Archive for the ‘Canada’ Category

Where are the Democrats?

July 5, 2018

The short answer is that they are busy criticizing the Trump administration but in a disorganized fashion, as Democrats too are divided. In part this is due to the speed with which Trump switches from one topic to another, from healthcare to NAFTA and trade policy in general, to criticism of NATO countries, to cozying up to autocrats (Putin, Xi, Erdogan, Kim). He changes the channel when criticism starts to bite.

Democrats need to put forward credible candidates for the 2020 elections and to organise to win back the House in 2018. Control of the Senate is unlikely this time and Trump has two more years for his possible replacement. While Republicans are divided between traditional and Tea Party Party members, so are the Democrats but with different fault lines.

In the last election the Democrats put up two candidates, Clinton and Sanders each of whose supporters were not enthusiastic about the alternative. In fact it would not be surprising if Sanders supporters chose Trump when they entered the polling booth in 2015. Voters who felt that Washington had failed to improve livelihoods for many Americans were attracted to Trump’s message about the failures of recent administrations of both parties. The reason Trump governs today is because of the mass of voters who feel this way. Whether his actions in power will get him reelected in 2020 is unknown, but the reason he won in 2016 is now clear. At the time it was not predicted by many pollsters….Michael Moore was an exception.

Opposition to Trump exists in much of the media, but he has supporters in Fox and Breitbart News. It is a mistake to watch only one side. I watch Morning Joe on MSNBC but should watch Fox as well to get a more balanced view. Today leadership of the Democrats consists of Nancy Pelosi and Chuck Schumer; no candidates have come forward as obvious challengers for the 2020 presidential elections despite the actions of Trump.

The following are observations in no particular order of what may be expected between now and November 2018:

  1. Trump will continue to surprise the public with non-conventional moves and statements. Response to criticism will be made with tweets as issues arise that gain his attention. What the tweets will say will be unpredictable because he responds to the headlines of the day. Cable news is his source of information. He does not read and listens to a small coterie of people in person and by phone.
  2. He will continue to boast about the US economy claiming he is responsible for the positive things that happen and blaming others for any bad economic news. So far there has been mainly good economic news, but the the imposition of tariffs by the US and by others in retaliation will reduce trade and more general economic growth, as business delays new investment due to the uncertainty created.
  3. A further damper on economic growth comes from debt created from a long period of low interest rates. As rates rise consumer and business spending will decrease causing a lowering of economic growth. In Canada the Bank of Canada has followed a low interest rate policy and cautioned people from the borrowing which their policy encourages. The Bank changed its policy at the start of 2018. Low interest rates encourage spending but also promote borrowing. Households as well as governments are loaded up with debt. The Province of Ontario is horribly indebted and the new provincial government will soon be telling us that the figures published by the previous government understate the provincial debt. This is common practice for any new government.
  4. The actions of one person, the US President, can do enormous harm to the US and other economies, but the uncertainty created will cause investors in other countries to dampen investment as well. Where this ends up is difficult to predict. But the rise of populist parties in many OECD parties is a sign that developed countries are experiencing a common set of political pressures differentiated by their particular settings.
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Coping with Grade Inflation in Ontario

