Let’s not waste this crisis

The Prime Minister is meeting with the Premiers next week to discuss the economy. No doubt, how to address the distress in the forest products industry will be one of the issues discussed. The current situation is dire with large drops in demand in both the lumber and paper sectors leading to layoffs and plant closures. Some have suggested that bailouts and subsidies are now needed. We disagree; the last thirty years of economic history have shown over and over again that these types of measures simply do not work and often make matters worse.

Canada’s forest products industry has a strong future: the world needs what we make and we are well situated to provide it. First ministers have the opportunity to look to that future and focus on the transformation needed to embrace it. While industry is ready to lead this transformation governments also have a key role to play. That role is to concentrate on the economic fundamentals: financial markets that work, stimulation of investment and competitiveness measures that anticipate tomorrow‘s growing markets.

First, governments must address the crisis in financial markets. Credit is the oxygen that allows the economy to breathe. It enables businesses to purchase material, produce goods, invest in capital and ship goods abroad – it is required in virtually every aspect of running a business, large or small. As economic activity falls and inventories grow, many otherwise solid companies are finding it extremely difficult to access the credit that their companies need to stay in business. Governments must ensure that their efforts to address the liquidity crisis in the banking system flow through to the real economy.

Second, governments should allow the economic restructuring that needs to occur to happen. Bailouts would just leave Canada less competitive when good markets return. Let the industry response to market realities determine industry structure and more forestry jobs will be kept in Canada over the medium and longer term. Provincial governments need to eliminate forest tenure policies that restrict consolidation and rationalization and the federal government should administer mergers policy in a way that recognizes that Canadian firms are traders in global markets.

Third, governments should stimulate economic activity to mitigate the impact of the U.S. recession and slowing growth in Canada. The actions taken by governments across Canada to eliminate deficits and pay down debt have put governments in a strong fiscal position to take counterbalancing action now, when the economy is weak. If need be, governments should not be afraid to temporarily go into deficit to provide stimulus to the economy.

But an economic stimulus should not be an end in itself. Targeted investments in retooling to use green energy, transportation infrastructure, commercialisation of R&D and market development will provide an immediate stimulus with long term competiveness benefits.

However, government investment is not enough. As part of this strategy, governments can encourage the private sector investment in capital renewal and commercially-oriented R&D. The federal government should extend the accelerated capital cost allowance for machinery and equipment for at least five years. This incentive costs the government nothing unless business invests its own money, and would stimulate much-needed investment for retooling and transforming industry. The government should also make the Scientific Research and Experimental Development (SR&ED) tax credit refundable as a way to stimulate increased private sector investment in innovation and the new bio-economy.

This is not the time for complacency nor is it the time for measures that only bring short term relief. Canada’s forest products industry is the most successful global exporter of forest products. The energy and entrepreneurial spirit that shaped the industry will find expression as we prepare for tomorrow’s markets. Industry will do its part. We are calling on governments to support the transformation to tomorrow’s forest industry. As Canadian economist Don Roberts noted, “A crisis is too precious an event to waste”.


Avrim Lazar
President and CEO
Forest Products Association of Canada