Archive for the ‘Immigration’ Category

Brexit and all that (2)

July 6, 2016

What would the reaction have been if the UK vote had been 52/48 in favour of staying in the EU? Almost half the UK population would still have wanted to leave and would have continued to lobby for such an outcome. The message seems to be that there is extensive dissatisfaction with the status quo, as there is in the US for different but related reasons. But the historical and geographical circumstances differ.

Think back to 1945 and the end of WW2. For at least the next 35 years there was a period of global prosperity with rising per capita income reasonably distributed in developed, and in an increasing number of developing countries, as well as in countries ravaged during the war. This postwar fiscal stimulus prevented a return to the dirty thirties.

Politically, the postwar period contained a number of regional wars, Algeria, Korea, Malaya and Vietnam being examples, while colonies gained independence in Africa and Asia. The Soviet and Chinese empires remained mired in their communist molds, each of which was broken but with differing outcomes. China has since experienced rapid economic growth with an economy promoting exports of manufactured goods, while Russia has depended on export earnings from energy and other natural resources. The politics of the two communist systems differ.

The next 35 years, say since 1980, saw major technological change especially  the introduction of computers and the internet affecting many industries such as communications, transportation and manufacturing as well as resource based industries. Around 2008 there was a global recession with the slowdown affecting countries, industries and occupations differently. While Gross Domestic Product grew in most countries, it did so unevenly,  in that some citizens  made a great deal of money, while many saw their real incomes either stagnate or shrink, leading to dissatisfaction and the general malaise found in both Europe and North America. Supporters of Trump and Sanders in the US, and those unhappy with the EU are a reflection of these events. Immigration and the crossborder flow of refugees and displaced persons are other factors affecting both areas in ways peculiar to their locations.

Brexit has understandably forced attention on conditions in Western Europe. Meanwhile the rest of the world has not stood still. Islamic terrorism in the Middle East and parts of Africa, Chinese naval actions in the South China Sea, Russian moves in eastern Europe, and the nuclear factor in countries like North Korea, Iran and Pakistan are also cause for concern. The list of political/economic factors could easily be lengthened, one of which is cyber-terrorism (for a future posing)..

A summary of these issues illustrates the context within which Brexit is taking place in a domestic and international setting. If the vote had been no, the context would have changed very little, with the same set of dissatisfactions remaining. For a fuller listing of these see the web report by Maudlin Economic, posting for July 2nd, 2016.

I have no idea what will happen. There are too many factors at play. It easier to forecast the result of a World Cup soccer game, a Wimbledon tennis match, the Tour de France, or even a chess game than it is to assess how world events will evolve.

In the UK, I will watch how the political parties and parts of the country respond, and how other European countries react to the British vote and what follows. It already seems that the EU Council of Ministers, if not the EU Commission made up of officials, recognize that something needs to be done. The fallout from the US November election is even more difficult to forecast.

Brexit or 2016 and all that

June 29, 2016

“Every might at six o’clock Alvar Liddell brought us news of fresh disasters. ….Never you mind the thousands of dead, I said, you put on the kettle and we’ll have a nice cup of tea.” (Beyond The Fringe skit).

What will happen next? The most accurate answer is that no one knows. We are pretty good at reporting what has happened and fairly hopeless at what will happen after some major event. In order to have forecast today’s global economic circumstances, investment advisor John Maudlin writes as follows (from his website for June 25, 2016).

“If I had come on to this stage four years ago and told you … that we were going to have 40% of the world’s governmental debt at negative interest rates, $10 trillion on central bank balance sheets, and $10 trillion worth of dollar-denominated emerging-market debt, and that global GDP growth would average only 2%, unemployment would be below 5%, and interest rates would be negative in much of the world and less than 50 basis points in the US, you would have laughed me out of the room. You would have all hit the unsubscribe button. Today’s world was unthinkable a mere four to five years ago.”

Maudlin causes pause for consideration for those who think that anyone has a good grasp of what is likely to happen in the political-economy sphere over the next five even two years. Economic and political forecasting is far less reliable than weather forecasting and that’s not saying much. The forces of globalization perhaps sums up what is happening, but that overused term needs interpretation and refinement in today’s world.

What appears to be happening?

The Brexit vote is described by some as a tectonic shift in world events. I have my doubts. In the past 110 years there have been two world wars, many smaller ones, as well as a great depression and numerous recessions. Another source of disruption is technological change. It has affected a wide range of activities with the introduction of the steam engine, trains, planes, ships, cars and more recently computers and communications technology. Schumpeterian “creative destruction” took place. Economies were shocked by these technologies, but adapted, sometimes more quickly than others, and life went on. Some people were affected more than others, but in general the standard of living in the world improved. There were winners and losers.

