Sunday, March 14, 2010

The Great Economic Debate Canada Needs and Is Failing to Conduct

The global economy is undergoing a dramatic transformation, the greatest since the decline of the British Empire as the world’s leading economic power. At their peril, politically active Canadians are failing to analyze the transformation and its consequences for Canada.

With the political stage in the United States dominated by the sputtering Obama administration and the ever more extravagant behaviour of the Tea Party movement, insufficient attention is being paid to the underlying reality that the United States is in decline as an economic power. No matter how well or how badly the decline of the U.S. is managed---and this will matter---the shift to a new global economic order is underway.

Meanwhile in Canada, the Harper government, with little coherent opposition from the parties that hold the majority of seats in the House of Commons, is proceeding to tighten Canada’s economic ties with the United States. During the period of parliamentary prorogation, the Conservative government extended the right of U.S. firms to bid on provincial and municipal contracts in Canada in the most significant extension of NAFTA since the trade deal began in 1994. The step was taken by the Harper government to enable Canadian firms to bid on the tail end of contract offerings at the state level in the U.S. under Washington stimulus spending plan. (In an earlier post, I critiqued the Harper government’s initiative.)

Now the Harper government has signaled that it soon plans to open the door to a massive influx of foreign investment and foreign control in the areas of telecommunications and the mass media.

The Harper government’s strategy is to end stimulus spending, keep taxes low for the wealthy and for corporations and to seek the fuller integration of the Canadian and U.S. economies.

What are the Liberals and the NDP doing?

Not much.

They criticize the Harper government initiatives by going after their peripheral details. What they have not done is to attack them at their very centre. They have not explained what needs to be explained---that the course Canada is now on will be catastrophic for the Canadian people in coming decades.

If you step back from the debates on Parliament Hill and take in the wider reality, it is overwhelmingly apparent that massive change is coming in the global economy.

Take for instance the recent attack on American economic policies by China’s Premier Wen Jiabao. Wen took sharp aim at Washington, saying that the U.S. is failing to rebuild its own economy and to maintain the value of the dollar. China, whose foreign reserves exceeded $2.4 trillion at the end of 2009, held nearly $900 billion of those reserves in dollar-denominated U.S. government Treasury Bills. What Beijing fears is that the U.S. is engaged in policies that will sharply reduce the value of the dollar and that this will not only slash the value of the Treasury Bills China holds, it will close off much of the U.S. market to Chinese exports.

Last year, Chinese officials speculated that the epoch in which the U.S. dollar serves as the world’s reserve currency is coming to an end.

The current warnings from the Chinese government could force up interest rates on U.S. Treasury Bills and that would worsen the already perilous fiscal crisis in which the U.S. government finds itself.

In my view, China’s relationship with the United States is bound to change with Chinese wages rising and the American ability to import on the same scale as in the past falling.

It’s part of the transition of the global economy that our politicians are failing to debate. A future generation of Canadians will be bound to ask what they Hell our leaders were doing. Their anger will more likely be directed at the centrists and left-wingers who should have known better, and did nothing, than at the ideological conservatives who insisted on going down with the U.S. Ship in which they believed so deeply.

In the rest of this post, I’m including an excerpt from my book Beyond the Bubble: Imagining a New Canadian Economy, published by Between the Lines Publishing in November. This is my contribution to the rethinking I believe we need to be doing, particularly at the political level:

After the crash, the next global economy will centre less on the United States, much more on Asia, with more important roles for Europe and Latin America. The proportion of global economic output accounted for by the United States has been declining for over sixty years, from about fifty per cent right after the Second World War to about twenty per cent today. As the U.S. share of global output drops to the range of fifteen per cent, qualitative changes in the role of the United States in the world will make themselves felt.

Even though the U.S. proportion of global output has steadily fallen, the United States has retained its crucial economic leverage up until now. The American twenty per cent up until the crash remained the critical twenty per cent and the United States retained its position at the centre of the global system in its ability to determine outcomes to a much greater extent than any other economic power. For crucial rising economic powers, most notably China, the American market was essential to increasing economic output and economic development at home. That’s changing, and will be an important aspect of the new global economy.

For the past six decades, an essential aspect of its role as the global economic hegemonic power has been to open its domestic market as the market of last resort to most of the countries of the world. As well, the United States as served as the site of last resort for investments from other countries. Americans have been the world’s crucial spenders and they have accommodated the world’s savers. All of this has been enormously beneficial, of course, to Americans who have been enabled to live beyond their means.

