EDITORIAL & OPINION — From mine to shop floor — Business adds value

Visitors to Vancouver can be overheard marveling at the city’s natural beauty, even when it rains. The trees, the mountains and the ships slipping in and out of the harbour create a scenic splendor few cities in the world can match. But what most visitors don’t know, and what most residents forget, is that those ships are carrying natural resources to world markets and returning with manufactured goods — everything from toys to toaster ovens — for distribution and sale across Canada.

Things aren’t much different across the border in Seattle, an equally beautiful harbour city. Grains from the Midwest and products from coastal forests leave daily from the city, bound mostly for Asia. The ships return crammed with containers of, well, manufactured goods.

Politicians on both sides of the border have struggled to find ways to add value to resource products before they are shipped overseas, but with little success. In Canada, only 10% of total mineral production is considered to be “value-added”, a term which refers to the increase in material price that results from processing or manufacturing. A cut and polished diamond is worth more than a rough stone; an electronic circuit board is worth more than the minerals and metals of which it is made; a finely crafted wooden chair is worth far more than raw wood.

War-ravaged Japan became an economic tiger in this way. It overcame its small size and relative lack of natural resources with an almost Viking-like willingness to go anywhere in the world to get the raw materials necessary for its manufacturing-driven economy. Granted, the first products off the assembly line were shoddy, but a later emphasis on quality control made Japan into a world leader in manufacturing. Korea and other nations quickly followed suit.

North American businesses have argued that higher labour costs have prevented them from being able to compete with Asia’s low-cost workforce. However, at least in the case of forest products, niche marketers can and do compete, Ikea being one example. It is nothing short of bizarre to see Canadians traipsing out of Ikea stores loaded with Swedish-made desks, tables and chairs while their own forests are shipped offshore as logs.

In the mining industry, Canadian companies are holding their own on the processing and smelting side of the equation. Cominco, Noranda and Inco — to name the most obvious — have shown remarkable innovation in finding opportunities downstream of smelting and refining, even all the way through to recycling.

Opportunities exist for other companies to forge links with the downstream users of metals and minerals, including producers of fabricated metal, motor vehicle parts, aircraft parts and assembly, machinery and cast equipment, extruded or rolled products, even high-technology.

Governments have been tempted to mandate “value-added” strategies, much as Newfoundland has flexed its muscle over the Voisey’s Bay project through its “no smelter, no refinery, no mine, no mill” stance. In the past, governments have spent government money (make that taxpayers’ dollars) to get the ball rolling. More often than not, these strategies backfire.

Governments have yet to prove themselves in the business world, either here or abroad. Most government-funded projects have been expensive failures. Also, forcing companies to take on uneconomic ventures or branch into ventures for which they lack the expertise or resources don’t work either. “Top-driven” value-added strategies — those dictated by government as part of economic policy — rarely work.

The most governments can do is provide a business climate in which opportunities to add value can come to fruition. Such a climate would feature fair and reasonable taxation and environmental policies, sound trade and fiscal policies, research and development incentives, and perhaps infrastructure assistance where warranted. Companies genuinely interested in value-added opportunities can then stir their technology, talent, productivity and innovation into the mix.

Governments must also realize that without support of the primary mining industry, the secondary and tertiary industries they wish to encourage won’t flourish. The British Columbia government made this mistake, and the citizens of the province will pay the price for decades to come.