Coinciding with these developments world population was increasing, so that whereas median world income rose there would be more people in the lowest quartile of incomes. It’s a good or a bad news story depending how you spin the statistics. If your income is below the mean today, you are worse off than those above it, but you may be significantly better off than those below the mean twenty or fifty years ago.

With many more people, the current world economy also has more international trade and investment, and more crossborder movement of people as migrants, workers, tourists, criminals and refugees. Developments in communications technology allow people in different countries to have immediate information about conditions around the world, including through the use of social media. In this sense, the world has shrunk, not physically but in the ability of people to be informed about what is happening elsewhere, and in being able to visit and trade with each other. Just listing and mapping trade and investment agreements between countries produces a spider’s web of people and firms connecting around the world.

A similar set of linkages can be mapped by listing the supply chains of firms manufacturing goods and services. The inputs of items like cars come from many countries where part of the value-added is undertaken before shipping to another location in the same or another country. A Japanese car sold in North America may have been made there with few actual Japanese inputs.

Along comes an event like Brexit. Some view it as an unraveling of the movement towards economic and political union in Europe since 1945, and a return to nationalism and the antagonisms between nation states, especially if other countries decide either to leave the EU or weaken their ties to it. Others see it as a restoration of state sovereignty and the desire of countries to shape the social and economic environment within their borders. For reasons similar to why clubs are formed, people want to live beside other like-minded persons, as they do in neighborhoods, clubs and religious communities. Concerns are raised because state sovereignty can lead to nasty nationalism, but this is something that the promotion of human values tries to ameliorate, not always that well as the record of conflict shows.

My take is that things will settle down as people and firms view their options and make adjustments. These will occur in trade agreements, defense alliances, the way industries are structured and organized, .and the ability of people to move between countries.

What is the alternative?

If Brexit had not occurred something else would have to relieve the pressures caused by a combination of the crossborder movement of persons whether as refugees, illegal migrants or others, the debt situation outlined in the Maudlin quote, and the environmental movement.

The last does not seem part of the Brexit debate. It takes place in other circles but will likely become part of the dialogue. My take on this is that there are obvious visible signs of environmental problems such as air pollution in Asian cities, and water pollution in rivers, lakes and oceans. The plastic junk pictured in the Pacific and other oceans is a visible cause of concern with viable alternatives available to address the situation. The link between human activity and global warming is, in my mind, an interesting hypothesis but not one where the facts collected so far confirm the linkage, but that is for another day.

As far as Brexit is concerned, it will cause adjustments to be made. If the vote had gone the other way, the pressure for change would still have been there and would have become manifest in other ways. The pressure for change exists in continental European countries for reasons similar to that in the UK. In the current US presidential campaign, the desire for change is manifest by the widespread support of Trump on one side and Sanders on the other, together with a visceral dislike for Clinton by some. But for now as the opening quote said about the WW2 bombing of Britain,

“Never you mind……you put on the kettle and we’ll have a nice cup of tea.”

Orwellian advice

April 6, 2016

“To see what is in front of one’s nose needs a constant struggle” – George Orwell

Orwell provides a constant reminder to examine what is often obvious but neglected. Canadians watch political events in the Middle East and the US with a smug feeling that they could not happen here. That may not be the cased. Consider two examples.

There is a migrant-refugee crisis in the Middle East and North Africa, which is affecting Continental Europe and to some extent Russia. Nightly on television, the plight of families with small children are seen struggling to cross boundaries in search of some livable haven in Europe. My impression is that there are more men than women making these journeys.

Canada and the US feel that the Atlantic and Pacific oceans protect them from such migrants. What they forget is that North America has a similar crossborder version of these events. With an estimated 12 million illegal immigrants in the US and 500,000 in Canada, this continent has its own type of foreign refugee crisis, one which is playing out in the US presidential election.

 

A second example derives from the conduct of political electioneering in the US. What is sad and sometimes amusing is how Republican presidential candidates behave. What is not sad is why their supporters like this behavior, and the message which accompanies it. Rising inequality and stagnant incomes cause voters to support leaders who recognize these conditions and offer alternative policies. Whether these would work is not known, but some politicians promise to take action.

Is this happening in Canada? I think so, but to a lesser degree so far and in Canada’s largest city.