June 12, 2018
Ontario high school graduates often experience lower grades in first year university courses from those received in grade twelve. This can come as a shock to first year students…. and their parents. In the late 1960’s Ontario moved from province wide exams to each school grading its own students. The change resulted from proposals in the Hall-Dennis provincial report, which recommended the abolition of general exams for all students in the province. Grade inflation ensued.
In the 1960’s, less than 10% of Ontario high school students graduated with an 80% or higher average. Today over 60% have an average of 80%. Because university enrollment has expanded since the 1960s, the absolute number of those with an 80% average is today far higher. At the time teachers argued that there would be grade inflation if each school could grade its own students. They were correct. Now, if there are suggestions of returning to province wide exams, schools oppose the move because the results would reflect more directly on their ability to perform.
Today, almost all applicants can get accepted for Canadian university entrance but there will be limited enrollment for particular programs such as law, medicine, nursing, engineering and the need to maintain certain grades to remain registered in these programs. Universities have an interest in enhancing enrollment because they are in part funded by provincial governments on a per student basis and in part by fees. (Foreign students pay higher fees and do not receive provincial funding. Quebec offers lower fees to Quebec students than out of province students.)
Other jurisdictions use a common exam as a way of, amongst other things, avoiding grade inflation. The General Certificate of Education (GCE) is offered at three levels in the United Kingdom, and a number of other mainly Commonwealth countries; the Graduate Record Exam (GRE) in the US is an admission requirement for most graduate schools in the US; and the International Baccalaureate (IB) offers four educational programmes: the IB Diploma Programme and the IB Career-related Programme for students aged 16 to 19, the IB Middle Years Programme for students aged 11 to 16, and the IB Primary Years Programme. To teach these programmes, schools need to be authorized by the International Baccalaureate Organization. About 60 schools in Canada are listed as offering the IB program. Almost 11,000 Canadian students wrote IB exams in 2017.
While Canadian universities cannot say that they treat an IB grade different from a non-IB grade when accepting students from Canadian high schools, it does not take much imagination that this would be the case, especially when performance statistics are reviewed.
IB grades are reported to universities, most of which now understand what they mean.  The IB Schools of Ontario have devised a conversion scale for reporting to parents and for those universities that are not yet on board.  All IB schools in Ontario must agree to using this conversion scale just so that marks will not be inflated.  This customary (as opposed to mandatory) procedure allows universities to evaluate the IB grades relative to  the Ontario high school grades which have experienced massive inflation since the 1960s.
In a review of IB enrolment in the US, the following findings were published:
This analysis examines the postsecondary enrollment, persistence, and graduation rates of IB diploma seekers graduating from both public and private high schools in the US. Currently, the IB offers the Diploma Programme in 830 high schools in the US. Of these schools, 727 (88%) are public schools (state funded). Not surprisingly therefore, the data for this analysis included mostly public schools. When the results from this study are compared to national rates (as available) it is evident that diploma students, both earners and non-earners, enroll, persist, and graduate on time at notably higher rates. Diploma earners have generally slightly higher rates than non-earners. • Immediate enrollment for all diploma students was 78% compared to the national average of 69% • 2-year retention for all diploma students was 96% compared to the national rate of 77% • 2-year retention rates for diploma earners was 96% compared to the non-earners rate of 95% • 6-year graduation rates for all diploma students was 83% compared to the national rate of 56% • 6-year graduation rates for diploma earners was 87% compared to the non-earners rate of 72%

Back to Beer and Hockey

June 4, 2018

Back to Beer and Hockey, The Story of Eric Molson by Helen Antoniou is part history of Molson the company, part of Molson the family, and part of the hockey team that the Molson family has owned. The three are interwoven in a variety of ways that focus on the man and his career.

Hockey is a well-defined game with winners and losers overseen by officials. Corporations like teams operate in a competitive environment which creates winners and losers within a framework of rules. Families are groups of individuals, who too are competitive, but where there is no referee to call the plays. When families become involved in corporate decision-making outcomes are difficult to predict but can be important for the future of a company. (A useful understanding of family behaviour is found in Robin Skynner and John Cleese, Families and how to survive them (Methuen, 1983)).

Future researchers will find the book a valuable source for a study of how senior management of a company operates as the market for its product changes; how family members with different interests and ambitions interact in pursuing their corporate related ambitions; and how the game of hockey infiltrates and permeates this family and their behaviour. The book is written from the viewpoint of Eric Molson who, while in retirement, gave the author, his daughter-in-law, interview access and declined to read it until it was published.

The history starts with the founding of the company in 1786 and the arrival from Scotland of John Molson. Since then and up to its merger with Coors, making it the world’s third largest brewing company, control was exercised through a restricted distribution of voting shares among Molson family members. Today, control is exercised jointly with the Coors company. Along the way it tried to diversify without success into other product markets.