The place to start this look at the wrenching changes that are coming to the global economy is with China, the country that could ultimately stand to gain the most from the changes in the long term. In the short to middle term, however, China’s way of dealing with the rest of the world is being subjected to a wrenching transformation.

For China, the pattern of trade and capital flows with the United States will be fundamentally altered. In recent years, China has been running up enormous trade surpluses with the United States. Had China allowed the exchange rate of the yuan to float against other currencies, principally the U.S. dollar, the surpluses would have driven up the value of the yuan which would have braked the further rise of the exports. Instead China decided to keep the yuan and the dollar closely aligned. To prevent the yuan from soaring against the dollar, China had to allow dollars to flood in so that the Chinese accumulated an ever more enormous cache of dollars. This was the way China ended up holding vast sums in U.S. Treasury Bills, bonds with a very low rate of return.

In the early months of 2009, as the implications of the crash and the nature of the coming global economy began to dawn on people everywhere, as New York Times columnist Paul Krugman wrote: “China’s leaders woke up and realized that they had a problem.” China, and many other countries, was facing the fact, as Krugman said, that it was saddled with an “excess of dollars.”

In this process of learning about the new global economy, Krugman wrote, “China’s leaders haven’t come to grips with the fact that the rules of the game have changed in a fundamental way.”

“Two years ago, we lived in a world in which China could save much more than it invested and dispose of the excess savings in America. That world is gone.”

“The bottom line,” Krugman concluded “is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans---and us.”

The effects of China’s changing relationship with the United States are being deeply felt in Chinese society. According to official Chinese statistics, China has a vast pool of migrant workers, totaling some 130 million people, who leave their homes, often in rural regions, to travel to the giant metropolises to find work. As a consequence of the economic crash, in particular the severe slump in Chinese exports, about 20 million of these migrant workers had lost their jobs by the winter of 2009. Chen Xiwen, director of the office that advises China’s ruling Communist Party on policies affecting farmers, reported that roughly 15 per cent of the migrant workers were without work in late January. He pointed to the closure of thousands of factories as a consequence the declining export market. He warned that six million new migrant labourers enter the job market each year and that as the newcomers seek employment they will be competing with the twenty million who are now out of work. Chen acknowledged that unemployed rural migrant workers have held mass demonstrations in various regions of the country.

China has been thrown into a very real economic crisis as a consequence of the financial meltdown and recession in the United States. The Chinese state has awesome problems with which it needs to cope. With a population that is more than twice that of the European Union and a continuum of social conditions ranging from the wealthiest to the poorest that makes the divisions between say Rumania and Germany appear minor, China is negotiating one of the greatest economic transformations in human history. Between three and four hundred million people have incomes and living standards considerable higher than those of the poor peasantry that constitutes the majority of China’s population.

The leadership of the Communist Party is acutely aware that presiding over a society that is divided into so many disparate elements, from the highly educated professionals and members of the business class to those who eke out a bare living on the land is fraught with the risk of political upheaval, even social revolution. Those directing the Chinese state have devised a system of state capitalism that allows for buccaneer style capitalism in leading sectors of the economy along with a planning apparatus that feeds migrant workers into the workplace and uses the incomes they earn to help lift the peasantry out of poverty. The availability of the vast American market for Chinese exports has been central to the operation of this system. Chinese capitalists and the Chinese state found it more profitable and more manageable to use the American market to pull themselves up by their bootstraps than to make the more difficult choice of developing their own vast internal market. In following the path to industrialization by holding down the value of their currency and exporting to the U.S., China was following in the footsteps of West Germany and Japan, countries that took the same course with great success during the post-war decades.

In 2007, according to World Bank figures, China’s exports were valued at $1.22 trillion, about 37 per cent of the country’s GDP. About 58 per cent of these exports were made up of products designed elsewhere with parts and components imported into China for assembly of the end product which was then exported. This is the trade pattern of an industrializing country, which relies heavily on outside technology and research and development. (It also resembles the pattern of Canada’s manufacturing exports, for that matter, which illustrates the failure of Canada to develop beyond this stage of industrialization.) To weigh the importance of China’s exports against its overall economic output, it is important to consider the vast imports that go into Chinese exports. Once this is done, a more realistic proportion for the weight of Chinese exports as a proportion of GDP is about 12 per cent, still enormous, but much less overwhelming that the 37 per cent figure suggests.

