Canada’s Curious Deglobalization

Everyone knows globalization is an irresistible worldwide process enveloping every economy, including Canada’s, in its market-driven tentacles.  Right?

Wrong.

In fact, since 2000, Canada’s economy has been curiously de-globalizing before our eyes.  The importance of global markets to our employment and production has been diminishing, not increasing – and at a remarkable pace.  Year-end GDP numbers for 2006, recently released by Statistics Canada, confirm this surprising trend.

 

My recent Globe and Mail column on this unexpected trend follows below.  I think it reveals a few important political points:

 

* FTAs have been a lousy way to stimulate exports (especially in recent years)

* this trend is yet another manifestation of Canada’s accelerating deindustrialization: the decline of export-oriented manufacturing is the main source of this de-globalization, along with the associated reallocation of economic activity into non-tradeables

* market forces are allocating resources into relatively LESS productive industries, which are the only ones relatively insulated from what is currently (for Canada) the destructive impact of global competition — so much for the invisible hand

* to arrest and reverse this trend would require powerful, pro-active industrial & development policy interventions — exactly the things that have fallen so out of favour in the free-trade era

 

Here is my column in its entirety:

            Everyone knows globalization is an irresistible worldwide process enveloping every economy, including Canada’s, in its market-driven tentacles.  Right?

            Wrong.

            In fact, since 2000, Canada’s economy has been curiously de-globalizing before our eyes.  The importance of global markets to our employment and production has been diminishing, not increasing – and at a remarkable pace.  Year-end GDP numbers for 2006, recently released by Statistics Canada, confirm this surprising trend.

           In 2000, Canada’s total exports were equivalent to 45.6 percent of our GDP.  That was the highest share ever, and reflected the effect of globalization on our economic orientation.  Since then, however, globalization began to unwind for us, and the export share began to fall.  By 2006 it shrank to just 36.5 percent of GDP.

            This occurred despite a historic expansion in Canada’s energy exports (especially oil, and especially to the U.S.), which almost doubled in the same time.  Non-energy exports, therefore, fell even faster: from 40 percent of GDP in 2000, to 30 percent last year.  In other words, an amount of output equivalent to one-tenth of our entire economy has been redirected away from global markets (and toward our home market) in just six years.

 

            This decline in the importance of international trade is utterly unprecedented in
Canada’s postwar economic history.  Incredibly, Canada’s economy (excluding energy) is now less dependent on exports than it was in 1994, when the NAFTA was signed.  Exports are now falling in economic importance more quickly than they expanded during the early years of continental free trade.

 

            A word of caution is required here, because this measure – exports as a share of GDP – is somewhat misleading.  It includes the value of imported commodities (such as auto parts) that are then processed and reexported in another form (such as finished vehicles).  Erin Weir’s work has been very important in revealing this problem in the usual trade/GDP statistics.  In reality, Canada’s actual production is less dependent on exports than this imperfect measure implies.  But until we get a more accurate measure of trade flows, this one will have to do.  And it captures the trend in globalization, if not its precise level.

 

            A few more statistics round out our understanding of this curious economic about-face.  Exports of services have declined proportionately as much as exports of merchandise.  About half the decline in the importance of exports since 2000 reflects falling relative prices for our exports (again, despite rising energy prices), and half is due to declining real trade.  Imports have declined, too, but only two-thirds as much as exports.

            The tribulations of Canada’s auto industry (which once accounted for a quarter of total exports) are key to this story.  Flagging auto sales account for much of the decline in our total exports since 2000.

 

            Why has the engine of globalization been suddenly thrown into reverse (at least for
Canada)?  Most of the decline in trade has occurred since 2002 when our loonie first took off – fuelled by rising commodity prices, and ratified by the Bank of Canada’s what-me-worry attitude.  This undermined Canadian exports dramatically.  Developments in the
U.S. market, which absorbs most of our exports, have also hurt – especially China’s growing share of that market.

 

            On the whole, this de-globalization is a negative development.   Canada is reallocating labour and other resources away from export industries (which are highly productive, and pay wages 25 percent above the rest of the economy) to purely domestic sectors, many of which (like fast food, retail, and personal services) feature dead-end jobs and lousy productivity.  Indeed, this de-globalization is a key reason for Canada’s abysmal productivity performance this decade, despite all the business-friendly policies we’ve implemented in the name of “efficiency.”

            And if we are concerned with boosting exports (as we should be), then it’s abundantly clear that free trade agreements are not the way to do it.  Countries like
China and Korea export successfully on the basis of pro-active policy strategies, not free trade.  These numbers prove that Canada needs to learn that lesson, too.