Any corporate historian will want to read this book to understand what motivates executives, especially the controlling shareholders. Family dynamics are unique to each situation and difficult to predict ex ante. The inclusion of a blue ribbon hockey franchise in the corporate-family mix makes it harder to predict what the future may bring for the business of beer. The growth of craft breweries is a factor affecting industry competition.

Canada about to be sideswiped – trade, investment & asylum seekers

May 8, 2018

“Fasten your seatbelts, it’s going to be a bumpy ride”

(Bette Davis actually said night not ride)

This quote aptly describes what is about to, and probably already is happening as a result of events south of the border. With 64 percent of Canada’s merchandise trade with the US (2016 exports plus imports), the negotiations over NAFTA and threats of US tariffs on steel and aluminum create the uncertainty that leave investors in both countries sitting on their funds.

The extent of foreign direct investment in Canada by the US, and in the US by Canada results in a similar high degree of interdependence and uncertainty. Companies often organize their supply chains across provincial and state lines as though national borders did not exist. When the US suddenly threatens to impose tariffs, investors in both countries tend to look elsewhere or to sit on their cash. There are always other places to invest, buy back shares, or stay in a liquid position.

As long as I can remember, and certainly since the 1950s, Canada’s politicians supported by nationalists have argued to decrease dependency on the US market for exports and imports, as well as for inflows of direct investment. It just never happens except for a few percentage points each way. Proximity to the US market offers business opportunities and the strong interdependency prevails. When the US threatens to restrict imports Canada can be the first to feel the impact. Threats are enough to cause concern for investors and this is where things now stand.

Canada has another concern involving the US but this one is self- inflicted and relates to refugees and asylum seekers. It is one which is felt more intensely in Europe and accounts for the rise of populist political parties and their leaders. Hungary, France, Italy and the Brexit negotiations between the EU and the UK reveal pressures that arise from the influx of refugees and asylum seekers from the Middle East and parts of Africa.

Canada has a stated policy of receiving a set number of refugees and asylum seekers each year. These are screened before coming to Canada. However, others arrive at the Canadian-US border and request asylum. If the request is made at an official entry point, the applicant will typically be disallowed entry as the US is considered a safe country. If the applicant crosses at any other point along the border, according to Canadian law the person can claim asylum and have the claim assessed.

Canada’s only land border is with the US. In 2017, Canada’s Immigration and Refugee Board received 18,149 claims from irregular border crossers, that is those that claimed asylum after entering Canada illegally. This compares with 29,276 persons who applied for refugee status legally.

If a person approaches a Canadian official border entry point like an airport or a highway and asks for asylum, the official can accept or reject the claim. If the claimant comes from the US, the claim is likely rejected as the person comes from a safe country, the US. In order to avoid such rejection, the person crosses the border at a non-official point and claims asylum. There is an easy solution. Make any point of the US border with Canada an official point of entry and all claimants coming from the US can be turned back, although they will first have to be detained.

Beware of Bubbles

March 31, 2018

I live in a bubble. I meet and socialize with people who think broadly the same way concerning truth and lies, respect for the law and support for the democratic political process although they may favour different political parties. I get my news from many of the same sources as they do. Being in a bubble means that I, and I suspect many others, have difficulty in understanding the political scene south of the border, and to a lesser extent in Canada.

I get my news online from MSNBC for the US, the Economist and the Globe and Mail. Do I watch Fox News or Breitbart News? No, not just because I don’t like their political views, but because I don’t trust the veracity of their material. But other people do, and they are the ones who helped push Trump to victory in 2016. One question now is what will happen in 2020 and the midterm elections in 2018. For this one has to exit one’s bubble and discover what others think.

In 2016, both Trump and Sanders appealed to some of the same group of voters, those who felt unrepresented in Washington. When Clinton became the Democratic candidate, Sanders supporters decided either not to vote, or that Trump would best represent their interests, and probably they still feel that way today.