On the eve of the crash, China’s exports were growing at a pace of 25 per cent annually, more than twice the rate of growth of China’s GDP. The figure tells us how important exports have been as the leading edge of China’s growth. It also points to the unsustainable nature of the Chinese trade pattern even prior to the crash. Consider this. If China’s exports had continued to grow at this rapid pace, by 2020 fifty per cent of the world’s exports would be accounted for by China, compared with ten per cent today. That is simply not possible, either economically or geo-politically. For one thing, China’s economic development over the past couple of decades has significantly pushed up the cost of Chinese labour, which has already being pushing exporters to switch their production to lower cost countries such as India and Vietnam. The profile of Chinese trade was bound to alter and the economic crisis is speeding that along.

While the U.S. market for Chinese products is bound to be less bountiful than in the past, other markets can partially fill the void. The European market is likely to be one of those. The greatest potential, however, lies with India, the other Asian giant that is swiftly becoming a global economic power. Commercial relations between China and India have grown enormously, and will continue to grow over the coming decades. The fit between the giants is one in which China plays the role of industrial producer to India’s role as a high-tech powerhouse. Recently, China has increased its exports to India in sectors such as capital goods, including power plants and other infrastructure equipment. With these exports, rather than relying on products designed elsewhere as is the case for most of the Chinese exports to the United States, the Chinese designed and developed the capital goods sold to India and retain much of the value added from these sales.

Over the next couple of decades, trade within Asia, the continent with sixty per cent of the world’s population, will come to dominate global trade. In addition, to trade between India and China, there is already an enormous increase in trade between China and Japan. And if we include Russia (a country with territory in both Europe and Asia), trade within Asia will grow even more significant as a proportion of the global total. Russia is certain to play a key role in selling petroleum to the other great Asian powers.

Despite the opportunity for very large trade relationships with Asian powers and countries in other parts of the world, the role of trade in Chinese growth is going to diminish. China is being forced to turn to the enormous task of developing the internal market. Over the long-term, this will cement China’s position as the world’s leading economic power. Over the medium term, however, it will provoke huge strains within Chinese society. To date, the return of millions of former Chinese factory workers to rural villages where they work for much less pay as farm labourers than they had become accustomed to has been managed without major societal or political upheaval. The rural villages may serve as a safety net as China passes through its wrenchingly difficult transition. On the other hand, political protest on a scale that makes its hard to ignore could erupt from the villages among the laid-off factory workers.

China is going through the process of becoming a mature economy in which the whole of the Chinese population will share in the country’s economic output to a much greater extent than today. As this occurs, exports will decline as a proportion of China’s GDP. Indeed, China will become a much greater importer, particularly of commodities from many regions of the world, including Canada.

The United States, on the other hand, will pass through its own wrenchingly difficult transition in which it becomes one of the major global economic powers rather than the paramount one. En route, the U.S. will lose the privileges it enjoyed as the world’s supreme power, it ability to run a multi-decade long current account deficit, to become indebted to the rest of the world on a long-term basis, and to have its dollar serve as the world’s reserve currency. As a consequence, the perks American enjoyed as they accumulated their vast indebtedness to the rest of the world, will now become charges against them as they pay it down. With that long journey out of indebtedness will go a falling standard of living for the average American. Within this “end of empire” odyssey, there will be new economic opportunities which will enrich those clever enough to climb onboard. One of these will be in the launching of manufacturing operations in the United States as American labour costs fall relative to those in other parts of the world where labour costs are rising. As a great continental nation, with an immense population, the descent out of world-empire status can be more graceful in the U.S. than it was in the case of the U.K., a small island off the coast of Europe that was reduced to minor-league status when its imperial possessions declared their independence.

As the global economy shifts away from the American-centred system of the decades since the end of the Second World War, a new hegemonic power on the scale of what the United States has been is unlikely to emerge for at least the next three or four decades. Instead, we will live in a multi-polar world, in which a number of leading powers will dominate the global economy. This list will surely include the United States, the European Union, China, Japan, India, Russia, Brazil and Nigeria. No single state will have the power to enforce a common set of rules and norms within the system. While the existence of multinational corporations and the regulatory authority of the World Trade Organization will counter the shift to a world with multiple centres of power and ways of doing things, these institutions will not halt that shift. No single system, such as the neo-liberal system has been in recent decades, will be in place everywhere. The consequence of this is that super-regions under the domination of one or several of the leading states could well emerge.

