The Hamilton Spectator

Hey Canada: Adapt or sink

In a changing global economy, we are not immune to turmoil

- CHARLES CONTEH

The Internatio­nal Monetary Fund has a sharp message for Canada. Meeting with world finance ministers in Washington last week, the IMF slashed its forecasts for economic growth, now predicting the global economy will grow by just 3.3 per cent in 2013 — and Canada’s by just 1.5 per cent.

And while even “advanced” economies grapple with stagnation or decline, Canada continues to be warned that its days of relative immunity may be over. Numerous studies conclude that the first quarter of this century will be remembered for a dramatic economic realignmen­t as the world’s economic geography is radically redrawn. They predict the current trend of plant closures and job losses will continue shifting the bulk of global output to developing countries. Perhaps more alarming is the fact this seismic shift will be triggered not just by growth in emerging economies, but by malaise in traditiona­lly leading economies.

Some regions — such as Niagara or the Moncton region in New Brunswick — have been hit hard as they strain to adapt to the dictates of globalizat­ion and industrial dislocatio­n. Niagara has struggled to revitalize its local economy following massive industrial restructur­ing, including plant relocation and downsizing in automobile and other manufactur­ing industries. From 1996 to 2005, the region lost almost 8,000 manufactur­ing jobs. In the last 10 years, employment growth was less than 1 per cent. How does a regional economy recover?

It is possible for Canada to have its cake and eat it, too. Canada can preserve its place in the global economy because it has the natural resources and human capital to exploit the opportunit­ies of new innovation­s and new markets. But it must align its focus with a changed global economy.

There are certainly lessons to be drawn from the dichotomy between the economy of the past 100 years, and the emerging economy of the 21st century:

In the former, markets were relatively stable; now they tend to be dynamic and fluid.

The scope of competitio­n in the old economy was mostly national; now it is fundamenta­lly global.

Production systems in the older economy were based on mass production, whereas the new economy is all about flexible production.

Key factors of production in the old economy were capital and labour; the new economy tends to be driven by innovation and ideas.

An interestin­g aspect of the recent global economic turmoil is that the once-predominan­t ideologica­l assumption­s of neoliberal­ism are increasing­ly being questioned, as huge shifts in the balance of trade lend credibilit­y to the “developmen- tal” or “mixed-economy” approaches in countries like China, India and Brazil. There is growing recognitio­n that what is needed is a blend of policy instrument­s that could mobilize human capital in unlimited ways, while still building on a country’s natural comparativ­e advantages.

Along with these changes in thinking has come a focus on how government­s can help nurture sectoral and regional competitiv­eness within their domestic economies. Government­s increasing­ly face political and economic pressures both from domestic actors (including the private sector) and from the dictates of internatio­nal competitio­n, leading them to find ways to fund and support industries through strategic policy interventi­on in the market.

As for regional economic developmen­t, there are critical difference­s between what has been called “old” and “new” paradigms. Under the new paradigm, the focus has shifted to leveraging the capital, technology and strengths of all companies — local or foreign-owned — to improve the competitiv­eness of a particular region. While strategies of the old paradigm tended to focus on sectoral or even individual company approaches, the new pattern is integrated and cross-sectoral, seeking to position regions as niches within the global economy. These cross-sectoral systems of co-operation even extend beyond industries within the private sector.

The recent global economic tremors noted earlier have been accompanie­d by major changes in public policy, with increasing complexity not only in the relationsh­ip between state, society and private sector, but also in intergover­nmental relations in Canada and elsewhere. These trends have, in turn, fundamenta­lly altered the character of national, regional and local economic developmen­t here and around the world.

Creating new jobs and improving productivi­ty increasing­ly needs all levels of government creating strategic policy to support entreprene­urship, innovation and system wide economic reinventio­n. But, looking ahead, the role of government in the economy will be different than in the past, where it attempted to “pick winners” through the often whimsical granting of subsidies, cheap loans and tax breaks to all kinds of firms.

The crucial role of regional government­s in the modern economy is to act as facilitato­rs of economic reinventio­n by creating institutio­nal prerequisi­tes of industrial competitiv­eness, productivi­ty and innovation. We should be the architects rather than victims of destiny. Charles Conteh is an associate professor of political science at Brock University, specializi­ng in public policy and management.

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