Globalization – End of an Era?
In my last post, I talked about some key indicators that showed we are in or heading towards a global recession. I ended the post stating that public opinion seems to shift towards getting governments to focus on the domestic economy. China is focusing inward on their growing domestic economy led by Western-style consumerism. Frontrunners of both US political parties want to spend money on infrastructure to get people working again and nullifying existing trade agreements. Could all this be the end of globalization?
Who benefits from Globalization?
I believe only multi-national companies were the main benefactors of globalization. Trade agreements like NAFTA and Chinese currency manipulation, shifted manufacturing jobs where it was cheap – to Asian countries and Mexico. The IT service sector and software companies used skilled and educated workers from India. Some Canadian IT workers worked in the US under NAFTA because of a low Canadian dollar. Alberta and Ontario hired Mexicans to fill low-wage fast food jobs that Canadians didn’t want. With lax foreign investment rules, China and other countries invested tens of billions of dollars in Canadian resources like the oilsands. Tax havens like Ireland saw major corporations set up international headquarters there, with little benefit to the Irish citizens. If you were a multi-national corporation, the bottom line was very profitable at the expense of countries affected by globalization and many trade agreements.
Welcome to the 21st Century
Now that commodities are at its lowest level, multi-national corporations are shifting their focus to the 21st century. Intellectual Property is the major and high valued commodity now. 12 countries around the Pacific Rim, including Canada and the US, signed the Trans-Pacific Partnership. Better known as TPP, it is a trade agreement representing 40% of global trade. The agreement created by corporations -oops I meant member countries – with a stated goal.
to promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections.
The agreement is littered with provisions that help corporations extend Intellectual Property (IP) and patent terms that will increase the cost of medicine and stifle other innovations. Media Companies will have greater enforcement of copyright works. Corporations may sue governments that stifle their profitability i.e. enforcing environmental regulations. It also includes a provision that weakens privacy laws.
There is no benefit for Canada. Canada was late coming into the partnership and only did so after the US bullied them into changing some of our existing laws. Canada sat on the sidelines as other countries negotiated side deals and any opposition that Canada had fallen on deaf ears.
The IP chapter, which was one of the most secretive and exposed by Wikileaks, is the most controversial. Micheal Geist, a law professor at the University of Ottawa specializing in technology law; has posted a great series on the Trouble with TPP on his blog.
No Free in Free Trade
As I mentioned earlier, two of the frontrunners Bernie Sanders for the Democrats and Donald Trump from the Republicans are opposed to TPP and other free trade agreements. They feel these agreements eroded manufacturing jobs in America. A recent case in point is Carrier Air Conditioner (owned by United Technologies) moving its manufacturing plant in Indianapolis to Mexico. Check the video below on the reaction when an executive announces to the 1,400 employees of the move.
Cent Yygur, host of The Young Turks breaks down the video and discusses what’s behind the decision.
I agree with Cent. I would also add that out of the total GDP that America produces, just 3% is producing tangible goods. The majority is financial services which have no value except for the 1% of the elitist.
As for Canada, we should be the wealthiest nation in the world. We have an abundance of natural resources. Not only does Canada have one the largest audited oil resources in the world, but also natural gas, potash, gold, uranium, and forestry just to name a few. We got swindled like every third world country that has natural resources into giving them up for next to nothing.
Let’s take oil for example. We get some of the lowest royalty rates for our oil, particularly in Alberta. Some argued that increasing royalty rates would put Alberta in the same path as Venezuela back in the 1990s. They increased royalties to fund social programs and as a result, all the oil production pulled out. This is all fear mongering. What is happening in Alberta with its economy is a correction in an overheated oil boom. Current projects at near or that fully developed are still running. Oil companies and countries like China invested tens of billions of dollars. They are not going to just stop and leave. It would cost more to halt production then it would decrease production at a loss until oil prices recover again according to Martin King of FirstEnergy Capital.
Just a side note on what it is happening to the economies of Canada’s three major oil producing provinces – Alberta, Saskatchewan and Newfoundland. The Governments of these provinces continues to make the same mistake by tying in revenue from oil royalties into their budget, instead of socking away the revenues into a Sovereign Wealth Fund. Norway is a great example of this and their fund is almost a trillion dollars. The Norwegian fund allows 4% of the funds to be pulled out each year which is almost equal of Alberta annual combined revenue. It is ironic since the Norwegian fund as based on Alberta Heritage Fund. I wouldn’t blame the devastation happening in Alberta on cheap oil prices, the Saudis or the Alberta NDP government. The Alberta’s Progressive Conservatives’ bad policies and reckless spending for the last couple of decades are to blame.
Rebirth of Protectionism
As I mention earlier, China is focusing inward on their economy and the leading frontrunners in the US presidential nominate races want to nullifying any existing trade agreement. The EU is crumbling as countries wanting to pull out the union, and want to bring back protectionism and focusing on their own country.
