Editorial

The Soaring Canadian Dollar – A Reflection of Growing Contradictions Within the Capitalist Class

Over the past two years the Canadian dollar has risen in value from less than US$0.66 to over US$1.05 today. Canada’s economy has always been export-oriented and successive Canadian governments have actively pursued low exchange rates in relation to the U.S. dollar in order to encourage exports. A low Canadian dollar has played a key role in the relative strength of the Canadian economy during the past 15 years or so.

However, now the Harper Conservatives have not only abandoned the cheap dollar policies of past governments, they are also bragging that the Canadian dollar is now a “petro-dollar” and are hailing the current high exchange rate as a sign of the strength of the Canadian economy. In fact, the high exchange rate is wreaking havoc on the manufacturing sector and is largely responsible for the disappearance of over 100,000 manufacturing jobs per year in Ontario alone during the past few years. If this trend continues, Canada could join most of the other “petro-dollar” countries that are largely de-industrialized and socially polarized.

Two factors are contributing to the sharp rise in the Canadian dollar. The first is the almost equally sharp drop in the U.S. dollar. This is a reflection of the increasing parasitism and militarization of the American economy. The U.S. has the world’s largest trade deficit, which results in the devaluation of its currency. The U.S. government is also running huge budgetary deficits in order to finance its wars in Iraq and Afghanistan, which puts even more downward pressure on its currency. As a result, all of the world’s main currencies have been rising relative to the U.S. dollar over that past several years.

The second factor contributing to the rise of the Canadian dollar is the increasing demand for mineral and energy resources. This has been coming primarily from China and India, both of which have booming manufacturing economies. The demand, especially for metals, outstrips the supply by such a large margin that there is a continuing market for Canadian resources despite the rise in the dollar’s value.

While the demand for energy resources, especially oil, is being driven partly by the economic booms in China and India, the price of oil is also being significantly affected by the U.S. imperialist adventures in the Middle East. Not only has the U.S. occupation of Iraq greatly reduced the flow of oil from the world’s second biggest oil exporting country, but the American military itself consumes more petroleum product than many entire countries. Furthermore, that consumption of energy contributes nothing of economic value. It neither sustains human life nor helps to reproduce capital; in fact it is being used to destroy both.

However, the U.S. military’s insatiable appetite for energy, the increased demand from China and India and the dropping value of the U.S. dollar have driven oil prices above U.S.$90 per barrel. Since Canada is the leading exporter of energy to the U.S., the high price of oil and other sources of energy have exacerbated the U.S. trade deficit with Canada and further strengthened the value of the Canadian dollar relative to the American dollar.

In these circumstances the soaring Canadian dollar is clearly not a reflection of the fundamental strength of the Canadian economy, but rather of the fundamental weakness of the American economy. Since Canada has an export-oriented economy and the vast majority of its exports are to the U.S. market, the Canadian economy is really no healthier than the American economy. Furthermore, the distortions of the Canadian economy resulting from the high price of oil and the rising Canadian dollar are actually undermining the long-term economic and political stability of the country.

Historically Canada’s economy has been based on resource extraction, with manufacturing being concentrated in Southern Ontario and parts of Quebec. Canadian finance capital emerged primarily on the basis of the merger of the banking and manufacturing sectors; and that manufacturing base allowed the finance capitalists to extract tribute from every other sector of the economy, especially agriculture and resource extraction.

However, the discovery of oil in Alberta after the Second World War and the subsequent flood of American capital into the province created another pole of finance capital in the West. Until recently that section of finance capital has been much weaker than the section based in Toronto and Montreal. Trudeau’s 1980 National Energy Policy was designed to perpetuate that situation. While that program was eventually scrapped, the cheap dollar policies of subsequent federal governments sought to increase the profits of the Ontario finance capitalists at the expense of other sections of finance capital.

Politically, the growing economic power of the oil capitalists, primarily in Alberta, was the main factor in the rise of the Reform Party and the ushering in of a period of political disequilibrium in Canada. An arrangement between the oil monopolies and a section of Ontario finance capital, in turn, led to the takeover of the Progressive Conservative Party by the Reform Party and the reinvention of the Conservative Party under the leadership of Stephen Harper.

Thus, it should come as no surprise that Harper’s government has abandoned the cheap dollar policies of previous governments and appears unconcerned about the hemorrhaging of the manufacturing sector in Southern Ontario. He was elected to facilitate the domination of the entire Canadian economy by the section of finance capital is based on oil and that is precisely what he is doing. In that sense, the soaring Canadian dollar is a weapon in the hands of the oil monopolies to weaken their rivals in the East and to ensure their domination of the Canadian economy.

If the high dollar persists for a lengthy period of time, it is possible that a new political equilibrium will emerge in Canada based on the Alberta finance capitalists exacting tribute from the greatly weakened Eastern capitalists. A Conservative majority in the next federal election would be a signal that political power has shifted to the oil monopolies and that the section of finance capital based in Quebec has shifted its allegiance away from Bay Street and towards the oil monopolies. However, it is too early to tell which section of finance capital will come out on top. A drop in the price of oil or the value of the Canadian dollar could tilt the equation back in favour of the Ontario finance capitalists.

For their part, the Ontario-based finance capitalists are attempting to line up the entire working class behind their self-preservation. They are doing this in two main ways. First, in order to line up progressive sentiment behind their aims they are warning Canadians that a majority Conservative government will bring in social policies based on narrow religious precepts and anti-social, anti-worker values. Second, they are forging strong relationships with various trade unions in order to ensure that the working class remains passive and meekly accepts concessions designed to maximize the profits of the manufacturing capitalists. Greater profits will translate into greater political power.

But the oil monopolies are also courting the Canadian working class, promising jobs and prosperity for workers willing to pull up roots and move to Alberta. However, these promises ring hollow when workers see their high wages eaten up by even higher costs for housing, food and various user fees. There is also the constant fear that a drop in oil prices will leave them stuck with mortgages they cannot afford, as has happened in Alberta in the past.

In these circumstances maximum confusion is being created, both in terms of the causes and effects of the rising Canadian dollar and in terms of what constitutes the alternative for the Canadian working class. By divorcing politics from the economy, an illusion is created that one or another party of the finance capitalists is more “progressive” and “pro-worker” than another. However, history proves that regardless of which political party forms the government in Canada it is the interests of the finance capitalists to maximize their profits that are served while the workers are forced to tighten their belts.

Regardless of how often the working class is cajoled to “Stop Harper” by electing the Liberals, the fact remains that if present economic trends of high oil prices and a high dollar continue the Conservatives will eventually form a majority government. If economic trends reverse, then the Liberals, under Dion or Ignatieff or someone else, may form a majority government and all of the Conservatives’ anti-social, anti-worker policies will be implemented by the Liberals. In particular, the process of deepening integration with the U.S., a process pursued by every federal and provincial government for the past 20 years, will continue unabated.

Lining up behind the Liberals and the section of finance capital that they represent against the Conservatives and the section of finance capital that they represent will not solve any of the problems facing the Canadian working class and people. This kind of politics paralyzes the working class and blocks the path for any solutions. The first step in solving the economic, social and environmental problems confronting Canada is to reject all of the bourgeois political parties and the capitalists who control them. Only the working class can save Canada and it can do so only if it takes up its own political agenda and builds its own, independent political institutions.

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