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.