By Stephen Gordon - Tuesday, March 12, 2013 - 0 Comments
So Dutch consumers are roughly 10% better off than they would have been, but companies have been able to compete only by paring their profit margins.
“The Dutch disease,” The Economist, November 26, 1977
Talk about burying the lede. That sentence appears at the end of the 10th paragraph of the much-referred-to but rarely read article in The Economist that coined the phrase “Dutch Disease.” In the normal course of things, a 10 per cent increase in consumers’ purchasing power would be the stuff of banner headlines, but, for some reason, The Economist chose to hide that point deep into the story and qualify it with a caveat about how hard it had become for companies to compete. (The answer to that, by the way, is: “So what if producers are struggling?” What really matters is consumer welfare.)
My take on the Dutch Disease debate can be summed up as follows: Why are we calling it a disease?
The Economist was reporting on the difficulties Dutch manufacturers were having in the wake of the discovery and exploitation of natural gas reserves in the Netherlands in the 1970s. The parallels with the recent Canadian experience are obvious: the surge in the prices of oil and other commodities that began in 2002 has been accompanied by a fall in employment in the Canadian manufacturing sector. (Here I’m going to concentrate on the period 2002-2008; the recession complicates the analysis of the last four years.)
No-one can plausibly deny that the increase in resource prices during 2002-2008 led to a reduction in manufacturing employment. But this shift was part of a labour market adjustment that produced broad-based increases in wages and incomes — and broad-based increases in wages and incomes are good things.
The rest of this post is based on a presentation I gave at a the symposium on Dutch Disease organised by the University of Calgary’s School of Public Policy held in Toronto on March 6-7. (It was there that the University of Alberta’s Andrew Leach drew my attention to that remarkable quote.)
By Stephen Gordon - Tuesday, February 12, 2013 at 7:00 AM - 0 Comments
The debate over “Dutch Disease” tends to focus almost entirely on what happened in Canada between the oil price surge in 2002 and the onset of the recession in 2008. Employment in the manufacturing sector fell by more than 300,000 during this period, but this number is almost never put into context.
Firstly, the share of people employed in manufacturing has been on a secular decline in industrialized countries for at least the last forty years:
It’s worth pointing out that this trend was established several decades before Chinese manufactures appeared on world markets.
Here are manufacturing employment levels, scaled so that all countries are equal to 100 in 1971 :
Canada is the only country in these graphs where manufacturing sector employment is still on par with what it was forty years ago in absolute terms. (The bump you see in the Canadian data from, roughly, 1995 to the late 2000s will be the subject of an upcoming post.)
The most important thing to note is that the manufacturing employment cycle has been going on for decades. We’ve seen this before, and we’ll doubtlessly see it again.
Update: Data source is the FRED data base at the St Louis Federal Reserve.
By Aaron Wherry - Wednesday, September 26, 2012 at 5:27 PM - 0 Comments
The Scene. The day’s prize for Inventiveness in Partisanship goes to Joyce Bateman, the Conservative MP for Winnipeg-South Centre, who, in standing to ask the Foreign Affairs Minister about the appointment of a new ambassador to China, somehow managed to accuse the NDP of proposing a “job-killing carbon tax.”
Any backbencher, having been duly awarded one of the highest honours a group of voting-age citizens can bestow on another, can stand and publicly proclaim the party line. But only the truly exceptional can do so in reference to something completely unrelated. Bravo Madame. You have established an impressive standard that will be difficult to match. Not that we should underestimate your colleagues. Especially when they might have three years to match or exceed your accomplishment.
For sure, you should probably settle in because this joke is probably going to take at least that long to tell (or, put another way, it will probably be for at least that long that the Conservatives will continue telling it). Continue…
By Aaron Wherry - Friday, September 14, 2012 at 12:28 PM - 0 Comments
Thomas Mulcair talks to the Toronto Star.
“We’re always going to have a resource-based economy. We always have had and always will have . . . We also had a very strong secondary sector. We built up manufacturing. Those were choices that were made,” Mulcair said in an interview Thursday. “We’re killing off that balanced economy and it’s really having devastating effects in regions like southwestern Ontario,” he said…
And he pinned the blame on a Conservative government he says hasn’t done enough to preserve manufacturing jobs. “Because of their belief that governments have no role in maintaining a balanced economy, they have completely ignored what is happening,” Mulcair said. “They can put out all the arguments they want but there’s a reality out there that since they came to power, we’ve lost several hundred thousand good-paying manufacturing jobs,” he said.
By Aaron Wherry - Friday, September 7, 2012 at 2:17 PM - 0 Comments
Mark Carney takes on the Dutch Disease debate.