With the election over, the question is whether the conditions remain which gave rise to both Republican and disaffected Democrat supporters of Trump.  For low income white voters in states like Kentucky and Ohio where manufacturing jobs have been lost, the situation is forcefully described in Hill Billy Elegy by J.D.Vance. The thirty-one year old author comes from a poor white background, a descendant of Scottish-Irish immigrants from several generations back. He sets out the plight of white working-class families in impressive detail.

In Strangers In their own Land, Airlie Hochschild, a sociologist, does much the same by researching the circumstances of poor voters in the US, especially in Louisiana where she went to live while focusing on  the lives of those in the second poorest State in the US. She describes people living in vastly different conditions, and seeing few prospects for change, despite the fact that two recent Presidents, Carter and Clinton came from Georgia and Arkansas, two other states near the bottom of the economic ladder.

Trump won the 2016 election by appealing to the few very wealthy supporters, and the many who saw few prospects which would enhance their lives. If Clinton had won in 2016, the disadvantaged US voters would have felt even less likelihood for improvement in their lives, and the next presidential election would have given a Trump-like candidate and even stronger mandate. The only glimmer of hope I can see from 2016 is that enough voters will step outside their bubbles to prevent a continuation and worsening of the political circumstances in the US.  If they don’t then those who presently feel disenfranchised will support even more unsuitable leaders. Conditions in a number of European countries face similar pressures with politicians locked into their particular bubbles.

(As of April 2018, polls show Trump with 42% political support having risen from the low 30%. Where will the figure be tomorrow?)

Competition Policy in the 21st Century

March 1, 2018
In 1900, at the turn of the century, US business moguls included Carnegie, Dupont, Ford, Guggenheim, Morgan, Rockefeller and Vanderbilt. Among the largest firms were US Steel, Standard Oil, Ford, J.P. Morgan, DuPont, and a number of railway and financial corporations.

Compare these with some of today’s largest firms, their founders and founding dates, the last four labelled by some as the FANGs.

1975 Microsoft- Gates and Allen
1976 Apple – Jobs and Wozniak
1994 Amazon – Bezos
1997 Netflix – Hastings and Randolph
1998 Google – Brin and Page
2004 Facebook – Zuckerberg

Today’s giants and their industries are the result of developments in computers and communications since the 1960s when this technology began to permeate our economic and social life.

My first interaction with computers was in 1962 when they were housed in large air-conditioned rooms with data fed in on punched cards. Computational work was processed in batches and the output would be available perhaps the next day. It was often necessary to learn a programming language such as Fortran and write one’s own program. Later, programs such as Word Perfect and Excel could be purchased. I acquired my first desktop computer in 1970 for $5000.00. It had 64K memory. It was followed by laptops, pads and the smart phones available today. My regular use of email dates from 1985 when words were spelled out slowly across the screen, rather than appearing instantly.

Big business, both in absolute and relative terms, has long given rise to concern over its economic power associated with the creation of combines, trusts, and restrictive trade practices. In North America, this lead to the passage of antitrust laws. Canada passed the first such legislation in 1889 followed by the US in 1890. Both were a reaction to concerns about the potential harmful effects of monopoly power in industries such as steel, railroads, petroleum and banking. Today, questions are raised about the market power of information related industries, both the hardware and software.

One example is Amazon. The firm was founded by Geoff Bezos as an online bookstore, and has morphed into a firm engaged in electronic commerce and cloud computing with a head office in Seattle. Today it is the largest internet retailer supplying almost anything that can be sold online, either by distributing the item online or arranging for physical delivery. A recent acquisition was Whole Foods.

Amazon operates internationally with retail websites in fifteen countries. Currently it has revenues of $136bn, assets of $83.4bn, net income of $2.4bn and 542,900 employees full and part time. The firm did not record a profit for seven years, that is until 2001. (Further information is available on Wikipedia).

Amazon has morphed into a type of public utility in the business of delivering goods and services, similar in many ways to the delivery of electricity, gas, communications and postal delivery services.

