Lessons to learn from BC's resource crisis

July 26, 2000

It has been said that those who do not know their history are doomed to repeat it. After the crisis in BC's resource sectors during the late 1990's, it would be wise of our business and political leaders and all British Columbians to look back and learn a few lessons.

The first lesson is that international factors--not BC's resource policies--were mainly to blame for the crisis. The drop in global prices for pulp, lumber, gold and copper, and fish was the principal reason our resource companies went from being in the black earlier in the decade to posting huge losses in 1997 and 1998. For example, the drop in the price of lumber in 1997 alone cost BC's forest companies three times more than the cost of adhering to the Forest Practices Code.

The drop in prices came about for two principal reasons. First, increased production of basic commodities in Scandinavia, Asia, and Latin America throughout the 1990s led to a condition of oversupply. Second, 1997 was the year the Asian economy came crumbling down. Not only did BC lose an important market for its products, but global demand for all commodities decreased. Note however that none of these causes can be controlled by the provincial government.

The second lesson is that investment decisions by BC's resource corporations compounded the problem. Forestry companies, for example, failed to adequately invest in increased value-added production here in BC. Instead, the wealth generated from BC's resources was diverted to new basic commodity production--pulp and lumber--in other parts of the world. This also happened in the mining sector and in our salmon fishery, with BC's large fishing corporations investing in the global exponential growth of farmed salmon in places like Chile. This increased production has driven down the very commodity prices these companies rely upon.

In part, this capital flight reflects a shift in ownership of BC's resource corporations. No longer are our resource companies owned by people committed to their sectors for the long haul. Nowadays, ownership rests with institutional investors who electronically move their money daily and weekly to wherever they can make quick and easy returns.

Lack of investment by resource corporations in their provincial operations has made BC less competitive. It also represents foregone job creation and makes us more vulnerable to international commodity price swings.

Despite the fact that resource companies' poor performance is due mostly to global factors, the resource corporations have tried to convince the public that BC government policies are to blame. Business leaders in the resource sector have used the latest downturn in commodity prices to press for concessions from government and workers, calling for weaker environmental rules, lower taxes, and more labour flexibility. Mining companies especially have pit operations in BC against operations in other parts of the world to get as many concessions as possible.

The BC government has responded to these threats by streamlining the Forest Practices Code, decreasing stumpage rates, agreeing to compensate mining companies for parks creation, and granting mining exploration tax breaks.

We need to heed the lessons of the past and develop policies that encourage investment and innovation in BC operations, promote value-added production, and protect the ecological integrity of the province's resources. This will buffer the provincial economy from basic commodity price cycles, stabilize the boom-and-bust nature of resource industries and communities, and sustain the environment that all species--ourselves included--depend on.