Another Indicator of Canada’s Deindustrialization
I recently came across a fascinating working paper from the good folks at the Levy Institute, which provides some new data on Canada’s rather subservient role in world commerce:
“Product Complexity and Economic Development,” by Arnelyn Abdon, Marife Bacate, Jesus Felipe (corresponding author), and Ustav Kumar.
The authors work at the Asian Development Bank.Â They used an interesting empirical methodology to rank thousands of goods according to product complexity.Â Then they analyzed the trade patterns of all countries in the world, according to the product complexity embodied in each nation’s exports.
The conclusion, no surprise, is that more developed countries export a portfolio of more complex products.Â Indeed, the process of development itself is focused on the use of physical capital and technology to enhance the complexity (and productivity) of output.Â The paper shows a very strong empirical link between product complexity and per capita incomes: again, no surprise here, but interesting to see it put so bluntly.
What was interesting was how abysmally Canada ranked according to this interesting methodology.Â For example, one section of the paper identified the 10 most complex products traded widely in the world market, and then identified the 5 largest exporters of each one.Â The U.S. appeared inÂ this list 10 times.Â The others were Japan (9), Germany (8), U.K. (7), Netherlands (4), France (3), Belgium (3), and then Sweden, Israel, Ireland, Italy, Switzerland, and even Malaysia (all with 1 apiece).Â Canada does not appear at all on this list of largest exporters of the most complex products — the only G7 country noticeable by its absence.
Elsewhere, the authors rank countries by the complexity of their exports. Interestingly, the five most complex are Japan, Germany, Sweden, Switzerland, and Finland.Â What all these countries have in common is their reliance on pro-active industrial development strategies (of various forms) to deliberately promote a larger domestic presence of innovative, high-value, globally-oriented industries.
Canada ranks as the 14th most “complex” exporter.Â Our development strategy since the Macdonald Commission in the mid-1980s has relied on openness,Â deregulation,Â and proximity to the U.S. market.Â Look at where that’s got us.
Worse yet, the analysis in the paper was based on average annual data from 2000 through 2007.Â Canada’s present slide into deindustrialization began in earnest in 2002 (when the global commodities boom and the loonie both took off, and the U.S. started into its lasting post-9-11 economic funk).Â So if anything, I suggest, this interesting paper understates the degree of Canada’s relative economic decline according to this central indicator.
I believe that heterodox economists in Canada have an opportunity to present a compelling, comprehensive,Â and timely critique of the neoliberal approach to economic development, in light of the accumulation of so many indicators of Canada’s qualitative failure: abysmal productivity growth, massive current account deficits, weak capital spending (everywhere but the tar sands), deindustrialization, and the failure of our companies to develop innovative, globally successful products.Â (Yes, yes, yes, we have RIM.Â That’s the exception that proves the rule.Â We used to have Nortel, too.)Â The Sector Development chapter of this year’s Alternative Federal Budget will discuss some ideas in this regard.Â But I suggest that collectively we can and must take this argument to a higher, more aggressive level.