For a variety of reasons, the new economy will be less global, at least over the middle range future, than it was during the years leading up to the crash of 2008. The United States will no longer serve as the singular focus of global consumption and finance. Peak Oil, in combination with the rising price of oil over the long-term, will add considerably to the cost of shipping basic manufactured products, food and raw materials, over long distances. The days when China does an outsize proportion of the manufacturing for North Americans and Europeans are drawing to an end.




Here the tone of the narrative shifts from the analytical to the aspirational. In fact, the analytical and the aspirational are aspects of the same underlying motivation, to comprehend the world and to change it for the better. Analysis itself is conducted out of the desire to understand, not for its own sake, but to comprehend so as to make possible fruitful changes. The aspirational, in a similar vein, does not spring forth as a mental product alone, but is deeply influenced by the way things actually are and therefore could be.

In Western cultures, the development of new and ever more effective techniques is always a central starting point.

If one advances the argument that we as Canadians, for instance, need a new economic strategy to achieve societal goals different from those pursued with a previous strategy, the reply will be: yes, but can it work? We are, on the surface, at least, oriented in our thinking toward techniques, technology, the pursuit of the workable rather than the pursuit of the ideal. Fair enough. If that is our starting point, my assertion is that neo-liberalism has failed. Its techniques have been exposed as utterly inadequate. But let me take this a step further. Neo-liberalism is not merely a set of techniques for managing the economy that has failed. It is, as well, to borrow a phrase, a god that has failed, an ideology constructed to advance the interests of capitalists, of those who control capital, as the supposedly vital centre of our civilization whose pursuits should be privileged ahead of all others.

This is a moment for pause. If, as had been argued in these pages, both the techniques of neo-liberalism have failed, and its goals have been exposed as a dead end for humanity, we are required to advance the arguments in favour of the use of different techniques for the purpose of pursuing a different set of goals.

The case I will make here is based on the desirability of establishing a Canadian economic strategy that privileges the whole of the Canadian population rather than those who have controlled capital under the neo-liberal model. Such a model begins necessarily by asserting that it is labour in all its forms that creates capital and not as neo-liberalism insists that capital is the source of wealth.

A couple of operating principles ought to underpin the model. An operating principle needs to be workable and it has to be focused on a central objective, in this case, the reconstruction of the Canadian economy to serve the interests of the broad majority of Canadians. First, the investment by government to bail out particular companies or sectors of the economy should only be made in return for public equity in the company or sector. Second, the Canadian economy ought to be reconstructed to be both more Canadian and more international in its orientation. The overwhelmingly continental orientation of recent decades has been too restrictive in blocking Canadian initiatives in ways we have seen, and it shuts out the wider world beyond the United States to too great a degree.

The question underlying the first operating principle, on whose behalf should government expenditures be undertaken, has become crucial in a time of multi-billion dollar bailouts for banks and auto companies, among others. The population of the world has been living through a gigantic teach-in on the subject of what the capitalists and their governments do when major financial institutions and other huge corporations get into trouble. Trillions of dollars have been spent by governments all over the world to bail out banks and automobile companies. What the people of the world have learned is that when things go seriously wrong for major corporations, a time out is called and all the rules by which we supposedly live are suspended. Governments that are purportedly devoted to free enterprise, a system in which companies rise or fall by how they perform in the marketplace, stop the game and engage in the greatest investment of public capital ever undertaken in the history of the world. The public money spent since the autumn of 2008 to save capitalism from its own excesses has left all public sector investments, with the exception of military spending, undertaken over the past century exposed as a mere pittance.

In Canada, the federal and Ontario governments have invested billions of dollars to keep General Motors and Chrysler in business. With much less fanfare, the federal government has come to the aid of the country’s banks on an enormous scale. In the autumn of 2008, the Harper government undertook a $75 billion bailout on behalf the country’s chartered banks. Because there were no bank failures in Canada and because Prime Minister Stephen Harper insisted that the government’s aid to the banks was not a bailout--- "This is not a bailout; this is a market transaction that will cost the government nothing," he declared on October 10---the move generated little media analysis. Finance Minister Jim Flaherty added: "This program is an efficient, cost-effective and safe way to support lending in Canada that comes at no fiscal cost to taxpayers." Compared to what was happened south of the border, it was made to seem entirely innocuous.