According to Gerald Friedman, an economics professor at the University of Massachusetts; Bernie Sanders platform would bring back a productive economy back to America by making a huge investment in infrastructure, increase stagnate income levels, free college education and introducing single pay healthcare like Canada. You can find summary analysis of this here and here or download the full analysis here. There has been a lot of counter arguments regarding Friedman’s analysis in the press. Most of it political rhetoric with no through analysis of their own.
The only caveat I see is that bring back manufacturing jobs will not be the same as it used to be. We are in the digital age and most manufacturing jobs can be done with robotics or other advanced automation technology. Even Chinese workers are being replaced by robotics. Foxconn expects robots to take over 70% of the factory work in the next few years. Even Kia is building fully automated factories for some of their vehicles. Traditional manufacturing jobs are a thing of the past. Where the real jobs are and there is a the shortage of; is workers to build robotics and automated systems and programming coders to write the software to power them.
In Canada, corporations will continue to pillage our resources and at a faster rate as the Canadian dollar is at its lowest level in over a decade or two. Exports from our manufacturing parts sector are seeing a boom because of the low dollar, but at what cost? The cost of food and other things we depend on is going higher and higher. If Donald Trump or Bernie Sanders are elected President, how will their protectionism agenda effect Canada?
Time to Make Canada Great Again
If Hilary Clinton becomes President everything remains status quo and the political establishment stays the same. The current Trudeau federal government can continue focusing on immigration, carbon taxing and making the economy worse. Free Trade including TPP will live on and wage disparity will continue to widen. We will continue doing what we have been doing by allowing corporations to become richer and richer at the lower expense of our resources.
I can’t believe that we export our costly oil and buy it back at a premium. To add insult to injury, the BC and Quebec governments, including the new Trudeau federal government; derailed any attempts to have pipelines constructed. China would have been the biggest importer of our oil and gas is now making deals with Saudi Arabia and Iran. Ironically, Christy Clark, the premier of British Columbia and the Trudeau government are in favour of approving TPP, the worst trade deal in Canadian history. From the East, a few Quebec mayors raised opposition to a pipeline being built across their province. They sighted that rail is safer despite the tragedy in a town of Lac-Mégantic and the derailment in West Virginia. CN and CP Rail has been adding more containers to a single run beyond the safety levels to reduce costs and keep up with the demand.
Now if we had smart politicians in the last 40 years, we would have built more Oil Refineries in Canada and have exported value-added oil, fuel, and gas. It still amazes me that Western Canada buys gasoline refined in Texas from Alberta Oilsands, only to be shipped back as gasoline at a much higher price than it would if we refined it ourselves. Gas would be cheaper resulting in reduced fuel cost to move consumable items. It is a win-win situation. We need some kind of National Energy program that all provinces can benefit – especially Alberta, Saskatchewan and Newfoundland, unlike the late Trudeau’s NEP. The Notley Government should form an Energy Crown Corporation and take over the lands from oil companies that have laid off and have closed their operations. Yes, they would have to borrow money, but oil prices will rebound when a worldwide correction takes place. At least, the province would enjoy the profits and keep people working. The Federal Government would oversee completion of pipelines across Canada.
As I mentioned before, Canada is largely a resource based country and we depend on revenues from those resources. In the next six months, as commodity prices continue its downward spiral, Canada’s economy will be the worst it has ever been. The current Trudeau government doesn’t have the bold leadership to get us out of the economic mess we will face and I didn’t think they ever will. History shows with Obama, just because you have a pretty face and want to be sensible doesn’t mean you are a good President or Prime Minister in get things done. We need a leader like Ralph Klein, Mike Harris or FDR and JFK. These politicians got things done whether their policies were popular or not. We need a leader with a passionate tone of Donald Trump, not his rhetoric; with the sensibility of Bernie Sanders.
America is starving for a revolution as globalization hasn’t worked out what it was touted to be. They want jobs, higher income, affordable healthcare, political reform, fair taxation and social equity. They also want a political leader that will stand up to multi-national corporations. Although political influence by corporations is not as bad in Canada as it is the US, it still exists in all levels of Canadian governments. The CRTC is a primary example as the committee comprises former cable and telco executives. I think Canadians want drastic changes and a revolution. The evidence can be seen with the NDP majority win in Alberta and Trudeau’s Liberal majority win in last year’s federal election. Will the new governments make things better? Maybe or maybe not. Both governments are inexperienced. Inexperience is not necessarily a bad thing. As long as you learn from past mistakes and the desired passion in taking chances that benefits people not just a few as the established political parties have done in the last 40 years.
Globalization benefits no one. Supporting local businesses results in more jobs and higher wages. By spending money in local small businesses will thrive by providing more employment and better wages and benefits. We also need to revert to short patent terms that would spur more competition and innovation. Canada should also institute value added components or services such as refined oil so that manufacturing goods and resources are exported at a higher price and Canadians can be proud that our products and services are Made in Canada.