The Economist, Jan 20th, 2018, provides an excellent summary of the possible antitrust issues stemming from how communications technology can affect competition in a wide variety of markets. The issues concern the generation and collection of data as well as its pricing in different markets. For example Facebook and Google are responsible for 80% of news publishers referral traffic affecting how buyers and sellers interact.

These and other firms collect mountains of data as people surf the net and are able to sell this information to producers of goods and services, as well as to monitor the communications of sellers and buyers. It reveals an Orwellian world where individuals may lose their privacy. When Orwell wrote 1984 in 1948 he was unaware of the technology that would emerge and reinforce his warnings.

Public policy

Do existing public policy measures address issues concerning these firms? Competition policy deals with features raised in a wide variety of markets dealing with monopolies, mergers, price fixing and a range of restrictive practices. There seems to me no reason why these measures cannot be applied to markets where information technology is used.

But in addition, the use of information technology is so pervasive in terms of communications and the internet that it has become a type of public utility. For example, businesses and homes demand connection to the internet at a reasonable cost. Today, a hotel, coffee shop, store or manufacturer would be unable to operate successfully without being connected. In this sense the technology has the features of a public utility and may need to have a policy framework similar to other utilities. Governments will certainly have to rule on the question of net neutrality.

 

The Future of Employment – a Focus on Skills

January 7, 2018

Where will the jobs be – and how to prepare for them?

The answer depends in part on where you live and what age you are. Discussion of this question can be found in numerous places, authored by governments, think tanks and universities. Here I aim to address an audience of those in high school and university, but it may have some value for those already in the work force, since a main conclusion is that there will be fewer and fewer life-time jobs and many will have to retrain and requalify throughout their working life.

The chart found at the following site graphs how 16 labour force occupations by sector have changed between 1850 and 2015 in the US.

https://www.mckinsey.com/global-themes/future-of-organizations-and-work/what-the-future-of-work-will-mean-for-jobs-skills-and-wages

See Part 3, Exhibit 2.

The three categories above Agriculture (-55.9%) are:

Trade (wholesale and retail)

Construction

Transportation

The twelve categories below Agriculture are:

Manufacturing

Mining

Professional Services

Utilities

Business and Repair Services

Telecommunications

Healthcare

Entertainment

Education

Government

Financial Services

Source: McKinsey and Co. 2017

 

Two obvious changes are the vast reduction of those employed in the agriculture, shown by the shrinkage of the light blue area, and more recently the reduction of manufacturing jobs (dark blue). Each OECD economy would show similar changes modified by the physical location and a number of other factors affecting the geographic boundaries and natural and human resource endowment of the economy. Canada would be much like the US, but with a greater relative importance associated with natural resources such as forestry and mining.

The shrinking share of agriculture is associated with a vast increase in farming output, and the substitution of machinery such as tractors and combine harvesters. The manufacturing and other sectors have expanded their share of employment at the same time that it has shrunk in agriculture. Similar forces are at work today with manufacturing, which with automation has increased the demand for service sector employment associated with computer and communications related service activities. A main conclusion will be that it is more helpful to examine the skills that are likely to be needed in the economy than the changing share of the employment by sector.

 

Some facts about underlying changes

Employment takes place in different sectors of the economy; the share of employment by sector changes over time, sometimes slowly and today quite rapidly.

Existing sectors, as shown in the chart, can change the type of skills required and the arrival of new technology creates the need for new skills. (When you see the word skills think of education and training now and in the future).

For example, the agricultural sector employs fewer people today but the output of the sector has increased. Manual work was taken over by machinery such as tractors, and combines. At the same time the sector created new industries and jobs with employment rising in manufacturing, improvements in seed and cattle production and now the use of information technology. Output has grown in all sorts of ways.

A remarkable statistic shows that in 2012 the average American cow produced 22,000 lbs of milk each year compared with 5,300 lbs in 1950, an increase of 16,700 lbs per year or about four times as much a year. (I imagine a Canadian cow would be equally productive, although supply management may require it to work shorter days and take longer vacations.) With 1950 model cows, today’s 33 million Canadians could be supplied with a pound of milk per day by about just over two million cows. With today’s more productive cows, it would take about half a million cows, such has been the increase in productivity.