What occurred, however, was indeed a massive bailout which has cost the taxpayers a huge sum of money. The bailout began four days prior to the October federal election with the announcement that the Canada Mortgage and Housing Corporation (CMHC), a federal government institution, would buy up to $25 billion in mortgages, in order to support the country’s credit market. The purchases of the mortgages pumped money into the banks that they could use anyway they liked. Among the ways the banks could use the money was by purchasing government bonds which would allow them to earn a profit from the deficit the government was running, in part to keep the banks healthy.
The first tranche of $25 billion was followed by the announcement of a further $50 billion on November 12, 2008. The official announcement of the $50 billion included the following rationale: "The Honourable Jim Flaherty, Minister of Finance, today announced the Government will purchase up to an additional $50 billion of insured mortgage pools by the end of the fiscal year as part of its ongoing efforts to maintain the availability of longer-term credit in Canada.”
The government’s claim that providing $75 billion for the banks involved no outlay on the part of taxpayers was made on the theory that what was involved was simply a swap. The government was providing the capital in return for the mortgages, which were not toxic mortgages, but securities worth as much as the money the banks were getting. First of all, in the market in which housing values were falling, this was a fatuous claim. In a market in which property values were rising, the banks would have regard the government’s move as an expropriation of valuable assets. Moreover, the government announced that it would sell government bonds and other financial instruments to raise the money to undertake the purchase of the mortgages, thereby effectively adding to Ottawa’s indebtedness.
What Ottawa was doing was transferring a vast pool of capital, equivalent to nearly five per cent of the country’s Gross Domestic Product, to the banks. A bailout, this was, and a gigantic one at that. South of the border, when Washington pumped hundreds of billions of dollars into U.S. banks (the Canadian injection relative to the size Canadian compared to the U.S. economy was equivalent to about $600 billion in U.S. terms) under the Troubled Assets Relief Program (TARP), an explosive public debate took place in Congress and in the mainstream media. On the progressive side of the American political spectrum, including people such as Paul Krugman, the Nobel prize winning economist and New York Times columnist, the case was made for the nationalization of the banks. If the public was putting up the cash, Krugman and others reasoned, the public should acquire voting shares in the banks for the risk being taken. In Canada, there was scarcely a peep. Canadian banks were being re-capitalized, made more powerful and profitable through an enormous injection of public capital and scarcely anyone noticed.
In the eyes of the government, the Canadian banks were much too big to be allowed to fail, and the bankers who ran them, much too important to permit anything to interfere to with the remuneration they took home. Retired auto workers were an entirely different matter, however. In April 2009, Ontario Premier Dalton McGuinty said the province would not bail out the fund which guaranteed the pensions of retired General Motors workers in the event that the company sought bankruptcy protection which could imperil the pensions received by retired GM workers. The premier explained that the province could not afford to top up Ontario’s $100 million Pension Benefits Guarantee Fund, a fund set up to aid pensioners when company pension plans go broke, in the event of GM going bankrupt.
"It's certainly not our intention to put more money into the Pension Benefits Guarantee Fund," McGuinty said. "We need to be fair to all Ontario seniors and if we look to those without pensions to restore vitality to pensions for those who benefit from those pensions, I don't think that's fair."
The premier added that the province had provided billions of dollars in aid to the auto companies and that using taxpayer money to guarantee auto worker pensions when sixty-five per cent of Ontarians had no pension plan would be a tough sell.
Consider the thinking here. For the province to pump billions of dollars into the auto companies to keep them, their shareholders and their managements afloat was a reasonable thing to do. On the other hand, to assist retired auto workers in the event that their pensions were cut off, through no fault of their own, was something that could not be contemplated. The workers we are speaking of had worked on the assembly line at GM for thirty years with the expectation that when they retired they would receive the pension that had been negotiated for them by their union with the company. When the crash occurred, these retirees, who were in no position to return to work, faced the prospect that their incomes could be cut off. While the McGuinty government was prepared to provide vast sums of money to the auto companies when the crash occurred, it was not ready to do any such thing for the retired auto workers.
Instead, what the government of Ontario did was to put the onus for the survival of the pensions on the CAW, insisting that if the union made sufficient concessions to the company, GM could be kept alive and so would the pensions. The Ontario government strategy dovetailed with that of the federal government. Between them, Queen’s Park and Ottawa relentlessly pressured the CAW to make concessions to GM, the alternative being the bankruptcy of the company, which would leave the workers and the retirees in an even more desperate situation.
Right before the eyes of Canadians was a demonstration that their governments were prepared to do whatever it took to keep banks and auto companies afloat---violating all the shibboleths of free enterprise in the process, while hanging out the workers to dry.
A progressive economic policy for Canada must begin by reversing these completely unacceptable priorities---by putting the people of Canada first, and reducing the companies to the role of serving the needs of the people. Capital needs to become the servant of the people, not the other way around. The capital accumulated as a consequence of the labour of Canadians needs to be invested to benefit them. That is a radical idea, but an entirely reasonable one. When ideas for sweeping change come from the progressive side of the political spectrum, they are ridiculed as impractical or too expensive. Those arguments are much harder to make today than they were prior to the autumn of 2008. It is now completely clear that to what lengths governments will go to bail out companies.