Some regard Canada’s wealth of natural resources as a blessing. Others see it as a curse. The latter look at the global commodity boom and make the grim diagnosis for Canada of “Dutch Disease.” They dismiss the enormous benefits, including higher incomes and greater economic security, our bountiful natural resources can provide. Their argument goes as follows: record-high commodity prices have led to an appreciation of Canada’s exchange rate, which, in turn, is crowding out trade-sensitive sectors, particularly manufacturing. The disease is the notion that an ephemeral boom in one sector causes permanent losses in others, in a dynamic that is net harmful for the Canadian economy.
While the tidiness of the argument is appealing and making commodities the scapegoat is tempting, the diagnosis is overly simplistic and, in the end, wrong. Canada’s economy is much more diverse and much better integrated than the Dutch Disease caricature. Numerous factors influence our currency and, most fundamentally, higher commodity prices are unambiguously good for Canada. That is not to trivialise the difficult structural adjustments that higher commodity prices can bring. Nor is it to suggest a purely laissez-faire response. Policy can help to minimise adjustment costs and maximise the benefits that arise from commodity booms, but like any treatment, it is more likely to be successful if the original diagnosis is correct.
By Luke Simcoe - Thursday, August 30, 2012 at 6:04 PM - 0 Comments
3D printing has a dark side
Last month, someone on the AR15 firearms message board boasted that they used a 3D printer to create a working .22 calibre gun. “It’s had over 200 rounds through it so far and runs great,” they wrote. Known as HaveBlue, the user claimed the gun was printed in plastic and cost a mere $100 in materials to manufacture.
“To the best of my knowledge, this is the world’s first 3D printed firearm to actually be tested, but I have a hard time believing that it really is the first,” they added.
3D printing, also known as “additive manufacturing,” is a term for building objects by laying down successive layers of material. A 3D printer starts with the bottom layer, waits for it to dry or solidify, and then works its way up. The process can vary depending on the printer and the material; most 3D printers work with things like plaster, polymer or resin, but some can even make things out of metal.
*If you haven’t watched a 3D printer video yet, watch this one:
By Econowatch - Wednesday, August 22, 2012 at 12:01 PM - 0 Comments
Bank of Canada governor Mark Carney was the first Canadian central banker to speak in front of the country’s auto workers today. Here’s the text of the speech he delivered to the Canadian Auto Workers union’s annual conference in Toronto:
By The Canadian Press - Wednesday, August 22, 2012 at 11:46 AM - 0 Comments
TORONTO – Don’t look to the loonie as the biggest problem facing Canadian exports,…
TORONTO – Don’t look to the loonie as the biggest problem facing Canadian exports, Bank of Canada Governor Mark Carney said Wednesday in his first-ever public address to organized labour.
The country’s top central banker is speaking in Toronto at a gathering of the Canadian Auto Workers union. It is not only Carney’s maiden public address to a labour group, but also the first time any Bank of Canada governor has made such an overture.
Carney addressed a persistent complaint of those who put the blame for weak exports squarely on the shoulders of the strong Canadian dollar. The manufacturing sector and auto industry have been particularly hard hit in recent years.
He noted Canada’s export performance was the second-worst in the G20 over the last decade, with only nine per cent of exports going to fast-growing emerging markets such as China and India.
But he sought to dispel the notion that the high loonie bears the bulk of the blame.
By From the editors - Friday, May 25, 2012 at 11:10 AM - 0 Comments
Mulcair’s references to Dutch disease obscure his environmental criticisms of the oil patch
Federal Opposition Leader Thomas Mulcair says he doesn’t regret bringing up the issue of whether Canada suffers from “Dutch disease.” He might be the only one. The newspapers have been so full of this phrase for the last few weeks that the very sight of it must make most of us want to grab and assault the first person we can find named Van Der Whatever.
It would be some comfort if the Dutch disease debate had been handled impeccably in the press, but it hasn’t been. Dutch disease is a theoretical phenomenon in economics that occurs when high prices for raw resources attract capital and labour away from advanced manufacturing, rebalancing an economy in a hard-to-reverse, welfare-diminishing way. If the resource boom is strong enough to jolt the currency upward, that’s a double whammy for the manufacturers, to the degree they are dependent upon exports.
But a resource boom only becomes a “disease” if the economy doesn’t react with equal efficiency when the resource runs out or the price declines, because the manufacturing sector has shrunk and its markets can’t be recaptured easily. The concern is that there are beneficial “spillover” effects of having advanced manufacturing that are more easily lost than recouped; if a country loses a computer-chip factory, for example, it might not be able to open it again later, because the closure discouraged young people from getting the kind of engineering education you need to make and market chips.
