Published in the Telegraph-Journal 2nd November 2012
It has been five years since the financial crisis began to unfold. The global economy has yet to recover and governments in Europe continue to fail. People in countries around the world have been asking where jobs and growth will come from. They are losing patience as the political solutions that appear to have worked in the past seem to be wholly inadequate to the task. The revolution may not yet have come to politics, but it may already have arrived in economics.
Political leaders could once have counted on government to kick-start the economy into growth. Tax reform and investments in education, roads and infrastructure arguably are good ideas and are necessary. But these measures in themselves will not resolve the deepest and most intractable unemployment problem that the world has faced since the Great Depression of the 1930s.
In Brussels, a recent European Union summit on growth and jobs featured an agenda focused on familiar public policy goals: infrastructure investment, broadening the single market, promoting research and innovation, enhancing manufacturing competitiveness, establishing the correct regulatory framework, developing a tax policy for growth and harnessing the potential for trade. The summit also featured a special discussion spotlighting potential measures to boost employment and social inclusion and adopting initiatives to tackle youth unemployment.
These are praiseworthy goals, as are Obama’s job growth objectives in the run-up to the November elections, but these goals and objectives reflect policies that Europe and the U.S. have been attempting to implement for the past four years. In that period, European unemployment has risen steadily and the U.S. economy remains mired in uncertainty and flat growth. Why should government fiscal stimulus suddenly address the anxiety over the need for jobs when it apparently has failed to do so for more than four years?
The answer for fiscal conservatives is that the failure of the economy to respond adequately to fiscal stimulus, mostly in the form of various quantitative easing measures, is a clear indication that even the concept of government intervention has been a failure.
The reality is that there are two separate foundations for economic growth and job creation. New job creation and economic activity depends largely on the private sector where the key role of government is deregulation and public expenditure reduction. It is still not clear how much government policy can do to inspire the creation of the Next Big Thing, even under ideal conditions.
Restoring jobs lost by firms in industries that have lost their global competitiveness is important as creating new jobs in new industries. In Canada, some of the firms that have experienced challenges in recent years are in the natural resources sector where a combination of factors — foreign competitors’ lower costs, foreign government subsidies and a Canadian dollar that recently has risen in value from 65 cents — has conspired to place real pressures on many of these companies.
Since 2008, more jobs have been lost in manufacturing and other traditional industries. These jobs did not disappear because of inadequate corporate strategies, poor planning or lack of financial controls. They vanished primarily because of weakened housing demand in the U.S., a collapse in consumer incomes, falling asset prices and other elements of macroeconomic instability and disruption. These jobs will not return because of deregulation and government cost-cutting.
While job creation is associated with deregulation, job recovery depends on the supportive actions of government and jobs may not return to the same companies or even the same industries. The purpose of macroeconomic stimulus is to pull the economy out of recession and preserve jobs in existing industries, which in turn helps to strengthen new businesses. While the economy remains weak, excessive reductions in government spending will serve only to deprive new business of revenues. For government to receive support for public policy, the public must be aware of these apparent contradictions.