 Other sectors have seen a real shrinkage of employment. Horses no longer do the work of machinery so the work horse industry has declined to almost nothing, as have the people who bred horses. There is a horse industry but it is associated with equestrian events such as racing, show jumping, dressage, and circus performances.

In contemplating job opportunities look for situations of job creation and job destruction, as well as for education and training now and in the future.

 

Will technology eliminate jobs?

The lump of labour argument states that there is only so much work in an economy and that technology will reduce the need for work in the future. The facts show otherwise as argued by the “lump of labour fallacy,” namely that employment to-date shows the total amount of employment has increased over time, but the type of jobs has changed requiring different combinations of skills and development of new skills.

One difference today is that the rate of change has increased relative to most times in the past, and this has led to the need for retraining and re-education. Doctors and dentists undergo annual retraining seminars, academics do research and take sabbatical, teachers have PD days. People can train to be a nurse today, but will have to retrain to keep up to date with nursing skills. If in the future there is a declining need for nurses but an increased demand for MRI technicians then major retraining is required to operate this equipment.

My experience of training in economics and being an academic all my working life is not typical for many of those entering today’s work force. I was employed by several different universities but to teach economics in all instances. Part of my retraining came from doing research as well as teaching, including the use of online learning techniques. It was an evolving skill set that I had to learn.

 

What skills will be needed?

There is extensive research and reporting by economists and others on Future Work Skills and the education and training needed for a person to meet the likely needs. While economists and others don’t have a particularly good record of forecasting future jobs, they are better at suggesting what skills will be needed in the future, given the changes, technological and other, taking place. A focus on skills allows predictions to be made on the type of education and training likely to be needed.

 

Drivers of change – some examples

  1. People are living longer. With an older population, people may work to an older age, either full or part-time. They will have increased medical and care costs some of which can be provided by healthcare workers.
  2. Smart machines: these will be used to monitor healthcare needs for young and old persons. Security and defense are examples of other areas using monitoring techniques, such as the use of unmanned drones and security cameras.
  3. Technology now allows for massive amounts of information to be collected and manipulated in real time in areas such as medicine, security and education. This has allowed a computer to beat human chess players and win quiz games such as Jeopardy.
  4. New techniques of manipulation and communication of information has led to multimedia forms of communication. Oral, visual and written information can be created and stored for use anywhere on the planet, meaning that the footprint of an industry or occupation can be global
  5. Social media is a particular form of global footprint (Facebook, Twitter and email) where experimentation is taking place. I first used a computer in 1962. It was housed in a large air-conditioned room and processed input entered on punch cards in batches. Early portable computers weighed 25 lbs and had 64K memory. I first used email in 1989. Messages were sent and received with letters being written out slowly across a computer screen. Today we expect instantaneous receipt of the whole message together with pictures and sound.
  6. The world is connected globally so that information can be transmitted anywhere in the world that has the technical facilities. This expands the opportunities for all kinds of activity, medical, educational and other. It also allows for bad things to happen.

Hit by ideological traffic going in opposite directions – Year end 2017

December 30, 2017

I fully expect this to happen and it will affirm that many people can easily be annoyed. Start with my favourite Christmas card featuring three women on a motorbike with a sidecar. The caption reads:

“Three Wise Women would have asked directions, arrived on time, delivered the baby, cleaned the stable, made a casserole… and there would have been peace on earth.”

Alternative wording (mine) reads:

Three politically correct women would have ignored gender equality when forming their committee, returned the diapers because they were the wrong colour, sent Joseph out to get coffee after he had cleaned the stable….and there would be slim prospects for peace in the home.”

