Archive for the ‘Canada’ Category

What’s special about infrastructure spending?

April 9, 2017

Two economic topics in North America are the return of manufacturing jobs and investment in infrastructure. The first is not going to happen because the nature of manufacturing has changed as automation takes hold. It is similar to what happened to agriculture when tractors and combine harvesters replaced manual labour and horse drawn equipment. Output grew but using a different combination of labour and capital. More farming output is now produced with far less labour, while more labour goes into producing the tractors and harvesters for the way farming is now undertaken. The same is happening today to manufacturing with more labour going into activities like writing software to run the machines which produce goods in place of manual labour.
Infrastructure covers a wide range of items like roads, bridges, railways, airports, harbours and communications facilities. These all require continual maintenance. Failure to do this on a regular basis escalates the the cost of restoring the infrastructure, while the quality of the services provided such as road and rail safety diminishes. The alternatives are spending today to maintain infrastructure or spending more tomorrow. If the latter is chosen not only will the cost be higher, but the service provided by the infrastructure will be of lower quality and impose cost on others. For example, unfilled highway potholes cause the deterioration of motor vehicles.

Much government activity is associated with expenditure on infrastructure such as schools, universities, hospitals, defense facilities and equipment. Failure to replace and renew equipment for the Canadian navy and airforce creates a saving today while placing a burden on future generations. The same is generally the case for other areas of infrastructure spending.

When a government announces that it will increase infrastructure spending, it is frequently the case that it is going to remedy the failure of previous governments to maintain facilities in good working order. Home owners know only too well what happens to buildings if items like roofs and windows are not repaired and woodwork is allowed to deteriorate for lack of painting. It represents a failure to maintain the value of family infrastructure. Governments forced to increase this type of spending are doing what all governments should be doing, but often fail to do on a regular basis. Far too much attention is often given to the cost of new capital expenditures as opposed to the future ongoing costs of maintaining the capital in good working order.

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The Shattered Mirror

February 8, 2017

 

 

The Shattered Mirror – News, Democracy and Trust in the Digital Age proposes increased bureaucratic input and public funding for a sector rocked by new technology.

What Uber has done to the taxi business and Airbnb to accommodation, has invaded all forms of media including news reporting and distribution. Daily newspapers are haemorrhaging advertising revenues and many have been forced out of business, or to adopt different means of distribution. Many other sectors are affected by technology such as education with the offerings of online courses. Existing suppliers fight back to maintain at least some semblance of the status quo, often lobbying governments for increased support. Ultimately new technology usually wins and a new breed of entrepreneurs rise to fill any gaps to provide the desired goods and services.

The process is part of Schumpeter’s stages of creative destruction which benefits consumers, and those producers who adapt. Those who lose appeal to the government for support. Such is the case for The Canadian Public Policy Forum’s latest report The Shattered Mirror, News, Democracy and Trust in the Digital Age which examines how technology has affected traditional news media. It argues that the public is poorly served by the new digital news providers and that democracy is at risk with, for example, the reporting of fake news.

Since the 1950’s numerous reports have examined the Canadian media including news. They include:

1951 Royal Commission on National Development in the Arts Letters and Sciences (Massey Report).

1961 Royal Commission on Publication (O’Leary Report)

1970 Special Senate Committee Report on the Mass Media, (Davey Report)

1981 Royal Commission on Newspapers (Kent Report)

1982 Report of the Federal Cultural Policy Review Committee (Applebaum Hebert Report)

2006 Senate Report on the Canadian News Media (40 recommendations and 10 suggestions).

 

All recommended measures of protection and support to which The Shattered Mirror adds its contribution. Written by a person who has had a distinguished career in journalism, this almost assures that the recommendations will include further government support for the industry. It succeeds in this regard. It would be the same if dairy farmers were asked for advice on supply management or academics on university funding.

The report contains thirteen proposals. Many require additional administration of funds and rules which in total would require both added bureaucratic overhead and time spent by firms to qualify for the funding.

Two proposals provide the tenor of the report and the tortuous process that would be required to comply with the provisions.

  1. In the proposal to extend provisions of Section 19 of the income tax act to other media. Producers of eligible news will be required to show that: (Recommendation No.1).

At least 75 percent of editorial payroll and 75 percent of their eight most highly paid employees are Canadian individuals or personal-service companies.

At least five percent of the company’s revenue generated in Canada is spent on editorial operations, with a significant amount for civic-function journalism.

