Hey Canada: Adapt or sink
In a changing global economy, we are not immune to turmoil
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.