One of the joys of growing old is to say things that will irritate people; another is to ignore warnings about what to drink or eat. So here goes:

  1. As a result of a recent hospital stay, it is clear that positions requiring a range of skill levels (doctors to cleaning staff) could not be staffed without encouraging some level of immigration. The same is true for employees in shopping malls and fast food outlets. One public policy issue is how to integrate newcomers into Canadian society and what is reasonable to expect from them.
  2. A prime issue is making sure that non-French or English speakers get language training. Without it employment opportunities are minimal except to live and work in a ghetto where their native language is spoken. Young arrivals who enter the school system will quickly adapt linguistically and act as interpreters for their elders.
  3. Newcomers need to be made aware of Canadian values…. this is where it gets interesting. At this time of year there are many summaries of what Canadian society looks like after 250 years as a nation. One I found interesting was penned by Jonathan Kay (read especially the last two columns on page NP2 of the National Post for Dec. 20, 2017)

“Will Canada come to regard itself as a sunny forward looking, pluralistic democracy that champions a generous social contract on a colour-blind basis…or a guilty grievance-infested patchwork of racial communities perpetually publishing angry manifestos and living in the shadow of bygone horrors?”

The latter gets the most public attention because angry people with grievances make the news, sell papers and attract eyeballs. Examples of social harmony don’t make headlines or tweetable epithets. One example, I suggest, of a well-functioning multicultural society is New York City, population 8.5 million. The country, state and city have no overt multicultural policy. The citizens from all over the world just get on with doing their jobs and living their lives. At least up to 2017, this has worked well. In contrast, Canada has a closely defined multicultural policy at least at the federal level, unfortunately ill-formed and implemented.

  1. Those seeking to evaluate existing Canadian multicultural objectives carefully avoid asking the difficult questions. Gilles Paquet is an exception in his Deep Cultural Diversity (University of Ottawa Press, 2008)
  2. An associated puzzle is why there is no discussion of the overall desired size of Canada’s population. Immigration acts as a tap for the flow of people into the population bath tub. Does Canada need to open the tap? If so I would like to see the rationale. Countries like Norway and Switzerland with smaller populations and land area have remained prosperous with small populations – for Norway 1990 and 2017 – 4.2mil and 5.3mil; for Switzerland 1990 and 2017 – 6.1mil and 8.5mil. In a sense Canada is similar size-wise in that almost all immigrants want to live in urban centres such as Montreal, Toronto and Vancouver. These cover a far smaller area than either Norway or Switzerland.

What happened in 2017 and what might happen now?

December 24, 2017

My favourite Xmas card for 2017 reads,

“Three Wise Women would have asked for directions, arrived on time, delivered the baby, cleaned the stable, made a casserole….and there would have been Peace on Earth.”

 

Overwhelmed by news coverage of the Trump presidency, I think we have lost sight of what actually happened which is a precursor for trying to figure out the future.  I suggest that Trump is like the head of a nasty boil beneath which resides a lot of infectious puss resulting from some unpleasant causes. It could kill you but can hopefully be treated.

What follows may be an oversimplified explanation, but here goes. Since becoming selected as Republican candidate, being elected and governing for a year, Trump has managed to grab the headlines with outrageous comments and behavior. If anyone else had done this they would have been crucified politically and in the press. Trump manages to change the channel when public indignation is stoked. He is an artiste at managing the press. He is more clever than mad.

So far the president’s support is rock solid with 30-35% of the US electorate. Some are traditional Republican voters, while others probably supported Bernie Saunders and may not have voted for Clinton. The Saunders followers felt and still feel that Washington is a swamp and Trump’s boast to drain it remains attractive to them.

The 30-35%, or a portion of them, feel that they have not shared in the economic growth of the past decades. Growth has seen significant structural changes in the economy, such as the loss of manufacturing jobs and their replacement by a combination of outsourcing and growth of service sector jobs associated with rapidly evolving communications technology. At the same time, some groups have managed to shape the rules of the business game, through such things as tax breaks, subsidies and protectionism favouring certain investors and sectors. In turn, these favoured ones finance political campaigns and keep the swamp well infested.