 

            On the other hand, there may be a silver lining to Canada’s surprising de-globalization.  We are now less dependent on the vagaries of world trade than in many years.  The flip side of this coin is that we’re increasingly masters of our own economic destiny.  The standard argument of the tax-cutters and down-sizers – namely, “globalization made me do it” – rings more hollow with every downtick in our actual trade.

6 comments

  • What? A progressive who does not instinctively slam globalization and international trade? Someone who actually allows that trade can sometimes be good?

    I think this is one of the signs of the apocalypse.

  • Thanks for the good word, Jim. My paper on the “import content of exports” is available at:

    http://www.web.net/~pef/docs/WeirImportContent.pdf

  • Globalization is a fraud by a conspiracy of multinationals to take over and control the world’s resources. We, who have fought against the FTA, have predicted all this 20 years ago and have the paper trail to prove it.

    Now the even the US military is beginning to get concerned about what will happen when global warming makes huge areas uninhabitable and our diminishing resources, thanks to our great neoclassical market economic system, are going to run out and hundreds of millions will either starve, or migrate to our “rich” countries?

    All caused by the fraudulent definition of economic efficiency and the fraudulent accounting systems used for the GDP, Growth and Productivity figures. Taught in universities all over the world as the “science of economics” at the intellectual level of Dr.Rosenberg’s racial theories.

    The US dollar is worthless and the US economy is bankrupt. Tying ourselves to that dead horse is economic and societal suicide.

    The only solution is the rebuilding of self sufficiency at all levels and helping other areas of the world with appropriate technologies to permit them to survive with the least ecological damage to local and global systems.

    Ed Deak, Big Lake, BC.

  • Jim,

    You might want to check out Stephen Gordon’s short critique of your article:
    http://worthwhile.typepad.com/worthwhile_canadian_initi/2007/04/reports_of_the_.html

  • I have replied to the discussion on Stephen Gordon’s website, most of which related to the issue of real versus nominal trends. This is similar to an issue raised by Stephen in response to work I did a few months ago on the decline in business investment spending. Here, too, I think the ratio of nominal series is most appropriate — although it’s important to disaggregate the decline into nominal and real effects (both of which are important). Here again is the link to the discussion on Stephen’s site:
    http://worthwhile.typepad.com/worthwhile_canadian_initi/2007/04/reports_of_the_.html#comment-66966878

  • It is obvious that international trade is important, as it was discovered by Ricardo almost 200 years ago, but it doesn’t include the free movement of capital, which kills local benefits.

    Also, are we talking about trade of necessary resources we don’t have, like bananas for lumber, or commerce for profits,controlled by an international corporate mafia, squeezing the last drop of blood from producers and users, as we have now?

    Why are the supermarket costs of milk products, meat and other farm products going up, when we have endless supplies and producers are forced into bankruptcy by the controllers of the “free” markets, so that agribiz corporations can grab them?

    Where are the economic studies on exploitation by artificially created, imaginary capital by the deregulated banks?

    The presently ongoing export hysteria is the result of a false and criminal economic theory for the creation of incompetence, the destruction of individual skills and creativity, survival potentials and the coralling of people into mega cities and forced reliance on middlemen enrichment.

    Some 140 odd billionaires were “created” around the world last year, by sanctioned and legalized middlemen exploitation.

    If we look at what we had in the 50s and 60s , with all kinds of small manufacturing businesses and the encouragement of the development of individual talents and initiatives spread all over the country, with products “Made in Canada” stamped on them, we should cry.

    The World Bank is nothing more than one of the executors of the neoclassical crime wave against humanity, but even their figures show our dramatic increase of resource exports, owned, controlled and exploited by a handful of multinationals, while Canada hardly receives any benefits.

    When will the present economics profession come to grips with the dire results of overcapitalization, that foreign investors bring nothing into the country and that human labour doesn’t cost anything to an economy, because it is energy neutral, whereas automation demands huge inputs of our dwindling energy resources?

    The interior of BC will be a wasteland within a few years, on account of the pine beetle disaster and increasing raw log exports, encouraged by bought and paid for governments, the lands picked up by the multinational corporate mafia and we won’t be able to do damn thing about it, thanks to the NAFTA and WTO con jobs making any preventive action illegal and against our “rules based free trade regimes”.

    Ed Deak, Big Lake, BC. listening to and watching overloaded ore trucks breaking up our roads and taking our real wealth and capital abroad. Of course all adding to our phoney GDP figures, so everything is OK.

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