Rob Ford in 2010 tapped a reservoir of suburban, ethnically diverse and primarily working-class Torontonians who had felt frozen out of politics. They connected with his mantra of respect for taxpayers, rough edges and a down-to-earth charisma that seemed to reflect themselves.

As city councilor and then mayor, the late Rob Ford governed in a way which upset some people, but he represented a large swath of taxpayers who felt they had been given a rough deal. It is not what a Ford or Trump say, but why their messages have support, which is the lesson for Canada.

You don’t have to look too hard to see that Canada and the US have their own versions of the migrant crisis. And the political vaudeville in the US has a staged presence in Canada.

How to view today’s refugee crisis

September 20, 2015

 

  1. There are seven billion people in the world compared with less than two billion in 1900. Some are much better off economically and in other ways than others. The less well off try to improve their circumstances, either where they now live or by moving to better (wealthier) countries.
  2. The world is divided into countries which are artificial entities administered by governments which have established rules for who may reside in a country. They try to get other countries to agree to these rules. Most of them do, but there arise problems of enforcing the rules which deal with things like approved migrants, temporary foreign workers, tourists and refugees.
  3. Enforcement is weakened by a combination of greater information about conditions in different parts of the world (reduced communication costs), reduced travel costs, and the willingness of people to take personal risks which may result in death.
  4. The concept of a sovereign country that can enforce rules about the crossborder movement of persons is being seriously undermined, and may lead to governments attempting to control their borders by force.
  5. The conditions surrounding the present (2015) flow of refugees is sufficiently different from similar past flows that it requires new thinking. Previous empires, Roman, Ottoman and Communist for example, contained the seeds of their own destruction, so capitalism and democracy, as practiced in different parts of the world, may have similar seeds germinating.
  6. One more specific comment on today’s situation in the Middle East. Many point to the causes of unrest as arising from the Sykes-Picot agreement about the establishment of boundaries at the end of WW1 re Iraq, Syria, Lebanon, Palestine and Transjordan. Underlying this agreement was the demise of the Ottoman Empire which had lasted for around 600 years. An excellent BBC documentary (available on the Internet) examines the Ottoman Empire and is worth viewing). Past history and modern conditions appear to me to be causes of the present flows of refugees.

 

Some thoughts on refugees

September 10, 2015

 

Conflict taking place in the Middle East has led to a humanitarian crisis involving refugees attempting to reach safer and more peaceful countries, which are often unwilling or at least reluctant to take in the numbers involved. In Canada it has morphed into a 2015 federal election issue as each party tries to appeal to voters by offering more favourable treatment for the refugees. While it is an issue voters understand, I am not sure they are aware of the implications. Note, recent immigrants are often opposed to those who enter illegally or who seek entry due to political conditions taking place abroad.

The immediate conditions which created the crisis is a combination of civil war in Syria and the interaction of various religious groups, Muslim and other in the Middle east extending east into Iran, north into Turkey and south into Egypt and other parts of northern Africa. Refugees who have gone to places like Lebanon and Syria have now chosen to seek refuge in Europe and if possible North America. The latter whose borders are protected by the Atlantic and Pacific oceans do not face the conditions of western European countries to which refugees can travel on foot, by bus and train.

Issues arising from the refugee flow and receiving less attention are:

  1. Where will these persons be located and how will they be integrated into Canadian society? This is not a new concern as Canada is a country of immigrants but excessive numbers could cause political backlash. Most Canadians advocating inflows would probably be less than eager to have these persons camp in their backgarden or neighbouring park. On a smaller scale during WW2 in the UK, city families and sometimes only the children were evacuated to the countryside during the blitz. They were not always eagerly received.
  2. If the numbers are limited, how do you decide who should come and what do you tell those who are left outside in the Middle East refugee camps. Once some are allowed entry, this merely encourages others to try the same.
  3. In Europe, whole residential neighbourhoods, such as suburbs in northern Paris, consist of  foreigners who have arrived illegally as well as legally causing social and political tensions in the country. Most European countries now have and active anti-immigrant party. This may also occur in Germany.
  4. Those seeking refugee status in the west are mainly economic migrants with the funds to pay smugglers, but who would likely go back to their homelands if political stability returned. In such a case the country of refuge is merely a temporary stopover to deal with turmoil elsewhere.

This is not a case for accepting no refugees but recognition that, depending on the numbers, social and economic issues can arise. These get little attention in the debate, perhaps because political parties like to play Santa Claus at election time.

 

 

 

 

 

 

Does an ageing population matter?

