who spoke to over 160 people during a five-month break from her day job as a Canadian contributor to The Economist to find the answer. But she said she did find worldwide trends in resource governance that Canada, despite having many isolated policies related to resources, ignores at its peril.

“We like to put things in discrete silos and you can’t really do that with resources because there’s political and social (issues),” said Drohan. “This doesn’t just involve the Natural Resource Department. It involves Foreign Affairs and Environment and the Finance Department.”

Through her interviews, Drohan came up with nine basic recommendations on how best to exploit resources. The most natural response from interviewees was to suggest the creation of a sovereign wealth fund for resource revenues, something Alberta and Quebec already have, she said.

“The arguments in favour were just so logical,” she said. “Getting one put in place, or a series of provincial ones, which is probably more doable than trying to get a national one in Canada, would have all sorts of benefits.”

Saving for future generations and protecting against the day the boom goes bust are the obvious reasons to establish such a fund, but Drohan said sovereign wealth funds also help governments manage the pressures of resource revenues.

“It would keep government spending within their means,” she said. “We wouldn’t have these huge surpluses going into huge deficits.”

This wouldn’t require raising royalties or taxes, said Drohan — just redirecting existing inflows, like corporate taxes on non-renewable firms, towards a fund.

The author also argues Canada has a “rip and ship mentality” that keeps the country from creating more value-added products here.

“We’re doing what’s the easiest thing to do in most cases,” she said, adding there are exceptions.

Canada doesn’t even measure industry cooperation on research in the extractive sector, while other countries work to make their resource sectors smarter, more efficient and more innovative, the report found.

“The forest industry is looking at how do you get more out of a tree and what else can a tree be used for,” said Drohan. “That’s not something we do a lot of.”

In the vein of keeping up with global trends, the report calls for a carbon tax.

“One big thing is we’re handicapping our companies by not having (a carbon tax),” said Drohan. “We’re not developing the type of products, processes, technologies that are in demand elsewhere.”

“We’re fine for today,” she said. “But there are more and more countries that are moving to a carbon price and we’re just not going to be able to compete.”

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