 

  1. Creation of a fund managed independently from the government (Recommendation No.5).

Creation of the Future of Journalism and Democracy Fund would provide financing for digital innovation, especially in its early stages, and be directed at those operators who produce civic-function journalism at the national, regional and local levels. To qualify, enterprises would have to be Section 19-compliant and deliver original news on digital platforms that are refreshed at least once a week. The fund would cover a maximum of 75 percent of the cost of a project. The ability of applicants to attract support from other partners would factor into the grant decision.

 

Proposals regarding the CBC fail to note shrinking audiences especially for English language television. CRTC Annual Monitoring Reports (available online) show the CBC’s share of the English language television market fell from 13.2 percent in 1994 to 7.5 percent in 2000 and to 5.1 percent in 2012. While government financing has remained around $1bn, this segment of its mandate has been shrinking, so that on a per viewer basis the funding has been increasing.

If the CBC is to survive, consideration should be given to it being funded only by government and not selling commercials. The latter puts it in competition with private broadcasters, allowing it to use public funds to buy programs like major sporting events. In the UK and Australia, the public broadcaster is funded almost entirely by government, with far less angst being created between public and private broadcasters. A government owned broadcaster, if one is needed, can devote its attention to its public service mandate and have a far lesser concern for audience size.

 

The Shattered Mirror focuses on the importance of civic-function journalism defined as the coverage of elected officials and public institutions, from legislatures, judicial and quasi-judicial bodies and city halls to school boards and supporting public services. That is important, but in a globalized world coverage of what happens outside Canada is increasingly important. Much of this can be accessed online from websites and blogs run by people whose judgement I personally respect in different news related fields, and superior to many traditional news sources. In broadcast media, my preference is for The Agenda on TVO and the PBS Newshour. In both instances the anchors are informed but do not insert their own opinions, unlike what prevails with the CBC and CTV.

There is much more to comment on in the report. As it stands it argues the case for supporting more of the same with increased bureaucratic input. It deserves further discussion.

Services are everywhere, some well and some less well paid

February 4, 2017

Economic policy is being driven by the belief that good paying manufacturing jobs are being lost and replaced by lower paying service sector jobs, and that the manufacturing jobs can be recovered by protectionist trade policies and subsidies.
It is the case that the share of employment classified as manufacturing is declining and that of services increasing, but the reasons and implications need to be understood. This phenomenon is occurring in all developed countries. A similar change took place in earlier times, when the share of employment in agriculture declined while agricultural output increased. The loss of agricultural jobs was offset at least in part by growth in other parts of the economy, especially manufacturing. What needs understanding today are overall changes in the economy and how jobs classified as manufacturing and services are recorded.

Employment data by firm and industry are collected on a plant and enterprise basis where the enterprise may consist of several plants. Each plant typically employs a combination of manufacturing and service sector personnel. The former include assembly line workers and the latter accounting, legal, secretarial and others. While the latter appear in national statistics as employees in the manufacturing sector, they are actually providing service-type employment.

If a firm decides to contract out the accounting and legal work to service sector firms which specialize in these activities, then manufacturing employment declines and services employment increases. Overall employment may remain unchanged.
(By the way a similar phenomenon occurs when plants and firms are allocated to industries. If a plant produces mainly automobiles but some bicycles, it will be allocated for reporting and data collection purposes to the industry where most of the production occurs, in this case automobiles. The bicycle industry will in turn under-report production of those bicycles produced in the automotive industry).

The loss of jobs in manufacturing can occur because manufacturing firms reorganize their operations by outsourcing service sector jobs. The reverse may be true if they insource certain services. The former case may be one reason for the loss of manufacturing employment. As technological change occurs, manufacturers are continually changing their production processes. The use of robots for humans on assembly lines will reduce the number of assembly line manufacturing workers, but increase the number of workers required to service the robotic equipment, positions that did not previously exist.

The services-manufacturing dichotomy means that a worker who uses a wrench on the assembly line is classified as a manufacturing employee, while a worker who programs a computer to instruct the robot to do the same work is a service worker. The distinction between what is considered manufacturing and services work can be messy.

Magnus Lodefalk, who has studied this issue for both Sweden and other industrialized countries, notes the following: (Review of World Economics (2014) 150:59-82)

Manufacturing in industrialised countries is intensifying its use of services, and there are indications that the share of services in total turnover is rising. On the input side, the ratio of bought-into value added services has increased since 1995 across all manufacturing industries, and in-house services production has also expanded. The manufacturing sector increasingly employs mathematicians, engineers, computing professionals and business professionals. Services used or produced by manufacturing firms include research and development (R&D) services but also extend to knowledge or intangible capital services more generally, as well as to services such as telecommunication and transport. On the output side, the share of services in total turnover also has grown since the mid 1990s for some countries. Regarding export, Lodefalk studies Sweden and finds that manufacturing’s service exports have more than doubled between 1998 and 2006. There are arguments for the ability of services to support exports in manufacturing. Services may help firms to overcome costly informal barriers, such as asymmetric information, in international trade. Changes on the demand side in industrialised countries are also likely to favour manufacturing firms that increase the services content of their offerings.”