By Aaron Wherry - Wednesday, May 9, 2012 at 9:30 AM - 0 Comments
Stephen Gordon considers the question of Dutch Disease.
The appreciating Canadian dollar has little to do with the decline in manufacturing; employment has been declining worldwide for decades. Changes in relative prices are more important. Producer prices for manufactured goods have increased by about 15 per cent since 2002, while the Bank of Canada’s commodity price index has more than doubled. Any attempt to promote manufacturing exports by depreciating the dollar is doomed to fail, since a lower Canadian dollar will also benefit resource exporters. Capital and labour will always move from sectors where prices are soft to sectors where demand is strong, regardless of what the exchange rate is doing.
By Aaron Wherry - Monday, May 7, 2012 at 9:00 AM - 0 Comments
Thomas Mulcair worries that we’re suffering from Dutch Disease.
NDP leader Thomas Mulcair said Saturday that, because of the way it raises the value of the Canadian dollar, other parts of the country are paying a price for the prosperity enjoyed by natural resource sectors such as the oil sands in Alberta. “It’s by definition the ‘Dutch disease,’ ” Mulcair said Saturday on the CBC Radio show, The House.
The “Dutch disease” is a reference to what happened to the Netherlands economy in the 1960s after vast deposits of natural gas were discovered in the nearby North Sea. The resulting rise in its currency was thought to have caused the collapse of the Dutch manufacturing sector, and Mulcair said the same thing is happening in Canada. “The Canadian dollar’s being held artificially high, which is fine if you’re going to Walt Disney World, (but) not so good if you want to sell your manufactured product because the American clients, most of the time, can no longer afford to buy it.”
Dalton McGuinty has expressed similar concerns. The OECD has also raised the issue. Jack Mintz says Dutch Disease isn’t happening here. Stephen Gordon questions the concept. The Current considered the diagnosis in March. More research here and here.
By Tamsin McMahon - Thursday, April 5, 2012 at 12:02 PM - 0 Comments
Automakers are flooding to the Deep South for cheap, union-free labour
When German executives from Volkswagen descended on Chattanooga, Tenn., last May for the grand opening of their $1-billion plant, they pointed to the warm Southern hospitality and the cultural amenities of life on the banks of the Tennessee River as key reasons for deciding to build their first North American auto assembly shop in 20 years on the site of a former wartime-era munitions factory in the Deep South.
Auto industry analysts pointed to other reasons the automaker chose Chattanooga: the region’s high unemployment and strong anti-union sentiment, which promised both a massive labour pool willing to work for cheap and more than half a billion dollars in government incentives—nearly $200,000 per worker. Luring Volkswagen, which promised to hire nearly 2,000 workers for as little as $14.50 an hour, was deemed a huge coup for the city of 170,000. Since the plant opened, the city’s unemployment rate has dropped from nine per cent to 7.3 per cent. Volkswagen-branded shirts became the city’s most coveted fashion item.
Volkswagen is merely the latest foreign automaker to target the southern U.S. for expansion into the North American market. It’s a trend that is profoundly reshaping the American manufacturing landscape, pushing the country’s auto belt south from Michigan and Ohio into the cotton fields and cow pastures of Alabama and Mississippi in search of cheaper labour and fewer costly union battles. It’s not the first time the industry has seen a shift to the South, as automakers decamped for places like Kentucky, Tennessee and Missouri in the 1980s in search of cheap labour. But the present-day move appears both more profound and more lasting. For every job created by foreign automakers, mostly in the South, the Detroit Three have shed six jobs, nearly half in Michigan, according to the Center for Automotive Research. It’s a push that now threatens the future of high-paying manufacturing jobs in Canada, and maybe even the future of unionized workplaces.
By Chris Sorensen - Wednesday, February 22, 2012 at 10:30 AM - 0 Comments
Ironically, a weaker euro is making Germany even stronger, accentuating Europe’s imbalances
Though it’s better known for its caviar service in first class and its swank lounges at Frankfurt International Airport, much of the excitement at Lufthansa last year took place at its comparatively drab cargo operations. The carrier’s hulking MD-11 freighters hauled 18 per cent more tonnes of time-sensitive goods—ranging from German-made luxury car parts to pricey chemicals—in 2011 than the year before, when a previous record was set. Even more impressive is the destination for many of those planes: “China remains the core market for air-freight transportation out of Germany with growth at 26 per cent,” says Florian Pfaff, a manager for Lufthansa Cargo.
Apparently, not everyone is losing jobs to Guangdong province.