March 21, 2013

The immigration lobby and others constantly refer to the age structure of a nation’s population as being a problem. They point to a growing percentage of the Canadian population like myself which is old, leaving fewer younger people as part of the active labour force. Below I look at alternative ways to address this problem other than promoting increased immigration.

Canada is not alone. Some other countries which have managed to remain small is illustrative of alternatives. The 2013 Federal Budget proposes ways of retraining the unemployed to alleviate the skills shortage.

For illustrative purposes and not a random sample, consider three countries, all of which have experienced an ageing population over the past seven years. Between 2005 and 2012, the share of the population over 65 years old increased approximately 8 percentage points (23.9-15.4) for Switzerland, 6 for Sweden and 10 for Canada.

                                    Population mil.

                                      1990     2011

Switzerland                        6.7        7.6

Sweden                              8.6        9.0

Canada                             28.0       34.0

                         

Switzerland and Sweden have kept their populations reasonably small with increases of 13% and 5% between 1990 and 2011, while Canada has increased its population 21% over the same period. There are ways to prosper economically without large increases in overall population, even if the population is ageing. What are these alternatives?

  1. First, it is useful to have a population policy, which Canada does not have. The private Population Institute of Canada is one place which studies these issues. Canadian governments and political parties have shown little interest in discussing the overall size, rather than the age structure of the population, where most assume an ageing population is a problem.
  2. Consider WW2 when men were conscripted into the forces and their places in the workforce (factories etc) were filled by women and even youths helped out on the farms – as illustrated by the British TV program Wartime Farm. Today a larger percentage of women are already working, but this could be increased if the wage/salary incentives were there. Increased wages and salaries would attract more labour of both sexes to the work force.
  3. The customary retirement age, say 65, is not fixed in stone. It can be altered in a number of ways. When I retired, my contract with the university required me to retire from the university at 65. It no longer does so for existing faculty. It did not require that I stop working at 65, and I carried on in related areas, as many do who retire from government, business and elsewhere. There is life after 65 and with it an increased supply of labour. Living longer and inadequate pensions are an incentive to continue working.
  4. Ages for receiving pensions and other benefits can be altered so that people have incentives to work longer.
  5. With communications technology, many types of work can be outsourced, not just abroad, but to people in their homes, so that both the size and flexibility of the workforce are enhanced. Some people will be prepared to work longer if the convenience of working is increased. A 40 hour work week may exist for certain service sector jobs, but as a result of people texting and talking on various devices at all hours of the day (and night), many office workers and professionals are already working far more than 40 hours a week, thus increasing the input and output of the existing workforce.
  6. Outsourcing abroad is another way of expanding a country’s workforce. An alternative is to permit the entry of temporary foreign workers which Canada already does. The number of temporary workers, especially live-in caregivers and seasonal farm workers, entering Canada each year has doubled from 100,000 a year in 2003 to almost 200,000 per year in 2011. In 2011 there were about 300,000 such workers in Canada, consisting of those who entered in 2011, and those who entered in previous years and have not departed (CIC figures as reported in the Ottawa Citizen, Nov. 6, 2012, p.5).
  7. Adjustments can be made as to whether these workers can then apply to become permanent residents. Note, Singapore has a closely monitored policy of bringing in foreign workers and requiring them to leave if they are no longer working. I suspect Switzerland may do the same.
  8. Substituting capital for labour is a way of making better use of an existing labour force. It has already occurred in many industries, agriculture being a prime example. Today, the share of the labour force in agriculture is around 2% down from 25% in 1941. The loss of manufacturing jobs in Ontario and elsewhere, such as in the automobile industry, is less due to the shrinkage of the industry and more to the introduction of automation.
  9. In the service sector, communications technology has introduced labour saving methods of production in industries such as banking and related financial services, publishing (books, newspapers and magazines), television, movies, music, online shopping, defense and security activities. More can be done with the existing number or with less people, although retraining will often be required, but this has had to happen before.

Conclusion

Increased immigration is one but not the only way to deal with an ageing population. It ignores the alternatives that exist, how this is dealt with in different countries, and what other measures can be taken in Canada. It also requires addressing what size of population Canada is attempting to achieve and the alternatives for achieving it. One possibility is tax incentives for increasing Canadian birth rates. At the same time, there is a need to examine the other consequences (costs and benefits) of an enlarged population.

Canada Through The Looking Glass – 3

November 27, 2012

Migration and temporary foreign workers

Summary

Two of the opposing views on immigration policy are first to maintain or reduce current levels, and second to increase immigration flows into Canada. Those who oppose increases point to existing levels of unemployment; those favouring increases highlight the ageing of the Canadian population and the need for younger people.