In my opinion, every nickel of public revenue invested to aid financial institutions, the auto industry or any other sector of the economy should be in return for voting shares in the companies aided. This is not an unknown concept in Canada. During the First World War, public funds were invested to salvage two bankrupt railways in Canada by nationalizing the companies and bringing them under the ownership of the federal government as the Canadian National Railways. A century ago, the Ontario government concluded that for Ontario manufacturing to be competitive with U.S. manufacturing, the province required cheap, reliable source of electric power. To meet this goal, the province set up Ontario Hydro as a crown corporation, taking over the privately owned power companies in the process. Publicly owned companies have been used in many sectors of the economy when needed. Today, as governments are spending more than ever in history to aid ailing sectors of the economy, Canada should go the route of crown ownership, used so often and successfully in the past.

So that the capital Canadians create through their labour serves them, investments of public capital need to result in crown ownership and control.

On the second operating principle, it is time for Canadians to rethink their economic position in the world.

Over the course of their history, Canadians have lived under the sway of three empires, the French, the British and the American. In each case, as they shifted from one empire to the next, once by Conquest, and the second time by circumstance and to some extent by choice, Canadians ended up associated with the leading power of the day. It could be comforting to believe that Canadian elites were making clever choices, choosing to desert one empire for another at just the right time. Nothing of the kind was happening of course. Canadian elites, not least today, have been very slow to strike out on their own and to make a choice for their country and themselves that involves cutting their ties with the dominant foreign power of the day. This is not surprising. Elite status in Canada, for the most part, has been bestowed on those who knew how to make the best of things within a dependent country whose economy and strategic interests were closely tied to those of another, much bigger power.

Once again, as was the case with the declining British Empire a century ago, Canadians are living through a time when they are tied to a declining power. While the United States will remain enormously influential in the world, it will not be the global colossus it has been for more than sixty years.

What does that mean for Canada?

As the crash struck Canada, the first response of Canadian politicians was to deny it or to blame each other in less than insightful ways for its consequences. The more enduring response, on the part of the Harper government, the Ignatieff Liberals and to a considerable extent the NDP and the Bloc Quebecois, has been to count on an American economic recovery to generate recovery in Canada. The nation’s political and economic leaders are banking on the resumption of the status quo ante. Canada, they believe, will return to the role of a commodity exporter, overwhelmingly to the United States, a country that also does some manufacturing in sectors such as the automotive industry, largely under the auspices of foreign owned multi nationals.

Stephen Harper and Michael Ignatieff focus on little beyond how the economic crisis will play out to benefit or to harm their political fortunes. Neither they, their parties, and to be fair to them, the leaders of the other parties, have done any serious thinking about the fact that the global geo-political system is at a parting of the ways, the end of one age and the beginning of another.

Has it occurred to them that wagering Canada’s future almost entirely on a declining, deeply indebted America, whose living standard is almost certain to fall, may not be the wisest choice? Not at all. Look at the embarrassingly dependent course they pursued on the auto industry.

The country’s political leaders don’t think in large terms because they’ve never had to. Nor does the utterly unimaginative, supine Canadian corporate elite. Those who run the nation’s large corporations, whether they are foreign or domestically owned, with a few notable exceptions (a Frank Stronach here, a Jim Balsillie there), did not get where they are because they think, but because they are so utterly conventional. Add to the list the country’s second rate mainstream media, with its derivative right-wing private newspapers and television networks and the fearful CBC and you have few wide-ranging explorations of alternative visions for the country’s future in the public realm as well.