 

 This is not to ignore the simultaneous growth of low paid service sector jobs in food and beverage operations and homecare businesses among other. What is happening is the simultaneous growth of highly paid skilled jobs in manufacturing and some services, and the growth of low paid service sector jobs in certain areas. The medium skilled jobs are in decline or growing slowly. A TED lecture by David Autor (Dec.2016) is worth viewing as it sets out how the skill structure of the labour force changes and is always changing.
The implications include the need for retraining existing members of the labour force and assuring that young people, new entrants, get the right skills. There is nothing new about such advice except that the speed of change may be faster now and educational and training institutions slower to provide the required skills. People can expect this to happen throughout their working lives.

Clumpout one day to go

November 6, 2016

Be grateful to Trump for the favour he has bestowed. Regardless of the outcome, along with Bernie Sanders, Trump has mobilized about half of the US electorate to tell us that the American political system, at least in Washington, is malfunctioning and in need of major repair. No matter who wins on November 8th, that toxic situation will remain and is now visible to all.

The next administration will have a difficult time of governing depending on the membership of the House and Senate, and appointments to the Supreme Court. The elected members no longer belong to two parties, at least on the Republican side, where the Tea Party gang is willing to shut down the government by failing to authorize funding for government operations. And for Democrat supporters there are now two branches of the party, represented by those who in the primaries supported Clinton and those who supported Sanders….in a sense there are now four parties not two.

My guess, with one day to go, is that Clinton will win the presidency, and perhaps the Democrats the Senate but not the House. But the electorate has a way of surprising the country as shown recently, for example, by Brexit in the UK, and the large number of Liberals elected in the last Canadian federal election.

In an election where both candidates are unpopular, some voters will stay at home. Democrats who don’t vote will be giving support to the Republican candidate, and vice versa for stay at home Republicans. For this reason, pre-election polls are frequently wrong, and because voters don’t want to reveal their choices. While the outcome is uncertain, what is clear is that Washington is in bad need of a makeover, and that while this happens Canada and other countries are likely to be sideswiped, especially as trade liberalization is no longer a popular goal.

 

Clumping, 23 days and counting, to what?

October 15, 2016

General Franco and Chairman Mao climbed to power through force. Mussolini and Hitler took the political route of getting elected and then abolished the institutions which gave them power. Mussolini did it first and provided Hitler with a role model. Once in power, Hitler was better able to control events, while Mussolini both lost control and was defeated militarily prior to the demise of Hitler. Mussolini ruled constitutionally from 1923 to 1925 and then set up a legal dictatorship, if that makes any sense. All these events took place in the past one hundred years and many in the past 82 years of my lifetime. Could any of this happen again?

Chairman Trump and some of his supporters sound very much like those who supported Hitler and Mussolini. They are willing to give him the benefit of any doubts, and there are many, that they have in order to bring about political and economic change. They don’t respect the political mechanisms in the US, at least federally, and don’t believe they can be changed without exploding the Trump bomb. These conditions in the US are, in some ways, like those previously in Italy and Germany.

An account of how the US political system became and remains toxic is found in a book by David Daley, Ratf**ked: The True Story Behind the Secret Plan to Steal America’s Democracy. It is reviewed by Elizabeth Drew in the New York Review of Books, August 18, 2016 (available online). Canadians have not reached, nor appear to be on track to reaching a state of political paralysis, and yet are considering changing their federal voting system. Why? There is no unbiased system, and a new one will merely change the biases with the possibility of encouraging paralysis in the future.

What future for news?

October 2, 2016

My gold standard for news reporting use to be the BBC. While still highly rated, PBS Newshour for news and Charlie Rose for interviews now top my list. In Canada, I tune into Steve Paquin and The Agenda on TVO for interview programs. The CBC and CTV are not priorities for me. Although both have some excellent individual reporters, the news programs have political slants. What the Newshour team, Rose and Paquin have is a thorough knowledge of the issues, a willingness to present opposing viewpoints, and to suppress their own opinions on the issues under discussion.