Discourse which favours either increased or reduced immigration seems to ignore relevant facts and evidence when making their respective cases. My preference would be to decide what size of population the country wants, which roughly seems to be the case for the Scandinavian countries and others in Western Europe, and to work back from there regarding policies related to immigration and the use of temporary foreign workers.

Why the need for temporary foreign workers?

Unemployment in Canada is currently at 7.4 per cent which amounts to 1.4 million people. At the same time the country is host to about 350,000 temporary foreign workers. If 350,000 of the unemployed undertook the jobs of temporary foreign workers, the unemployment rate would fall to 5 percent, which is about as close to full employment that it is possible to get. (Note, a former federal labour Minister stated that there were also an estimated 500,000 illegal migrants, many of whom had jobs, in Canada. This compares with the estimated 12 million illegals in the US.)

There seems to be a labour market problem. The available supply of unemployed workers is not able or not willing to do the work of temporary foreign workers, for example in coal mining and the agricultural sector. There are a number of ways to address this problem. If training is needed, then arrange for training which may require language as well as skills training. If it is a case of unwillingness to do certain types of work, then this may be alleviated either by increasing wage rates, and/or withdrawing government support from those unwilling to do certain jobs. There is a disconnect between having people unemployed and complaining about the presence of temporary foreign workers.

Does an ageing population matter?

The ageing of the population refers to the future increase in the share of the population that is either retired or too young to be in the labour force. It happens to countries at different times, and is used by some to argue for increased immigration (permanent and/or temporary) to make up the difference. Is it a problem and are there other ways to address it?

Much research is published on this topic, including at Oxford University and the UN. It indicates that Canada is far from alone in experiencing an ageing population, and discusses what steps, aside from immigration, can be taken to address the issue.

Globally, in 1950, there were 9.3 people under 20 for every person over 65. Only 456 months from now, by 2050, the forecast is for 0.59 persons under 20 for every person over 65. A UN study for 2009 ranks 196 countries by percentage of population 60+ years. Japan ranks first at 29.7% and Quatar last at 1.9%; Canada ranks 30th at 19.5%. For developed countries as a group the figure is 21.4% and for Western Europe 23.9%.

Aside from increased immigration, the shortfall can be reduced in different ways. One is to get people to work longer by not offering state or private pensions until they reach an older age. Another is to offer higher wages to those who are willing to work longer. Subsidised childcare and homecare for the aged, part-time work and work-at-home are other alternatives to expand the size of the active labour force. Reduced communications costs make it possible for work to be sent to the home as opposed to people travelling to work. This is a form of insourcing as opposed to outsourcing.

Countries with ageing populations seem to survive. Possibly they could grow faster with more people in the active labour force, but that may pose other difficulties. For example, if Switzerland and Singapore had no restrictions on immigration and temporary foreign workers, there would be a tsunami of people flooding these countries and the lifestyles those living there would be changed drastically.

Canada Through The Looking Glass – 2

November 25, 2012

Summary

The growth in service sector employment is due in part to the classification system used to assign employees to industries, which does not adjust for changes in industry supply chains. It is similar to the problem of deciding whether to allocate a firm to the automotive or clothing industry if it produces both products. The shift from manufacturing to services is in part a classification issue.

Outsourcing goods and services production abroad will decrease employment in Canada for that sector, but will increase employment when foreign firms buy (outsource/import) from Canadian firms as they do for Canadian wheat, energy minerals and comedians. Good paying jobs in services require education, training, and retraining for those already in the workforce. Many more goods and service activities are now tradeable as a result of lower transportation and communication costs, which alter the organization of industry supply chains.

**********

 

Are there good and bad jobs?

Public discourse on the labour force points to the loss of manufacturing jobs in Canada. These are considered good or well paid jobs compared to service sector jobs such as flipping hamburgers. What do the data show? What are reasons for these changes? The discourse leads (in a later posting) to topics such as immigration and integration through multicultural policies. First some facts:

  • Today Canada’s population is 34.5m of which 19m (55%) are in the labour force, 1.4m of which are unemployed, an unemployment rate of 7.4% .
  • By sector 2% of the labour force are in agriculture, 13% in manufacturing and 76% in services. In 1941, 25% of the labour force was in agriculture and 17% in manufacturing.
  • One of the biggest changes has been the fall in the share of employment in agriculture and the increase in services. At the same time agricultural output has increased as a result of vast increases in productivity associated with mechanization, fertilizers and improved seeds. (I don’t recall reading much about the loss of employment in agriculture, which in the past was much larger than the present day loss in manufacturing.)