Is all of this reason for gloom among Canadians? Not in my opinion.

Canadians are a well-educated, productive people with a deep commitment to their country. They have all the means they require to strike out on a socio-economic course of their own in the 21st century, a course that is broadly congruent with global developments. What I am talking about is not autarchy, but an engagement with the outside world that is more on our own terms than in the past. And by the outside, I do not mean the United States to the virtual exclusion of all else.

Consider this: up until the mid 1920s, Canada did more trade with Britain than with the United States. Today, just under 80 per cent of Canada’s exports are destined for the United States. That is a higher proportion that in the years immediately following the Second World War, when the United States accounted for nearly fifty per cent of global economic output, compared to just over twenty per cent today. The plain fact is that Canada has focused its exports ever more on the United States at the same time as the United States share of global economic output has declined. Canada’s trading relationship with the outside world is more continental, less global than it was a century ago.

That has to change if Canada is to be successful in the 21st century. And along with that Canadians need to break out of the straight jacket of the trade rules they live with under NAFTA, and they have to gain control of the major pools of capital this country economy generates. Before arguing the case for these pillars as necessary elements of a new Canadian economic strategy, the point needs to be made about what will happen if Canada does not adopt such an approach.

Unless Canada strikes out to fashion its own place in the new global economy, it will end up as a series of slowly declining regions tacked onto the northern perimeter of the United States. This may seem to be an unreasonable proposition. In fact, it is as reasonable as would have been a proposition put a hundred years ago that it was not in Canada’s interest to remains as attached to Britain as it was at the time. And such a proposition stated in the early years of the 20th century would have drawn just as much scorn and disbelief from the conventional powers that be as the proposition I am putting here.

Canadians do, of course, have a choice. They can continue with political leaders content to carry on with the present arrangements, but such a choice, taken with a shrug of the shoulder, will lead to the country doing less well in this century than it did in the last.

The more active choice, made as a consequence of thought and political mobilization, is the more difficult one. It alone, however, will allow the people of Canada to make of themselves what they are capable of in this century. Many peoples will be striving to prepare themselves for the economic recovery to come. Canadians will need a new political and economic leadership to make that journey toward an economic strategy that will work for them and a strategy that is a just one for the majority of Canadians and not simply for the few who benefited from neo-liberalism.

Using public funds to re-launch key sectors of the economy and acquiring crown ownership or control as this is done, will open the door to Canada establishing a position in the global economy that extends far beyond our ties almost exclusively with the United States. To achieve such a reorientation, Canada will need to rid itself of the confines of two elements of NAFTA. The first is the provision that Canada has to supply the United States with petroleum on an ongoing basis and that it cannot establish price controls for the domestic sale of petroleum while exporting oil and natural gas at the world price. The second is the National Treatment provision of the trade agreement which prevents Canada from choosing key sectors where it wishes to promote domestic firms as centres of excellence on which exports of manufactured products and not simply commodities can be based. The National Treatment provision requires Canada to treat American firms on the same basis as Canadian firms, which blocks the establishment of any viable sort of planned economic strategy. With neo-liberalism in tatters, Canadians should not be forced to live under the restraints of neo-liberalism in a world where no one else, certainly not the Americans, is going to play by these rules. To rid Canada of these unacceptable constraints, the government should attempt renegotiate NAFTA with the U.S. and Mexico to alter the rules under which the member countries operate. If this should fail, Canada should announce that it will leave NAFTA, under the terms spelled out in the agreement.

In today’s world, the tried and true has become the path of recklessness. If Canadians decide that they are going to strike out on an innovative course to cope with a new global economy, they are free to do so. All that stands in our way are failed leaders and their failed policies.

59 comments:

Liam said...

Hello James. I echo your frustration. My instincts have been to find a party that most closely resembles my passion, but there are too many failings, too great a fear of electoral failure and too much support for the Cons to entice me to last with any one party.

I have proposed that we go a different route: collect the progressive and like-minded citizens of Canada and start a new party:
http://www.exciteddelirium.ca/2010/03/14/i-want-to-start-a-progressive-party/

the regina mom said...