 

Their competitors in the print but especially radio, TV and online media focus, for commercial reasons, on making the news entertaining in order to attract audiences. It’s understandable, but it comes at a price for the quality and authenticity of the news content. Fox News in the US and Sun Media in Canada are illustrative of the adulteration of news and informed views on particular issues.

 

The internet is another means of delivering news content. There are now umpteen web sites offering both general and specialized news stories and opinions, so that audiences have an overwhelming number of options including Tweets and Facebook. These range in quality from good to mediocre to awful, with an increasing number in the last category. So how does the reader/listener/viewer choose? Consider the situation.

 

An audience member works with one ironclad constraint…. there are 24 hours in the day, and only a fraction of these will be allocated to consuming news along with sports, recipes, videos and competing items of possible interest contained in various media. When someone suggests downloading another App, my reaction is why? It may be useful, such as say Uber, but it is likely to divert me from other priorities that I have, and which have to be fitted into the 24 hours. Each has to make their content decisions.

 

What role does the government have in providing news? Each year the federal government allocates about $1bn to CBC/Radio Canada some of which is used for collecting and distributing news and news-type programming in both official languages for radio and television. The public broadcaster also sells advertising which puts it in competition with commercial broadcasters, a continuing cause of tensions. Note, the BBC and the Australian Broadcasting Corporation use a different funding model.

 

The circumstances which gave rise to public broadcasting no longer exist, so that the Canadian federal and provincial governments will have to decide its future. There is no shortage of news sources for Canadians and in my view no need for public support. The audience share of CBC English and French language television programming has been declining, so that unless it is servicing some essential (in someone’s view) market niche, the funds could be better spent elsewhere. What Uber has done to taxi services, the internet has done to distributing many types of media content.

Where are Snowden and Assange when you need them?

September 18, 2016

It seems that the emails of important people can be hacked but Trump’s income tax returns remain secret. There must be a bevy of officials, lawyers and accountants who have seen them and know what they contain. Perhaps they are waiting for an opportune time to release the details. These may be more informative than Dr Oz’s medical reports of Trump.

 

Only Gilbert and Sullivan or Monty Python could do justice to what takes place daily in the presidential election. Neither candidate is liked or respected by a big chunk of the US electorate. Who gets fewer dislikes may become the winner. The election appears not to be about the candidates and their policies, but about a widespread feeling that all is not well in American society.

 

Trump offers action leading to change, and although the action may be unrealistic, voters like the idea that someone argues the need for change. Clinton has been around Washington for a quarter century, and while she may recognize change is needed, as Bernie Sanders did, she is less believable. And trotting out Bill may not be helpful …….a consummate politician but often on a glide path that gets him into trouble.

 

Canadians reside smugly north of the border unaware of what might happen, and governed by Donnie and Marie. Canada could be sideswiped by whoever wins. If Trump, there will be a neophyte politician who will try to run the country like the businesses he may have owned. If Clinton, there will likely still be a Republican oriented House if not Senate, and governing will remain the challenge that it has been recently for Obama. Measures like the CETA and the TPP will be difficult to pass, which in my view will be a mistake as trade and investment are the ingredients for improved living standards. Ok, I am aware that the benefits have not always been equally shared, but protectionism guarantees lower living standards.

 

The final days of the campaign are likely to contain the determining factors, and what has gone on before will be forgotten, at least by the voters, if not by the reporters whose livelihood depends on reporting the news and are in intense competition with social media.

Clumping Along

September 16, 2016

Sixty days to the US presidential election presents a period of uncertainty. Whichever candidate wins, the issues that propel this election will remain. Countries including Canada are far from immune from the outcome and may well be sideswiped by what follows.

My observations at this point are:

1. The US has a first class economy and a third class political system. A danger is that the latter will undermine the former. Respect for the economy is shown by the fact that many if not most people want to hold US dollars, visit the US whether to work there as legal or illegal migrants, do business and study there. It has some of the best universities in the world.

2. The political system was designed to be first class and to address the weaknesses of the Westminster system that prevailed at the time of independence when George III reigned. It has become sclerotic as voters and politicians have learned how to play the electoral process and the steps needed to pass and implement legislation. Elizabeth Drew describes this well in The New York Review of Books August 16, 2016, “American Democracy Betrayed”. I recommend that it be read.

3. Clinton and Trump or Clump, the two candidates reflect different aspects of this political train wreck. Clinton is viewed as having been for the past quarter century an insider and part of the forces that shaped the malfunctioning politics. Trump is seen as a political outsider without the Clintonesque scars, but someone who benefited from the gravy that the political system produced and still produces for some. Thus there are many voters who don’t want to support either candidate and may turn to the two third party candidates.