“Manufacturing employment fell by 375,000 workers in 2010, bringing employment in the sector down to 1.7 million workers, 2.1% below its 2009 level.

Shrinking employment in manufacturing is a common trend in almost all OECD countries. From 1998 to 2008, the United States lost close to one-quarter (4.1 million) of its manufacturing jobs. Elsewhere in the OECD, from 1990 to 2003, manufacturing employment fell by 29% in the United Kingdom, 24% in Japan, 20% in Belgium and Sweden and 14% in France.

Canada’s manufacturing industry lost 278,000 jobs (1 in 6) from 2000 to 2007, which reduced the sector’s share of total employment from 16% to 12%. That share then declined to 10% in 2009 after the 2008–2009 recession, when manufacturers faced weaker demand and cuts to industrial capacity, resulting in the loss of 188,000 jobs.”

http://www.statcan.gc.ca/pub/11-402-x/2011000/chap/man-fab/man-fab-eng.htm

Good and bad jobs – a misunderstanding; and supply chains

1. Jobs classified as manufacturing have decreased in all high income countries. At the same time wage rates in some manufacturing have declined, due to a combination of decreased demand for labour in manufacturing in high income countries like Canada, the outsourcing of work to low wage countries, and the substitution of capital for labour such as the use of robots. The last means that there are now jobs in designing, operating and maintaining robots. Some may be classified as service sector jobs and others as manufacturing. Design and maintenance is a service activity.

2. Service employment embraces a myriad of job types, from low wage rate Tim Horton type employment, babysitting and homecare for the elderly, to design, operation and maintenance of the space shuttle and Canadarm. The 76% of the workforce in services includes a multitude of high and low wage occupations. The service classification is too embracing and a more detailed breakdown would show how job types and economic activity is changing. If some activities which were previously called manufacturing are now branded as services, then what is happening is a reorganization of the manufacturing process is.

3. There is a growing literature on industry “supply chains” which focuses on the way industry processes are split up, organized and located. Previously this was often described as vertical integration and diversification, as in the case of the aluminum industry which has stages from bauxite to alumina, aluminum and fabricated aluminum end products. The automobile industry requires metal, glass and upholstery inputs plus paint, tires, radios, GPS systems and many other inputs. All these are part of the industry’s supply chain which has to be set up and coordinated either through in-house production or through outsourcing in Canada and abroad. When services such as accounting, finance and marketing are done in-house by a firm, whose main business is manufacturing a product, the employment will be allocated to manufacturing. When these activities are outsourced to firms which specialize in performing these services, the employment is classified to services.

4. As industries reconfigure their supply chains, the allocation of employment to the manufacturing and service sectors changes, even though the end product remains the same. Part of the loss of manufacturing jobs is due to supply chain reorganization.  This sectoral shift in employment happened earlier on a massive scale in the agricultural sector, when employment in agriculture declined but agricultural output increased with the substitution of capital for labour, a form of supply chain reorganization.

“The Council of Supply Chain Management Professionals (CSCMP) defines supply chain management as follows: “Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Supply Chain Management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the logistics management activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, finance and information technology.”

http://en.wikipedia.org/wiki/Supply_chain

5. Technological change affecting transportation and communications, for example, are two reasons for the reorganization of supply chains and the need for people to be retrained to manage certain activities. Where the end result is the employment of people in firms specializing in new activities such as programming, computer maintenance and operation, the number of service sector jobs will increase at the expense of manufacturing jobs. Training may be required but the resulting service job may be well paid. This is not to deny the existence and growth of lower paid jobs in the retail sector for example, but it is not as extreme as the 76% service sector share of employment implies. (Those more familiar with Canadian labour force statistics than myself can state whether this conclusion is correct.)

What does outsourcing mean?

  1. A firm’s purchase of inputs for its supply chain can take place from another part of the firm either in Canada or abroad; or it can involve a purchase from an independent firm in Canada or abroad. There are four possibilities: from an independent firm in Canada, from an independent firm abroad, from another part of the same firm in Canada or from another part of the same firm abroad. Each firm decides which alternative provides the cheapest and most reliable course of action for the firm.
  2. Employment in Canada will be affected by the choice made by firms as will export and import data for goods and services. Wage rates in Canada versus those abroad will be one factor determining the location of operations and where purchasing occurs. The choice of whether to outsource or insource is not new. It is in part a result of where labour and other costs are lower.

