Category Archives: Globalization

Job Creation is a Two-Part Challenge

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.

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Filed under Globalization, Job creation, Uncategorized

Winning Countries Will Be Stable Ones

By Peter Lindfield, published in the Telegraph-Journal 10th August 2012

We read again and again that the world economy faces considerable uncertainty in the short term. Will the United States be able not only to forge a path to renewed growth but also create prosperity for a majority of its citizens? Can the eurozone not merely avert disaster but emerge to be attractive to business in this generation and the next? Can emerging economies maintain fiscal stability through the economic slowdown without imploding?

Answers to questions such as these will determine how national economies will evolve over the coming decade, but longer-term, more ominous challenges are also beginning to emerge. Increasingly there are concerns that the world may experience a slowdown in economic growth greater than any period since the end of the Second World War.

Regardless of how advanced economies handle their current difficulties, many will continue to be plagued with high debt, low growth rates and fractious internal politics. Europe will need enormous energy, focus and discipline to rebuild its tattered union. In the U.S., increasingly strident political battles between Democrats and Republicans will continue to paralyze economic policy until well beyond the outcome of the November elections.

In advanced economies, increasing levels of inequality and aging demographics will fuel political discontent in the form of unemployment raising regional inequality. As aging nations increasingly focus on domestic challenges, they will become less involved internationally. They will also be less willing to support multilateral arrangements that they perceive as damaging to their interests. This will make it more difficult to reach multilateral agreements on environmental, security, intellectual property and human rights issues.

This global arena will be corrosive to consistent growth. It also increases the likelihood that there will emerge deep disparities in economic performance among nations because some will be much more adversely affected than others. Picking winners and losers will continue to be difficult, but nations that will be more successful will share three characteristics.

First, they will not be encumbered by high levels of public debt. Not only is high government debt a serious drag on government’s role in underwriting economic growth, but it also paralyzes fiscal policy and inevitably leads to severe distortions in the financial system. Governments distracted by debt-reduction measures are disinclined to make the critical investments required for long-term structural adjustment. Some emerging economies have begun to manage their public debt, but their private sectors have borrowed heavily. Since large-enough private debts tend to become public liabilities, prudent government fiscal management may not provide a sufficient buffer.

Second, successful nations will not be over-reliant on the global economy. Their engines of economic growth instead will rely on a balance of domestic and export-led demand. Countries that rely excessively on export markets and global finance to fuel their economic growth will be at a disadvantage. That means countries that are able to combine a reliable domestic market and a prosperous and stable middle class with powerful export-led industries will have an important advantage.

Third, successful nations will be democracies with healthy political institutions and robust social contracts. Democracies with historically strong social contracts will outperform authoritarian regimes because they possess established and legitimate systems of conflict management. These systems provide platforms for consultation and co-operation among opposing social groups that are essential in times of turmoil and uncertainty.

Tomorrow’s winners will be those countries that today are in a position to make public and private investments to fund infrastructure and social assets. These countries will emerge from the current slow-growth period with strengthened international trade advantages that can underpin strong domestic growth. Placing these investments on tomorrow’s opportunities are shrewd decisions today.

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Filed under Fiscal Policy, Globalization, Social contract