Despite the deepening eurozone crisis, Germany is booming. While Ottawa might like to brag about its performance through the Great Recession, the real miracle story belongs to Germany, and its manufacturing and export-driven economy. The country of 82 million has enjoyed GDP growth of three per cent or better for the past two years, while exports topped $1.3 trillion for the first time ever in 2011. Unemployment, meanwhile, is sitting at a 20-year low of 6.7 per cent, compared to Canada’s 7.6 per cent. And although it experienced a run on its banks in 2008, Germany has no housing bubble, boasts a high personal savings rate and slays deficits with near-religious zeal.
By Brendan Brady - Tuesday, November 22, 2011 at 1:07 PM - 0 Comments
With per capita GDP well under a thousand dollars and a government dependent on foreign aid, Cambodia is among the poorest of the poor in Southeast Asia. But with workers in China, Thailand and Vietnam, demanding and obtaining heftier paychecks, Cambodians are getting a residual lift. Rising wages, labour unrest, as well as currency instability and political turmoil in some cases, elsewhere in the region’s traditional manufacturing centers are improving the prospects of Cambodia, an industrial minnow.
The country’s garment exports have soared in the past year, increasing by nearly 40 per cent, according to the government. Independent observers might put the figure lower, but they would agree with Ken Loo, the secretary general of the Garment Manufacturers Association of Cambodia, when he points to rising wages and work stoppages in China as one of the main causes of Cambodia’s increased share of the market. It’s an important boost in a sector that has been Cambodia’s main engine of growth since the late 1990s, when the country stabilized after years of debilitating civil strife. The garment and footwear industry employs some 400,000 people in this country of just over 14 million (the Gap, H&M and Nike are among the major brands that have suppliers in Cambodia) and account for more than two-thirds of Cambodia’s exports.
By Claire Ward - Friday, October 14, 2011 at 10:28 AM - 25 Comments
An off-broadway show in New York looks at what it takes to make all those iPods
In what seems like an endless stream of Steve Jobs tributes and devotions, one voice stands out as a reality check. Mike Daisey, New York-based author and monologuist, is hoping to cut through the nostalgia and remind people of the nastier side of Jobs’ legacy.
“I’m almost tired of hearing what a genius he is,” says the 37-year-old creator and performer of The Agony and Ecstasy of Steve Jobs, a one-man show about the life and work of the former Apple CEO that opened off-broadway at the Public Theater in New York City on Tuesday. “I think he’d be disgusted by this level of nostalgia. He was a very unrelenting, unwavering person—focus was really the centre of his skill set, his genius.”
Daisey’s show touches on everything from Jobs’s mastery of industrial design to the objectionable practices of iPhone and iPad manufacturing plants in China. The monologue tells the story of Jobs’s obsessions and his impact on humanity—from Silicon Valley to Shenzhen. Daisey’s style is semi-improvised, or what he calls “extemporaneous monologing”—which means the show differs from night to night, often depending on the mood of the room. “The work happens in the room so it’s hard to say what is going to change,” says Daisey. “At the same time, the fundamentals of the story aren’t affected by his death. In fact, they’ll be amplified. The end of an era, the loss of individual personal power in the face of corporatism.” Continue…
By Erica Alini - Wednesday, September 21, 2011 at 6:20 AM - 4 Comments
Some Canadian firms are showing how the sector could drive the economy of the future
When the assembly line at Ford’s plant in St. Thomas, Ont., came to a halt on Sept. 15, it wasn’t just one factory that shut down. The closure could bring the death of an entire industrial ecosystem, experts warned. More than 300 suppliers feed into the St. Thomas plant—35 of them in Canada. Job losses are likely to extend far beyond the 1,100 workers directly employed at the southern Ontario plant that had been churning out Ford Crown Victorias, Mercury Grand Marquises and Lincoln Town Cars for the past 44 years.
The story of St. Thomas and its displaced workers follows a script well-known to this and most other rich countries. Between 2004 and 2008, Canada shed nearly 322,000 manufacturing jobs, according to Statistics Canada, and this was before the economic downturn took hold. In the U.S., the hemorrhage, driven, as elsewhere, by cheaper foreign competition and a general shift toward the service sector, amounts to eight million jobs lost since 1979. And workers transitioning to a job outside the factory often have to accept a painful pay cut—in Canada it averages around $10,000 less a year, according to a 2008 report by Toronto-Dominion Bank—driving up the divide between rich and poor. Yet the loss of industrial jobs has simply been assumed to be the price of advanced development.
There are signs, though, that the factory era may not be over in Canada just yet. Some manufacturers in niche markets are flourishing. Others are showing how the production plant, with a high-tech spin on it, could even be the future of the Canadian economy—or at least an integral part of it.