In a subsequent entry, I will discuss the ageing Canadian population, the impact for immigration, and the integration of newcomers to Canada as permanent residents and temporary foreign workers.

Canada Through The Looking Glass

November 24, 2012

Today’s public discourse about Canada’s future includes the following: China in particular and Asia in general are the growth areas of the future; add Brazil and Russia and you have the BRIC countries. Over the past two decades these countries experienced substantial economic growth at home, and gained a larger share of world exports. Other features of the recent past include an increase in foreign direct investment flows, large crossborder movements of people, the introduction of the internet and its growing use publicly and privately (including social media, if you call this private).

Each country looking backward sees these forces at work and tries to project its future. For Canada, the flavors of the month for public discourse is the need to focus more on trade and other relations with the BRIC countries; to imitate the policies of Australia; to address the declining share of younger people in the Canadian population (the ageing of the population), and to diversify trade away from the US. Canada has tried the last repeatedly, with little success, and when it does occur, as is happening now, the cry is that Canada is becoming less competitive in its main foreign market.

Driving a car, while looking in the rearview mirror, is liable to result in an accident. This is what many are doing with economic and political policy making for the future. There is little other choice, but there is a choice about deciding what factors, from the recent and distant past, assist in deciding which policies make the most sense. The following views are at odds with the majority of those engaged in Canada’s public discourse, and include the following, with reasons given below:

  1. Current evidence suggests that economic growth of the BRICs is not sustainable at the present levels. The forecast that China will      have a larger economy (GDP) than the US by about 2035 is of limited relevance for policy purposes.
  2. The Canadian economy has lost manufacturing jobs and this is a bad thing which needs correction by introducing policies to promote and protect these industries. The loss is correct, the rest misleading.
  3. There is no need to increase immigration because there are other ways to address an ageing population with a declining share of the active labour force.
  4.  While integration follows immigration (permanent or temporary), multiculturalism policies have failed to aid integration and should be phased out.
  5. Australia is of limited use as a role model for Canada to follow re economic growth and policies to assimilate foreigners in Canada.
  6. Energy and other natural resources will continue to make up the bulk of Canadian exports.

How to assess the composition of bricks.

  1. China will soon have a GDP greater than the US leads to the question, so what? The statement is probably correct – some suggest China is already larger – but this is like saying a child is smaller than her mother, but one day will be larger. In the future, the mother may continue to be smarter, stronger and richer than the daughter, but may weigh less and be shorter. The metric chosen for comparison needs to reflect what is being studied.
  2. Many countries with small economies and populations are magnets for people trying to migrate to them – Norway, Switzerland, and New Zealand for example. These countries have remained small demographically and sustained a high living standard. I don’t read of many migrating to China, although within China people are migrating from the countryside to the cities. It is doubtful if these three countries could maintain their growth rates and quality of life if they permitted unlimited immigration. The same is true for Canada.
  3. A more interesting metric from the viewpoint of economic development is GDP per capita, where China is far behind that of the US and smaller high income countries, and will remain behind even though its economy is growing fast. The following quote is from Timothy Taylor whose blog, The Conversable Economist, provides much useful information, but may have a different take on the past and future:

“Mark A. Wynne of the Dallas Fed asks: “Will China Ever Become as Rich as the U.S.?” The standard answer here is that the total size of China’s economy may well exceed the total size of the U.S. economy within a couple of decades, but because China has nearly four times the U.S. population, it will take much longer for China to catch up in per capita terms.

Wynne writes: “The simplest approach is to measure GDP in U.S. dollars at 2005 prices and use 2005 exchange rates. Doing so results in estimated 2010 Chinese GDP of $3.88 trillion in 2005 dollars, or just less than 30 percent of U.S. GDP. China’s economy will exceed that of the U.S. in 2025 if it continues expanding at its past-decade rate of just more than 10 percent a year and the U.S. keeps growing at the 1.7 percent annual rate it experienced during the period. Per capita GDP allows us to compare the relative well-being of residents of the two nations. Based on the 2010 U.S. population of 309 million, per capita GDP was $42,874 last year. China, with a 2010 population of 1.34 billion, had per capita GDP of $2,893 last year, or 6.7 percent of the U.S. figure.”