4. While the winning count of 270 electoral college votes seems to favour Clinton at this stage sixty days out, the voters could upset these predictions. They did that when it came to the Republicans choosing their candidate Trump, out of seventeen contenders.

5. After election day the issues that gave voters the Clump choice will remain, and until a way is found to revise the underlying conditions the US political system is likely to stay either broken or severely damaged.

6. Many Canadians seem to think they are separate and isolated from Clump on one side and Brexit in Europe. I doubt this is the case. How this will all work out is a mystery to me.

Grazing at the public trough

August 25, 2016

Making life easy and rewarding for servants of the people remains with us, although social media may today make it more embarrassing for MPs and government appointees. In February 1960, the board of directors of the Bank of Canada unanimously decided to increase the pension of the Governor of the Bank, James Coyne, from $12K to $25K. His salary at the time was $50K, or around $400K in today’s dollars. At the time, the Governor was in a controversy over monetary policy with the Conservative government headed by John Diefenbaker with Donald Fleming as Finance Minister. Coyne resigned at the time the pension decision was made. He died in 2012, age 102.

I have been unable so far to find on the web the names of the board members at the time, but this should be possible. They apparently had no difficulty in providing what some might consider a generous settlement out of public funds. Scott Gordon, then professor of Economics at Carleton, lead the criticism of a number of Canadian economists of the Governor’s monetary policy decisions which lead to his resignation.

Where will the jobs be? (2)

July 12, 2016

Those who subscribe to a “lump of labour” view believe that there is only so much work to be done, and when, for example, machines substitute for what was previously done by humans there is nothing more, or something less, for workers of any age, sex or race to do. I and many others don’t believe this is the case, but there are serious questions about what displaced workers will do and, for example, whether they can be retrained for other jobs.

In thinking about this question, consider the following, in no particular order:

  1. In countries like Germany and Japan, the population is ageing and the concern is for a future workforce shortage. This explains Germany’s welcome for refugees and displaced persons from the Middle East and Africa. Japan so far is reluctant to dilute its native population with foreigners, and will reap the consequences if it fails to do so. As people are living longer, the present retirement age can be extended providing partial relief, but there is a limit.

 

  1. Unemployment due to the need to adapt to changing technology – the Schumpeterian case of creative destruction – that is the introduction of different ways to produce familiar as well as new goods and services, gives rise to the need for retraining. This is easier for some, say younger folk, than others, but is an option that almost always occurs in similar circumstances. How fast workers can adapt is an issue. For example, a change from manual work to engaging with digitized production processes may require more of a generational change than a simple retraining course. If the change is too slow or virtually impossible then other measures, preferably of a temporary nature, can be tried.

 

  1. Young people have the flexibility to aim for employment in areas where demand is growing in both low and high skilled occupations, and to take courses accordingly. It is pretty obvious that in higher income countries there is strong demand for service sector employees in food and other types of retail operations. The job vacancy signs are posted in store windows as well as in help wanted electronic and other billboards. No, they don’t pay well, frequently offering minimum wage but they exist. Some taking these jobs may decide to experiment themselves by starting their own businesses.

 

  1. There is an active market for caregivers for old people (like myself) and for children in rich and poor countries as well as for healthcare workers. Where available nationals won’t apply for these jobs, temporary or permanent foreign workers are often hired. The work is there. The locals don’t want to do the jobs. In general, employment is increasing in the service sector in middle and upper income countries. There is no shortage of work, often a shortage of the type of work people may be willing to do.

 

  1. The educational and training paths may be out of whack with available job opportunities. A higher percentage of the population in upper income countries now go to university than previously, but the available jobs may not need degree training. Often a rewarding career in the trades benefits from attending community colleges where skills required from emerging technologies can be acquired. Past emphasis on the three Rs may now need the addition of skills like computer programming and apprenticeship-type programs. (I learned the basics of Fortran programming in the 1960s, and whereas I never followed this up and could not earn a living at it, I know what is involved. It may now be a necessary and rewarding skill in many industries subject to the use of computers.)

 

  1. There is considerable research available that addresses the question of where future job opportunities lie. I will refer to these in a future posting.

 

None of the foregoing suggestions involve rocket science. They do suggest ways of looking at the future labour market and its required skills. They do indicate a willingness to be adaptable and engage in life-long learning, something that recent technology facilitates. In my view, there is no fear of a finite lump of labour syndrome.