Thursday, December 01, 2016

Free Trade, Okay. In What?

Ever since the FTA, the Free Trade Act between Canada and the United States, Canada has inked a succession of trade deals - NAFTA, separate deals with countries such as Panama (that worked out well, eh?), and most recently CETA, our trade deal with the European Union or what may remain of it in a few years.

We were sold on the idea by Mulroney who assured us that free trade meant more jobs and better wages all around. There would be prosperity for everyone, more than we could dare imagine.

So, where are all these wonderful, high-paid jobs today? It seems they haven't materialized. Yet, according to the Dauphin, the answer to that is more free trade, as much as we can sign on to.

Canada's multi-billion dollar monthly trade deficit suggests that we're importing a lot more than we're exporting. That can't be a good thing, can it? Buying more than you're selling is like spending more than you're earning. How does that end up?

However if you're a devout neoliberal, like prime minister Slick, globalism is sacrosanct even if it isn't working, even if it's blowing up in your face,  even if more open minds have proclaimed it a giant, failed experiment that damages economies and fuels inequality. If you're our prime minister, you'll keep driving the national bus into that ditch, again and again and again. Sort of like how they pitched the Trans Pacific Partnership by telling us we would be worse off if we didn't sign on. Now globalism has become a matter not of more jobs and better wages and ever greater prosperity. It's now about being slightly less worse off with it than without it.

Look, let's face it. He's not an intellectual. He's not his dad. The Greater Scheme of Things is more than a few notches above his pay grade. Think of him as Trudeau-Lite.

Now we've got to worry about the governor of the Bank of Canada, Stephen Poloz. It seems Steve has done undergone some sort of mental tide change about Canada's economy.

Bank of Canada Governor Stephen Poloz’s story of the Canadian economy has been sent to rewrite. There are no sleeping beauties in the revised tale: if the factory in your community closed during the Great Recession, it is likely staying closed. (Although if it has exposed brick, some hipsters might come along and turn it into shared workspace.) If there was a Prince Charming who thought he could make money doing whatever that facility used to do, he probably would have shown up by now. It is time to move on.

...When he was appointed three years ago, Poloz assumed non-energy exports and business investment would take over from household spending and housing as drivers of economic growth. That hasn’t happened to the extent the central bank thought it would. Officials have spent a lot of time this year trying to understand why their assumptions were off. It appears Canada suffered from a lack of champions; companies and entrepreneurs with the combination of guts and capital to make it in a tougher global economy. But if Poloz is right, the wait may be over. Canada’s heroes have arrived.

Poloz said ...that if anyone is using a “sleeping-beauty model” to think about exports, then they are misguided. Many of Canada’s exporters already were struggling to keep up and the financial crisis finished them off. That event wiped out billions of dollars worth of manufacturing potential. (in his speech,Poloz put the figure at $30 billion.) Think of it this way: if Canada’s manufacturing industry was once a full-sized pickup, it now is a a compact SUV.

[Poloz said]  ...the central bank has identified a new Prince Charming. Poloz’s narrative now stars the services industry, and in particular information technology (IT) and tourism. The central bank surveyed a group of IT companies and found they were more confident than the average Canadian company, probably because most of them were reporting sales growth in the double digits. Tourism spending has been rising steadily for more than two years.)

The central bank governor reckons Canada has a comparative advantage in services. “We have the necessary ingredients: a highly educated labour force supported by strong universities and colleges; entrepreneurs with access to business incubators; a beautiful and interesting country that many would like to visit; a multicultural workforce that helps us to serve domestic and international markets,” he said in his speech. That advantage is enhanced by a depressed currency. The weaker dollar isn’t an unambiguous gain for a Canadian company that wants to make things. Modern manufacturing requires buying robots and other expensive equipment and building facilities overseas, so Canada’s exchange rate makes expansion harder for some companies. But for IT firms, consultancies, and tour guides, the exchange rate is a windfall. Said Poloz: “That comparative advantage has been strengthened by the decline in the Canadian dollar in the past couple of years—a symptom of falling resource prices, and a facilitator of the rotation of growth from resource production to other sectors.”

So the future lies with the IT guys, tour guides, chambermaids and the folks who man the counters in fast food joints (sorry, I forgot that last one has already gone to guest workers). To Poloz' credit, his outlook does sound like a pretty good prognosis of a smaller economy nation state in the grip of neoliberal globalism.

And, by the way Steve, how does Canada's weak dollar compare to that other country that provides bargain basement IT services - India? If you're going to grab a big chunk of the global IT market, it's India and countries like it you'll be bidding against. Oh well, there will still be a demand for tour guides and chambermaids. 


Kim said...

Until the bitumen kills our coast...

Lulymay said...

As long as we have pinheads for politicians, Mound, we will continue in this downward spiral. As you so accurately pointed out, IT is basically already established off shore and quite profitable for those out of country entrepreneurs. One only has to provide a quick list of all the banks, telecons, and chain stores who use those facilities for their vaunted "customer" service.

We have been importing vehicles from Japan and more recently Korea for some time now and although they arrive by boat and are unloaded right here in the port of Vancouver, all are priced at US dollars even though they never touch US soil which today adds another 40% to the price we must pay. Its just how business is done in our wonderful world of frackin' Free Trade Agreements.

We've been scammed for so long, we just seem to get used to it and think its our personal cross to bear for the sheer privilege of living in our 'beloved' Canada. Bah! Humbug! and a whole bunch of foul language that I shan't bore you with.

The Mound of Sound said...

I get the feeling that economic policy making in neoliberal Canada has been reduced to casting bones, reading entrails and blind faith. In all seriousness, faith does play an instrumental role in these decisions. Economics is, after all, a social science and economic models, such as globalized free trade, are really ideology very much akin to a religion. There's a great deal that's mere supposition taken on faith.

Unfortunately this integrated global economy that Trudeau, like his predecessors post-Mulroney, bought into isn't readily shed to make way for a new economic model even after it's been disproved as a failed ideology. Academics, senior bureaucrats and private sector financial wonks have built their careers preaching the gospel and won't readily let go.

The honest ones, people like Stiglitz and Galbraith among many others, expose the glaring fallacies. Yet what seems to be holding us back is fear of the unknown and a shocking lack of vision. Our leaders simply can't see past neoliberalism, can't imagine something else that might be better. Vision is in short supply these days and that applies to many areas beyond economics - dreadfully serious areas such as climate change.

The way forward may lie in going back, undoing the neoliberal trade regime. The strongest argument against it is the groundless notion that a reversion means protectionism and that is destructive. That's simply nonsense. Every successive, dominant economy, the Dutch, the Brits, the Americans, came to prominence precisely because they grew their economy through protectionism. Canada only escaped Britain's efforts to keep us as their captive supplier of raw materials and buyer of British goods by implementing industrial protectionism. This unsophisticated, absolute condemnation of any degree of protectionism is a grand lie.

However, if we remain enslaved to failed ideology and fabrications, we'll continue to see our economy - in one of the most geographically and resource advantaged nations on Earth - just steadily decline.

Neoclassical economics, which some are now calling a "mental illness," is okay for creating business models but is not suitable for national decisions on economic and monetary issues.

Unfortunately we got the wrong Trudeau son, the dud.