No reversing the fourth industrial revolution

By the 1950s, that figure was down to 15 per cent and, today, it is less than two per cent. And, yet, agricultural output today is more than three times what it was 80 years ago. Clearly, agricultural employment fell because technological advances and scale economies allowed for greater output with fewer employees. This freed up the labour that allowed for the industrialization of Canada and fuelled the development of the service sector.

The same process is continuing today with the decline i n employment in goods production. New technologies, automation and robotics are allowing for higher productivity and output with fewer workers. Canadian factories are about five times more productive today than they were in 1955. This means more output per worker, not necessarily fewer workers.

Indeed, improved productivity is essential to compete internationally, which is itself essential to maintaining or growing a business. In other words, without increases in productivity, the business itself and all of the associated jobs can be lost. This is the creative destruction process at work. Specific jobs lost to automation are gone. Exporting companies who closed their doors in the wake of the global recession in 2007- 09 are unlikely to return. Rather, surviving companies will expand, and other, new companies will grow in their place.”

This is where Donald Trump comes into the picture, and not just him but other political figures who have been so adept at tapping anxieties and fears by blaming immigrants and globalization for their financial and economic problems.

The stock market and bond market are repricing for years of reflationary growth ahead. I remain skeptical, but will keep an open mind.

But what unnerves me most is this: Mr. Trump got elected for one reason only. It was not energy independence. It was not border security. It was not the wall. It was not tax cuts. It was not deregulation. It was his antitrade stance, pure and simple.

Now people can say, “Oh, well, he means ‘ fair’ trade, not that he’s against ‘ free trade.’ ” Please.

Let’s not waste t i me on semantics. Trump has threatened to raise tariffs and to renegotiate trade deals on his terms. This is what resonated most.

He is not president- elect without having taken the battleground manufacturing states of Michigan, Ohio, Wisconsin and Pennsylvania.

What these regions share is the highest import penetration rates in manufacturing. And the pledge over and over again that Trump would bring lost jobs to these states clearly resonated, and without t hese f ormerly blue states, he does not win.

This is not his core base — but this is the base that took him over the top. And they are expecting him to pursue his “America First” mandate, the one with the protectionist bent.

If Trump fails to placate these states, who obviously believed Hillary would just resort to her old free- tradewheeling ways if she had emerged victorious, then he indeed will be at risk of being a one-term president.

Trade protectionism is part of the platform that investors have put on the back burner, at least for now.

There is perception, or at least promises, and then there is reality. The perception is that Trump will bring back lost factory jobs to the U. S.; the reality is that this simply is not going to happen.

In periods of sluggish economic growth and widening income and wealth disparities — which widen further under the Trump fiscal plan, as an aside — it is easy to play the blame game.

So globalization has become a dirty 13-letter word.

But free trade is a junior partner in this story. Technology is the real killer — automation, robotics, the shared and digital economy.

We are going through the fourth industrial revolution right now, creating social turbulence in its wake, and there is nothing Trump or anyone can do to stop it.

It would be like trying to stop the advent of the automobile in the late 1800s to support the horse and buggy i ndustry, or Maytag and Westinghouse household products in the 1930s to prevent job dislocation in the once-booming domestic service industry.

You can’t stop progress, it’s that simple.

Look at the U. S. energy sector as one example of how tech-driven it has become in terms of identifying where the oil is and the extraction methods — American energy production is at a threedecade high and yet with 30 per cent fewer workers today than was the case back then.

You can certainly use fiscal policy to cushion the blow for those most negatively impacted, instead of impeding the flow of goods and labour, which people like Trump, Marine Le Pen and the “Brexiteers” certainly applaud.

First, manufacturing employment in the U. S. has stabilized just below nine per cent for the past six years. The share went from 31 per cent in 1950 to 28 per cent in 1960 to 25 per cent in 1970 to 20 per cent in 1980 to 16 per cent in 1990 to 13 per cent in 2000 and then to nine per cent in 2010.

I find it fascinating that this share went down about as much during the glory years of Ronald Reagan when nobody seemed to care as it did since China joined WTO 15 years ago.

Here’s the rub: the manufacturing share now looks to have stabilized.

Second, let’s not forget that over the past three decades, there has been a boom in U.S. manufacturing productivity — expanding at around a 3.5-per-cent annual rate.

This is the overriding story — technological progress. Creative destruction. It is not all about predator competitors in other countries.

In f act, t he declining trend in manufacturing employment is hardly a U. S. phenomenon.

In the U. K. and Australia, the manufacturing share of employment has plunged two- thirds in the past four decades and by half in Germany, which is renowned as an industrial powerhouse.

S o ut h Korea did go through a renaissance when it was a low- cost producer, but the manufacturing share of its employment base is down to 13 per cent from 28 per cent just 15 years ago ( it was 12 per cent in 1950).

Brazil’s manufacturing share of employment in the past three decades has dipped to 13 per cent from 16 per cent.

China is now higher cost, it is no longer low valueadded. It also is experiencing offshoring to other locales ( Vietnam, Bangladesh), and the country is shifting its orientation towards services.

Manufacturing employment in China is down by almost two million since 2013 and the share of total employment there has stagnated near 29 per cent now for the past four years; at the same time, U. S. manufacturing employment is up by 200,000 since the end of 2013 ... go figure.

Funny how this statistic never made it to the election campaigns. I mean, if you can’t blame China or Mexico, who is left?

I’m not trying to downplay this issue of how many Americans feel left out. That certainly was one of the lessons learned from the election.

But the blame- game on global trade worries me. Protectionism worries me. Isolationism worries me. Blame games worry me. And my biggest worry is that Donald Trump is fighting yesterday’s war since it is not at all clear that America is losing share in global manufacturing any longer. A trade war with China is really the last thing the global economy needs.

To e ven s uggest t hat things with America are horrible when trend growth in manufacturing productivity over the last decade is 2.1 per cent is ridiculous — this speaks to a high degree of competitiveness.

But the problem (and this is where Bernie Sanders’ success comes into play) is how the gains from this productivity growth are shared — not just capital versus labour but also within the income cohorts of labour.

So the problem has been, and remains, how i nadequate government policy has been in general, to smooth the transition, especially for the disenfranchised and those without the skill sets needed to fill the record number of job openings, in this accelerating age of technological change.

Pointing the finger at globalization carries the risks of making a very critical policy mistake.

Yet, if Donald Trump doesn’t carry out his protectionist threats, he risks being a one- term president given how he scraped by in those states who have been led to believe that we are just a few tariffs and a few watereddown trade deals away from recreating those previously lost jobs — jobs that have primarily been lost through productivity.