James, I think there are several of us who are discussing the realities of being tied to the US economy. Certainly, I've blogged about it before, as have others.

The political parties, however, are something in which I have little, if any, hope. Nor will a new party fix it.

Local communities are organizing themselves and that, I believe, is where we can place hope. When have we ever seen change that benefits the people come from any place other than the people themselves?

Filostrato said...

That was a wonderful piece, Dr. Laxer.

The leaders of the two main parties in Canada have shown an unwavering tendency to choose the wrong side on any number of matters. Both Harper and Ignatieff were uncritical
supporters of the Iraq War, although Ignatieff later changed his mind. Harper was a big fan of Australia's John Howard even when his own country loathed him and not only voted his party soundly out of office but voted him out in his own riding. Harper cozied up to Colombia which is virtually on its own in South America as a U.S. satellite and had little to do with other progressive South American governments.

Would any county put up with supplying another country with energy at the expense of its own citizens? Norway supplies its own energy needs first and maintains a strategic oil reserve. Only the surplus is exported. In Canada, we export to the U.S., have no strategic reserves and import oil from unstable areas in the middle east.

John Ibbitson once said that if Canada refused to supply the U.S. with all the oil that it wanted, even at the expense of Canada's energy needs, it could be considered an act of war and the U.S. would have every right to use force to obtain what it wanted. He seemed to think that was perfectly rational.

Everything that has been done in the last thirty years, since the Mulroney era, has put this country in danger.

The people in power have been forgetting who actually produces the wealth. They chose the wrong side again.

It's as much as I manage not to completely despair these days.

Anonymous said...

In their pursuit of power, ALL the political parties have shown a complete disregard for Canadians and the long-term interests of Canada as a country. The constant cries for looser foreign investment rules in a country where little isn’t already owned by foreign interests is emblematic.

I blame the parties, but only to a certain extent, since they’re a reflection of us. Most of us are too damn lazy to inform ourselves, and the slightest suggestion that we need to look who at who is profiting from policy decisions is usually greeted with sneers and juvenile name-calling. We had Paul Martin for our finance minister when we really needed Ha-Joon Chang, and most of us couldn’t be “arsed” to know the difference.

Our political culture is hopelessly immature, and I doubt it will have a chance to grow up before the country is defunct, because we as individuals refuse to grow up politically. It breaks my heart to say it, but it looks increasingly likely that we will be the first people in history to allow their country to be sold out from under them.

Anonymous said...

We are screwed - BUT - One of the best fastener designs ever was invented by a Canadian - The "Robertson Screw" - Canada's advantages need to be developed and I do not see that happening with our current short-sighted - demolish the opposition government.
We need a bootstrap economy - We have oil - water - wood - minerals and an enviable geographic location not just economically but enironmentally - Just need a party to recognize this or less intervention by all 3 levels of government nannying

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David W. Lincoln said...

The Christian Science Monitor has this interesting editorial: http://www.csmonitor.com/Commentary/Opinion/2010/0316/China-the-coming-costs-of-a-superbubble

Therefore, I purport that part of China's problem is racism.

Part of the US's problem is kicking
the problem down the road, and for absconding with billions, if not trillions, of dollars from future generations.

Canada's problem is an increasing pace in acquiring debt, as seen here: http://globaleconomicanalysis.blogspot.com/2010/03/canadian-credit-bubble-in-pictures.html

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I have suggested that we detach our caboose from the American economic freight train for the past ten years. We were able to do so with England in the past when it became clear that the cost of worldwide empire was unsustainable for them. The Americans are now experiencing the same thing and it would be best if we did not go along for the ride.

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Judith Davies in Regina said...

Brilliant!

Jonathan said...

Thank you for drawing attention to political matters in Canada. Our geographical connection, along with our natural resources should have made us more naturally-suited neighbours, instead of what we have seen, and what we see going on behind closed doors.
My fellow Canadians and I have been shocked by the lack of respect all of our current leaders have shown her Citizens.
We are not sitting back!
When Mr. Harper came to Saskatoon to meet with provincial leaders behind closed doors:
http://www.youtube.com/watch?v=MumLpKn7xUA&feature=channel

Saskatoon in -35 degree temps - showed up in droves to protest--
http://www.youtube.com/watch?v=ZjfkmVpmpuQ&feature=channel

Non-partisan, and not done!
Thank you James.

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