By Cynthia Reynolds - Thursday, August 25, 2011 at 9:50 AM - 149 Comments
Complaints about a generation of the mechanically challenged
It’s hard not to laugh when Barry Smith starts telling stories about the hapless young workers he has to deal with. Smith, who runs Toronto-area roofing company RoofSmith Canada, tells of one who didn’t come to work because his cat had fleas, and another who jumped off a shed roof, even though he’d just tossed bags of nails into the garbage bin below. But the laughing tapers off when Smith, 46, talks about skills.
“They don’t know how to handle a tool properly,” he says quietly. “They’re bright kids, but they hold a hammer at the top instead of the bottom, so it takes four swings instead of one to get a nail in. They don’t know how to read the short lines on a tape measure and they’ve never used power tools, which makes you really cautious.” He says they can’t seem to detect the patterns of the work—you rip up part of the roof, that gets thrown down, that goes into the garbage—so they just stand around. “It can get really frustrating.”
There’s much talk about a coming crisis in the trades—that we simply don’t have enough new recruits to replace an aging workforce. By some estimates, Canada could face a shortfall of up to one million skilled tradespeople by 2020. To address this shortage, the government is funding a variety of incentives to attract young talent and it’s beefing up our apprenticeship training programs—registrations are at an all-time high. But a stumbling block has emerged that’s getting harder to ignore: by all accounts, we have the least handy, most mechanically deficient generation of young people. Ever.
It’s easy to see why.
Shop classes are all but a memory in most schools—a result of liability fears, budget cuts and an obsession with academics. Still, even in vocational high schools where shop classes endure, a skills decline is evident. One auto shop teacher says he’s teaching his Grade 12 students what, 10 years ago, he taught Grade Nines. “We would take apart a transmission, now I teach what it is.” Remarkably, most of his Grade 11 students arrive not knowing which way to turn a screwdriver to tighten a screw. If he introduces a nut threaded counterclockwise, they have trouble conceptualizing the need to turn the screwdriver the opposite way. That’s because, he says, “They are texting non-stop; they don’t care about anything else. It’s like they’re possessed.”
At home, spare time is no longer spent doing things like dismantling gadgets, building model airplanes or taking apart old appliances with dad; there’s no tinkering with cars, which are so computerized now you couldn’t tinker if you wanted to. A 2009 poll showed one-third of teens spend zero time per week doing anything hands-on at all; the same as their parents. Instead, by one count, entertainment media eats up 53 hours a week for kids aged eight to 18. As for those new apprentices? They’re signing up and then they quit. Depending on the province and trade, some 40 to 75 per cent drop out before completing their program.
In Nisku, Alta., John Wright, the technical supervisor at manufacturing company Argus Machines, oversees 12 apprentices in the welding, machinist and millwright trades. Three years ago, he started noticing two tiers of applicants, those with basic mechanical skills and a new crop who, as he says, had no clue what they were doing. He speculated the disparity stemmed from their upbringing.
“The ones from the farm community weren’t afraid to get in there and get dirty. They could figure out basic repairs. And when you have to feed the chickens and milk the cows every day, you learn how to show up to work on time.” Those who didn’t have hands-on experiences couldn’t grasp basic nuts-and-bolts mechanics, they couldn’t solve simple problems. Worse, they lacked the same work ethic, which made them too difficult to train. The implications reach well beyond the trades.
Occupational therapist Stacy Kramer, clinical director at Toronto’s Hand Skills for Children, offers one explanation for what’s happening. It begins with babies who don’t get put on the ground as much, which means less crawling, less hand development. Then comes the litany of push-button toy gadgets, which don’t exercise the whole hand. That leads to difficulty developing skills that require a more intricate coordination between the hand and brain, like holding a pencil or using scissors, which kindergarten teachers complain more students can’t do. “We see 13-year-olds who can’t do up buttons or tie laces,” she says. “Parents just avoid it by buying Velcro and T-shirts.” Items that—not incidentally—chimpanzees could put on.
When the first apes climbed down from the trees to explore life on the ground some three million years ago, it was their hands, no longer used for branch swinging, that helped trigger our evolution. Hand structure changed, enabling us to perform increasingly complex grips. The conversation between hand and brain grew more complex, too. We advanced to the unique ability to visualize an idea, then create that vision with our hands. That’s meant everything from developing tools to imagining airplanes to performing open-heart surgery. So what happens if that all-important hand-brain conversation gets shortchanged at a young age? Can it be reintroduced later, or does that aptitude dissipate?
