Climbing Down the Value Ladder

There’s a shockingly honest and accurate article about Canada’s deteriorating trade performance in today’s Globe and Mail by Barrie McKenna.

It notes that Canada’s trade balance improved dramatically in November (almost completely closing October’s $1.5 billion).  However, it cited some Bay Street economists lamenting that this was for the “wrong reasons”: namely, a sharp slowdown in Canadian spending and hence imports as 2010 drew to a close (more evidence that the “recovery” hit a brick wall).  [It should be noted also that even with a smaller merchandise trade imbalance, Canada maintains a huge current account deficit due to a large services trade deficit and outpayments of profits on foreign investments here.]

More interesting was the fact that the mainstream economists cited in the article are now publicly recognizing what we on the left have been arguing for at least five years: there is a strong trend toward the deinudstrialization of Canadian exports, with a growing reliance on unprocessed or barely processed resources (especially petroleum), and a decline in exports of higher-tech value-added products (like automotive products, machinery, and others).

As TD Bank economist Diana Petramala put it, “We’re not diversifying [trade] with value-added goods, which isn’t the way to achieve long-term success in trade.”  Couldn’t have put it better myself.

This climb back down the value-added ladder is no coincidence.  It directly reflects the impact of free trade agreements and a laissez-faire approach to industrial policy (or, in more modern terms, “sector development policy”) on the part of Canadian governments over the past two decades.  Clearly, Canada’s “comparative advantage” (in static, market language) rests in digging stuff out of the ground and shipping it to others for value-added processing.  So if we leave all the decisions about investment and development to those market forces, that’s exactly what we’ll get more of.  And if we’re not satisfied with that particular pigeon-hole (for obvious reasons), then we’d better be prepared to intervene powerfully.

For detailed arguments from the left about the renewed resource-dependence of Canada’s trade and its dangers, see the Sector Development chapter of last year’s Alternative Federal Budget, or my article in #82 (2008) of Studies in Political Economy (titled “Staples, Deindustrialization, and Foreign Investment: Canada’s Economic Journey Back to the Future”), or my chapter in the CCPA book edited in 2008 by Teresa Healey, titled The Harper Record.

One comment

  • Yes I was some what shocked at this grand discovery in the main stream business media. A potential crack in the whole new year baseless positivism that has been lighting the campfires of the cheerleader mainstream economists.

    I am not a liberal supporter, so don’t go nutty on me here, but I will say that it is something that the liberals should be campaigning on- they have in the past showed a lot of commitment and organizational capacity behind the sector development policies and should get credit for that. During their last reign of power showed some not so bad targeted job development dynamism, from various regional development strategies, industrial sectors and occupational sectors. At times, they did a fairly decent job at such “planning”. They actually engaged unions within such processes, which I did think back 10 12 years ago had some success.

    I would not quite give it a nod as part of what Jimbo describes above as “intervening powerfully” but it sure is a long way from the Harper hands off, ad/ction plan.

    I wonder how long it will take for that trade data to sink their teeth into the employment numbers?

    Add those job losses onto the public sector cut backs and it surely could be a negative space that will not bode well for recovery.

    I guess the bigger question is, if there is a bit of a surge in the American economy, how will it transition north of the border with the dollar surging. How will it effect investment and inter and intra- corporate transactions.

    I am sure the old multiplier has got to be thrown out as we are in a whole new cost space with the surging dollar.

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