Responsible for all this are the acts of previous Democrat and Republican administrations, which have shaped the policy infrastructure to the benefit of their traditional supporters. What we observe and experience today is the result of an evolving social, political and economic backdrop. Trump is the focus of this scene. But without him the same underlying forces would be at work leading to some probably unwelcome outcome.

Can there be a positive future given these events? Probably, but this depends on the sturdiness of the of the American political system over the next three years. Trump will have left some unexploded mines on the political battlefield. He will have governed by signing executive orders (Obama did the same thing in his second term with a Congress controlled by Republicans), and by making judicial appointments of people favouring his political views. In this sense Trump is here to stay by leaving a lasting mark on American society. It will take time and leadership to redirect the ship of state.

Seasons greetings to all.

 

What might a post NAFTA world look like?

December 13, 2017

It is time to think about life after NAFTA. Since we don’t know what the details will be, all that can be done is to try to map out the factors, other than the revised terms, which could be no NAFTA, needing consideration. For this I refer to the methodology pioneered by Ronald Coase (Nobel Prize Winner in Economics 1991) focusing on how firms organize factors of production.

 

The term supply chain seems to have displaced vertical integration to outline how firms organize the production of goods and services. In general, firms weigh a make versus buy decision for the various goods and services needed, where make versus buy may involve a cross border transaction. An aluminum smelter may source bauxite and alumina from its own operation abroad or from an independent supplier abroad (or domestically). Both involve a transaction between the two stages of production. One is an intrafirm and one an interfirm transaction. Multiply these alternative opportunities for one stage of the supply chain by all the inputs required at different stages of production, and you get a large number of decisions to be made. A firm’s management has to get input from engineers, tax accountants, shipping specialists and others in order to reach the least cost way to organize the supply chain.

 

A similar situation exists when organizing the production and use of services, as opposed to goods. Input from lawyers and accountants, for example are needed to aim for the least cost way of production and distribution for a firm’s supply chain. For both goods and services, tariffs and non-tariff barriers are ingredients to take into account, hence the importance of the terms written into trade and investment agreements like NAFTA.

 

With ongoing technological change, it has become easier and cheaper to undertake crossborder transactions for goods and services, but especially for services such as finance, technology, accounting and advertising. The service alternatives available to many firms provide a similar challenge for those monitoring the operations of firms such as tax collectors.

 

What has this all got to do with the outcome of current NAFTA negotiations? Technological change has given firms more ways to organize domestic as well as international operations. The extent to which a NAFTA with new terms will raise costs for individual firms depends on the numerous alternative ways in which the supply chains can be organized.

 

The items to focus on include the ease with which capital, labour and technology can be moved across borders before and after a new international agreement is reached. At one time, Canadian manufacturing industry was protected by tariffs from imports. This lead to US firms hopping the tariff wall by investing in Canada, and more often than not setting up plants on a smaller less efficient scale in Canada, thereby creating what was called the miniature replica effect (plants that were too small to achieve scale economies in production and distribution). With lower tariffs due to NAFTA, imports could flow across the border in both directions. Similar opportunities opened up to Canadian firms selling into the US market as a result of NAFTA. If lower tariffs are removed, firms could be forced back into less efficient (higher cost) means of production.

 

It is highly likely that the abolition of NAFTA would lead to higher production costs and prices in Canada and the US, but the harm may not be as great as would have taken place a decade ago as firms have developed more ways to reduce costs. Where do these new opportunities exist? A combination of inward and outward investment, inflow of cheap labour (temporary foreign workers), and outsourcing abroad of work are areas to monitor and study.

 

When Ronald Coase researched similar issues, he did it by visiting plants and interviewing plant managers and workers on the shop floor who made the decisions about how to produce and ship goods and buy services. Others tend to do this by examining published statistics which is a step removed from the people actually handling the goods and making the decisions. Alfred Marshall, another economist used a similar methodology in research for his major work Economics of Industry (1879).

 

Of course, the cancellation of NAFTA will raise the costs of production for certain firms and industries, but the consequences may not be as dire as some predict.