“We don’t really know,” says neurologist Dr. Frank Wilson, author of The Hand: How Its Use Shapes the Brain, Language and Human Culture. “That research wouldn’t get through an ethics committee, even though it’s happening on a massive scale in our homes every day.” We only have these uncomfortable clues, such as young people who can’t visualize how to best wield a hammer. Or teens who, despite years of unscrewing bottle tops and jars, can’t intuitively apply the righty-tighty, lefty-loosey rule of thumb.
Predictably, this is affecting other industries that depend on a mechanically inclined workforce. After NASA’s Jet Propulsion Lab noticed its new engineers couldn’t do practical problem solving the way its retirees could, it stopped hiring those who didn’t have mechanical hobbies in their youth. When MIT realized its engineering students could no longer estimate solutions to problems on their own, that they needed their computers, it began adding remedial building classes to better prepare these soon-to-be professionals for real-world jobs, like designing airplanes and bridges. Architecture schools are also adding back-to-basics courses. As for the trades? Veterans like Barry Smith have little choice but to attempt to nurse a hands-on ability among new recruits one hammer faux pas at a time, teaching the next generation of tradespeople just how to hit a nail on the head.
By Erica Alini - Friday, July 15, 2011 at 5:22 PM - 19 Comments
Have you ever begged your six-month-old to stop throwing the pacifier off the edge of the high chair only to watch him do it again with a profoundly amused, puffy-cheeked smile? That must be how American, Japanese and European diplomats feel today. After pleading with China not to re-issue rare earth quotas, Beijing did just that, imposing new restrictions that would keep exports of the strategic materials at roughly last year’s levels.
Rare earth metals are the little-known but vitally important stuff that things like iPhone and laptop monitors, and wind turbine and hybrid car parts are made of. As Maclean’s reported last November, these metals are so crucial to much of the high-tech industry that, like oil and diamonds, they have effectively become a tool for geopolitical arm-twisting. Continue…
By Erica Alini - Tuesday, May 24, 2011 at 11:10 AM - 0 Comments
While a falling U.S. dollar is a chief cause of inflation, China may become its real source
Economic doomsday types who predict a coming era of out-of-control inflation usually point to the sinking U.S. dollar as one of the chief culprits. (A falling dollar means it costs more to buy goods, and purchasing power falls.) But they may be worrying about the wrong problem. According to data from the Federal Reserve, the impact of a weak U.S. dollar on import prices has in fact been steadily declining from the 1980s into the early 2000s. This is in large part because China dominates the U.S. import market, and Beijing keeps the yuan fixed against the dollar. The peg erases the effects of currency fluctuations on imports from China, which is why core inflation didn’t rise much even as the dollar lost value. (The dollar’s weakness, in turn, has guaranteed low price tags for Chinese products across the globe, dampening inflationary effects worldwide.)
Now, though, that lid on prices appears to be coming off, and China may become the real source of inflation in the U.S. and elsewhere. From Jiangsu to Guangdong, the country’s most industrialized provinces are experiencing double-digit wage hikes. When auto workers in southern Guangdong went on strike last year demanding higher pay, local companies and foreign manufacturers got a taste of what’s to come as younger and more outspoken workers enter the labour market. Also, China’s labour force is shrinking. The results of the latest population census, conducted in 2010, show that China’s replacement rate is already below the average of the United States, the United Kingdom and France, and on par with countries such as Italy and Japan. Employers in China are already struggling to find new hires. Rising prices are also the product of Beijing’s attempts to stimulate domestic demand, and diversify the economy away from exports.
All this means that “we have moved from an era of easy deflationary environment to one of inflation,” development economist Jeffrey Sachs told the Wall Street Journal. From sneakers to barbecue sets, there soon may be no more cheap, made-in-China consumer goods to help the West keep inflation in check. Higher prices, then, could indeed be on the horizon for the U.S. (and the rest of the world). But that may be regardless of the dollar’s recent misfortunes.
By Charlie Gillis - Tuesday, November 9, 2010 at 9:20 AM - 15 Comments
China is flexing its trade and military muscles. What does it mean for the West?
In the world of prized metals, dysprosium lacked a certain star power. It lies deep in the so-called f-block of the periodic table—that free-floating part near the bottom you never used in high school chemistry—along with the other so-called rare-earth elements with tongue-twisting names like neodymium and lutetium. No one ever set out with mule and pick-axe to find dysprosium. It occurs only as a constituent part of other mineral compounds, which explains why its name derives from the Greek for “hard to get at.”
