The Nasty Society: Throwing Away Decades of Progress
British economist David Ricardo’s 200 year-old concept of Comparative Advantage (more accurately it’s about opportunity cost) argued for a country to specialize in a good, or goods, which could be produced more cheaply, leaving other nations to focus on other goods that could be produced at lowest cost. By specializing in a range of goods across countries, the result is the emergence of free trade with reciprocal benefits for all participants.
To appropriate Ricardo’s theory and apply it to a latter 20th Century–and now 21st Century–context is for the foolhardy and the naïve to swallow. Yet that’s precisely what the majority of economists have done, compounding their errors by arguing against Western governments’ stimulus programs post-Great Recession of 2009-10. Brighter lights, such as respected economists Joseph Stiglitz and Paul Krugman understand the perils of engaging in simplistic arguments concerning free trade and combatting government deficits in an age of intractable high unemployment.
Today’s advocates of Ricardo’s comparative advantage apparently are not aware that “back-in-the-day” (circa 1800) governments were not heavily subsidizing manufacturers (eg, Brazil’s and France’s aircraft industries), or engaging in currency manipulations (ie, China) or union-busting as a means to attract employers (aka Governor Scott Walker of Wisconsin). David Ricardo’s simple world 200 years ago didn’t possess the inter-connected issues and numerous unpredictable events that characterize today’s economy and society, not to mention a global trade network of dozens of participants.
Your correspondent worked for the Government of Canada for three decades, mostly as a senior labor market economist, but whose last nine years was with the Department of Industry (cousin to the U.S. Commerce Department). From serving the Prime Minister’s Advisory Council on Science & Technology to subsequently working on competitiveness and innovation issues, your correspondent was surrounded by those who had drank the Kool-Aid on the marvelous benefits of outsourcing work to far-off countries, under the guise of David Ricardo’s comparative advantage. My contemporaries, and scores of esteemed economists and experts, argued that countries such as the United States, Canada and Great Britain should embrace knowledge jobs (more on that in a moment), leaving dirty manufacturing work and repetitive administrative jobs to developing countries.
During this period (2000-2010) Canada’s manufacturing sector continued to take hit after hit, all the while Canada’s prime ministers and cabinets (Liberal and Conservative) mostly slept.
Now, where is Canada’s economy, and in particular the manufacturing sector?
Going nowhere but backwards.
And of course this links directly to Canada’s persistent unemployment problem.
A lot of hyperbole has been generated by economists, politicians and policy wonks on the fuzzy concept of knowledge workers.
Coined by 20th Century management guru Peter Drucker in 1959, the expression knowledge worker took hold in the nineties and 2000s as the offshoring of manufacturing and service sector jobs (eg, data processing, computer programming and call centers) accelerated.
Compounding the pressure on North American workers has been mechanization and automation, improving efficiency and productivity. Indeed, the recent trend of some manufacturing work being repatriated to the United States from China has some people excited. However, this repatriation is accompanied with the qualification of increased automation in manufacturing plants, along with workers being paid less than before jobs were offshored, combined with the decline of unions (notably in the US). The biggest beneficiary of pulling manufacturing jobs out of China has been Mexico, with its proximity to the US (and Canadian) market and possessing a skilled labor force.
The knowledge worker concept is elastic, stretching out as far as one wishes. If you’re not using your hands (specifically, not getting them dirty) but supposedly doing a job that requires some measure of thinking, then you’re eligible to be a knowledge worker.
What gets lost in the discussion on the location of jobs (and their “quality” and associated benefits) is the role of the corporation. Once upon a time, US companies were able to legitimately espouse their patriotism and what they contributed to American society and culture on top of providing good paying jobs. That’s no longer the case. Corporations now have no substantive allegiance to America or Canada or Great Britain or Germany, etc. They’re multi-national entities that are geographically dispersed and that use offshore tax havens to re-direct profits. Maximizing shareholders wealth is the mantra. Interestingly, it was retired General Electric CEO Jack Welch who strongly criticized this short-sighted mindset. Check out this short interview on this topic with Welch.
The genie can’t be put back in the pseudo free trade bottle. In the past few years, much effort has been made by a wide variety of countries to form regional trading blocks, which is in theory anathema to David Ricardo’s concept of free trade. The 19th Century guru, held to high esteem by his following flock of economists, is being undermined by the politics of relationships and convenience. However, Ricardo’s world never conceived of trade sanctions due to nuclear proliferation, human rights abuses or illegal forced occupations of neighboring states.
The geo-political world is rapidly becoming both a complex beast beyond human comprehension and its ability to competently respond effectively. The hard work of Canada’s and America’s founders and settlers, combined with those who worked tirelessly (most of whom were immigrants) to build world class manufacturing industries is now largely forgotten.
What will be the legacy of today’s political and corporate leaders?
Failure is an option here. If things are not failing, you are not innovating enough.
– Elon Musk (Founder of Tesla and SpaceX)
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