Preparing for a rapidly changing world; Globalization will have many winners and losers
The Toronto Star
By David Crane
Globalization is changing our world faster than we can imagine. But are we prepared for this kind of world?
This past week, Finance Minister Jim Flaherty set out his agenda for the future.
Don Drummond, chief economist of the TD Financial Group, set out his view on what should be done to ensure a better future.
And University of Toronto business dean Roger Martin set out the views of the Ontario Task Force on Competitiveness, Productivity and Economic Progress.
They all have some good ideas, and some bad ones. Getting rid of the capital tax that penalizes growing businesses and designing a tax system that encourages investment are good ideas.
Martin’s enthusiasm for bilateral free trade deals, and Drummond’s more reluctant support, is an example of a bad idea. It makes little sense in a world of global supply chains where almost nothing is made in one country anymore to riddle the world with preferential trade deals. Multilateral trade liberalization is what counts.
And there are some critical omissions. For example, if the quality of our population is so important for our future, why do they ignore early childhood development, the single most important initiative in ensuring a high-quality population?
But what’s really missing from all of these messages is analysis of how the fast-changing global environment will impact Canada. What really matters is how changing technology, plus the availability of skilled and low-cost workers in countries like China and India, is dramatically altering the world’s economic geography.
According to some top economists, what we call offshoring is changing how the world produces goods and services in such a fundamental way that it constitutes a new industrial revolution.
Richard Baldwin, a British economist, argues that globalization has gone through two great unbundlings. We are just entering the second great unbundling.
The first great unbundling was triggered by falling transportation costs, as well as the costs of moving capital and ideas. It goes back to the late 19th century but has accelerated in the past 30 to 40 years as so much manufacturing activity shifted to Asia. These falling transportation costs, along with falling trade barriers, meant companies no longer had to make goods close to where they were consumed.
But it is the second great unbundling that concerns us now. Rapidly falling communications and co-ordination costs end the need to perform different manufacturing and office tasks within the same facility or enterprise. This started in factories but has now spread to offices.
In the first unbundling, competition was between firms and industry sectors. Rich countries, for example, accepted the decline of unskilled labour-intensive businesses, such as clothing and toys, and concentrated policy on strengthening knowledge-intensive sectors with highly educated workers.
But now, says Baldwin, we seem to be headed in a new direction, where competition is not based just on companies or sectors, but on tasks - and these tasks cut across industries.
For example, India may have an advantage in software and systems that affects all industries in Canada, from banking and insurance to government services and airline reservations.
Likewise, China may have a competitive advantage in science that leads to offshoring in research and development in many different industries. So it is individuals and not just companies that are exposed to global competition.
This could mean that lower-skilled tasks, such as hairdressing, retail sales clerks and driving a cab cannot be offshored, but the jobs of engineers, computer programmers, radiologists and accountants can be. This turns upside down the idea that the rich countries like Canada will lose the low-skill, low-pay jobs and concentrate on the high-skill, high-pay jobs.
As Baldwin puts it, “it is probably not true that the biggest adjustments will be made by low-skilled workers as it was in the past,” adding, “it is much easier to offshore a financial analyst’s job than it is to offshore a shop assistant’s job.”
So how do we prepare Canadians for a much different world? This is the real issue - what are our best chances to ensure Canadians have good jobs in the future world?
We are not paying enough attention to how globalization is changing our world and what it will mean for us.
Flaherty, Drummond and Martin all have some good and not so good ideas. But none of them offers an explanation of what globalization really means for Canada or how we end up as winners in a period of radical change that will have many winners but also many losers.
David Crane’s column appears on Sunday. He can be reached at crane @ interlog.com by email or by fax at 416-926-8048.