But in recent months, dysprosium has shed its obscurity to prove that, like oil or diamonds, it can serve as leverage in an international dispute. Its debut took place shortly after Sept. 7, when Japan seized the crew of a Chinese fishing boat that had rammed two Japanese coast guard vessels near the Senkaku Islands, a string of barren rocks jutting from the East China Sea that has been a source of tension between the two countries for centuries. Infuriated by Tokyo’s refusal to turn over the skipper of the trawler, Beijing retaliated in a way no one expected: it cut off Japan’s supply of dysprosium, along with 16 other rare earth metals. Dysprosium and its chemical cousins are the lifeblood of Japan’s vaunted high-tech industries, used in everything from iPhone screens to the electric motor of the Toyota Prius. China, it turns out, produces 93 per cent of the world’s supply of them, having gotten into the market 25 years ago, then flooded the globe with cheaply mined product during the late 1990s. Today, if you want a shipment of dysprosium, you buy it from China.
By Josh Dehaas - Thursday, October 21, 2010 at 8:00 AM - 0 Comments
Manufacturers are rushing out new 3-D TV products, but some analysts see trouble ahead
At a recent trade show in Tokyo, Toshiba unveiled a 3-D television that doesn’t require users to wear bulky glasses. “A dream TV is now a reality,” said Masaaki Oosumi, president of Toshiba Visual Products. The main impediment to widespread 3-D TV adoption has always been that consumers—at least half of them, according to Nielsen research—refuse to buy 3-D TVs because of the hassle of wearing special glasses.
Despite that obstacle, industry research firm iSuppli estimates that by 2015, 40 per cent of TVs sold will be 3-D. Other manufacturers are betting on 3-D, too. Nintendo will soon launch a glasses-free hand-held gaming console, the 3DS. But even as manufacturers rush to churn out more 3-D products, some analysts say the sales predictions are too bullish. “If [the iSuppli forecast] is true, I’ll eat my light bulb,” says Alan Middleton, a consumer behaviour expert at the Schulich School of Business in Toronto. It’s true that Toshiba has overcome the biggest hurdle to mainstream adoption, but consumers can be fickle, says Middleton. For one thing, 3-D appeals particularly to sports fans and their “dream TV” doesn’t max out at 20 inches, like the new Toshiba. It also likely costs less than the Toshiba’s $2,950 price tag. Then there’s the question of comfort. The new Toshiba model produces its 3-D effect by shooting nine beams of light at each eye at slightly different angles. But to get a clear picture, viewers need to position themselves at a specific angle to the screen.
Another challenge for manufacturers will be to convince the average consumer to buy 3-D TVs when most TV content still isn’t filmed in 3-D. After all, “no one seriously expects all TV programming to gradually be converted to 3-D, unlike HD,” says Stewart Clarke, editor of TV industry magazine TBI. “There’s unlikely to be much demand to watch the six o’clock news in 3-D,” he adds. For those reasons, Clarke says it’s still too early to know if 3-D will become the new standard at home. Middleton agrees. “Mass adoption is certainly not going to happen in five years,” he says. “In 10 years, it’s possible, but before then? I expect not.”
By Joseph Coleman - Thursday, August 26, 2010 at 10:40 AM - 0 Comments
Solution to an aging society: out of the hammock and back in the office
Kato Manufacturing, in Nakatsugawa, in central Japan, is hardly a relaxing place. Generators grind, the air pounds with the slam of steel presses, and hundreds of pieces of metal rattle as they’re shuffled and arranged and transported on wheeled carts. In the middle of the racket, 73-year-old Hisao Kitawaki works steadily, showing a new employee how to guide a steel basket filled with grease-laden parts—for autos, airplanes, hairdryers—into a cauldron of cleaning solution. He uses a white towel to pat the sweat from his face; steam clouds his glasses.
A steel-products factory is an unlikely hangout for a man his age. But you won’t catch Kitawaki complaining—he’s exactly where he wants to be. Eight years ago, just as he was growing bored with the hobby-filled life of a pensioner, he saw an advertisement Kato put in the paper looking for special kinds of workers: old ones. “The only condition was that you had to be at least 65 years old,’’ Kitawaki says. “Okay, I thought, I meet that condition. The timing was perfect.’’
By Andrew Coyne - Thursday, March 4, 2010 at 5:11 PM - 178 Comments
Let’s get the good news out of the way first. The unilateral elimination of all remaining tariffs on production inputs in today’s budget is terrific public policy, a shot in the arm for Canada’s manufacturers, and a timely example to the rest of the world. It will lower costs, save on paperwork, and improve productivity. It will make Canada the G20’s first tariff-free zone, and as such is likely to prove an attractive incentive to locate a plant here.