“Of course, it is not inevitable that China will continue at this rapid rate of growth for the next several decades. Wynne points out that on average, countries with lower per capita GDP have faster growth rates. However, it also seems to be true that as countries reach some level of middle-income, their growth rates slow down. One explanation for this “middle income trap” is that the growth policies that help in catch-up growth do not work as well as an economy reaches higher-income levels.  Wynne offers a nice figure to illustrate how the G-7 economies caught up to the U.S. economy since 1950, at least to some extent, but then seemed to stop catching up when they hit (very roughly) 80% of U.S. per capita GDP. The figure also puts China’s growth path in perspective.”

Source: http://conversableeconomist.blogspot.ca/2011/06/will-china-catch-up-to-us-economy.html

My concern here would be that by studying Chinese economic performance for the past twenty years some have concluded that this will continue into the future. If this is not the case, then tying policies today to certain aspects of past experience may lead policy makers astray. In particular China, and other BRIC countries may have hit the “middle income trap” and/or picked the “low hanging fruit.”

The “low hanging fruit” refers to things which are easy (cheap) to do, like fruit picking from the ground without having to use a ladder (I think  this phrase was coined by Tyler Cowen.) In China’s case the emphasis has been on bringing cheap labour from rural to urban areas, emphasizing exports, and making capital expenditures on factories and public infrastructure like roads, railways, ports and airports. Domestic wage rates have now risen so that export prices are not as competitive, economic downturns in North America and Europe have shrunk export sales, and domestic consumer expenditures have not risen as yet to fill the gap.

  1. The foregoing gives rise to questions about the implications for Canada of existing Chinese growth projections. These and other concerns, but for different reasons occur in the cases of Brazil, Russia and India (to be discussed in a later posting.)
  2. The growth rate of China’s GDP is claimed by its government to be around 7.4%. The actual growth rate is probably close to zero according to China watchers. The lower estimates are based on data of electricity consumption, maritime freight shipments in and out, a recent 25% fall in Australian mineral shipments to China and increased inventories of these materials in Oz. While unemployment in China is reported at just above 4%, China watchers report that this does not include massive numbers of workers in rural areas.

In future postings about Canada Through The Looking Glass I will comment on labour, migration and multicultural issues plus the case of Australia. As always, comments are appreciated.

Unemployment and Temporary Foreign Workers

November 9, 2012

“To see what is in front of one’s nose needs a constant struggle” – George Orwell

The quotation from Orwell is a constant reminder on many scores. Today it is the fact that unemployment in Canada is higher than desired, while the country is pursuing a policy to bring in both skilled and temporary foreign workers. What can be deduced from this?

A shortage of skilled workers may be due to the need for specialized training. This can be alleviated over time with appropriate training provided to Canadians, and targeting immigration policy to attract persons with these skills. Training is the preferable route if there is a need to curb immigration flows.

A shortage of temporary workers, mainly in the agricultural and construction sectors, suggests that unemployed Canadians are unwilling to perform these tasks. There is no shortage here just a reluctance to do the work. This might be overcome by offering higher wages, but these could backfire if they make producers less competitive. An alternative would be to withhold unemployment payments to those refusing to take up available jobs. There seems to be a disconnect here if Canadian workers are able but unwilling to do the jobs undertaken by temporary foreign workers.

What do the figures show? Unemployment in October 2012 was 7.4% nationally in Canada that is 1.4 million people in a labour force of about 19 million, and a population of almost 35 million.

The temporary foreign workers, especially live-in caregivers and seasonal farm workers, entering Canada each year has doubled from 100,000 a year in 2003 to almost 200,000 per year in 2011. But in 2011 there were almost 300,000 temporary foreign workers in Canada, consisting of those who entered in 2011 and those who entered in previous years and have not departed (CIC figures as reported in the Ottawa Citizen, Nov. 6, 2012, p.5).

Thus, if 100,000 of the 1.4 million Canadian unemployed could or would fill one third of the jobs presently held by temporary foreign workers, the unemployment rate would fall to 6.8%; and if 300,000 of the unemployed filled all of the jobs filled by temporary foreign workers, the unemployment rate would fall to 5.8%. The latter is about the equivalent of full employment. Thus an alternative to maintaining the influx of temporary foreign workers is a policy which trains Canadian unskilled unemployed workers and moves them to where they are needed. I doubt much is needed for seasonal farmwork.

The need for skilled workers is addressed by the economic category of immigrants. This is refined to let Provinces nominate the skill categories required and may work, but once a person is admitted into Canada as a permanent resident, he or she can move freely to any other province.

There is another number to consider the estimated 500,000 illegal migrants in Canada, many of whom hold jobs in the service sector.