End of good news.
The rest is simply bewildering. It was to be expected the budget would be inadequate; nothing suggested it would be quite so trivial as this. A merely inadequate budget would have made no cuts in spending in the coming year, notwithstanding a deficit projected at $54-billion, but would have pencilled in cuts in succeeding years. If it were really inadequate, it would have left these mostly unspecified, leaving skinflint critics like me to splutter at the vagueness of it all. We’ll believe it when we see it, we’d say, in the pleasant anticipation of the scathing articles we would write about next year’s budget, when the government would once again fail to deliver on cuts — the economy is still just a little too fragile, it would claim, again — pushing off the day of reckoning yet another year into the future. Continue…
By Jason Kirby - Friday, December 11, 2009 at 8:30 AM - 7 Comments
A weekly scorecard on the state of the economy in North America and beyond
Even before Canada’s job market shifted back into high gear with Friday’s encouraging jobs report, it was clear something fundamental had changed. Never mind the recent prognostications by analysts about better days ahead. Sometimes all the cues you need can be found in the lives of the people behind the statistics.
Take the story of an employee we’ll call Janice who works at a small, struggling auto parts supplier outside Toronto. As the economy began to crumble last year, management put everyone on a four-day workweek and slashed pay, even as they rewarded themselves with bonuses. Workers weren’t happy, but what could they do? It was brutal out there.
Then a few days before the new employment data was released, the higher-ups tried to turn the screws again with more pay cuts. Only this time a couple of employees in the sales and accounting departments did something that even two months ago would have been unheard of—they told their boss to shove it. “Quitting felt so good,” Janice said, after giving her notice. And here’s the kicker: she didn’t even have another job lined up yet.
That, folks, is what economists describe as a rebound in confidence. But most people would just call it chutzpah. And it’s something we haven’t seen in the labour market for a very long time.
Make no mistake, the fact the economy added 79,000 new jobs in November doesn’t guarantee a prompt and speedy recovery. There are still vast numbers of Canadians out there fearful for their jobs. Younger workers in particular have felt the brunt of the recession, with an unemployment rate nearly twice the national average. Nor are investors convinced Canada’s economy is back on solid ground. It’s not gotten much attention yet, but Canada’s stock market has been sputtering sideways for months now, with the much-heralded rally actually ending back on Sept. 16, when the TSX closed at 11,555 points—almost exactly where it languishes today.
But put all that aside for a moment. During the recession Canadian employees were repeatedly asked to take one for the team. Yet prior to the downturn, Canada was in the throes of a labour shortage. As skilled workers begin to reassert themselves, the balance of power will shift back to its previous state. It may take some time, but you can bet many disgruntled employees are just plucking up the courage to follow in Janice’s footsteps.
THE GOOD NEWS
The Canadian real estate sector continues to drive the country’s economic recovery even as some warn of the possibility of a housing bubble. Statistics Canada said the value of building permits hit a 13-month high of $6.1 billion in October, an increase of 18 per cent. Economists had predicted a one per cent jump.
The Obama administration is planning to cut its Troubled Asset Relief Program by some $200 billion as Wall Street appears to be on the mend. The U.S. government now plans to spend just $141 billion over the next decade on the financial sector.
’Tis the e-season
U.S. online retailers enjoyed a five per cent jump in sales on the first Monday following American Thanksgiving, now known as Cyber Monday, the day when Americans return from a holiday spent window shopping and place online orders. The US$887 million that was spent equalled the busiest e-commerce day on record.
Restaurants, grocery stores and other retailers are hiring more employees, as confidence in the economic turnaround grows. In November, nearly four per cent of all job applications resulted in hires, the highest level so far this year.
THE BAD NEWS
Cool on cars
Automakers may be seeing a faint light at the end of the tunnel as North American sales of cars, trucks and SUVs gradually pick up—but Canadians don’t seem to be doing much of the buying. Car sales in Canada were down 2.9 per cent in November after driving off a cliff in October. By contrast, vehicle sales in the U.S. market were essentially ﬂat year-over-year, with observers blaming the U.S. government’s Cash for Clunkers program for recent volatility in U.S. sales numbers.
Manufacturing levels in the U.S. did not increase as much as economists had hoped in November. The Institute for Supply Management’s manufacturing index fell two points from the month before to 53.6. Nevertheless, the index still shows an increase in output year-over-year, suggesting the economy continues to expand.
The number of U.S. companies and people being pushed into bankruptcy continues to soar. Bankruptcy petitions were up 26 per cent in November compared to the same time last year, according to data compiled from court filings by Jupiter eSources. The good news is there were slightly fewer bankruptcy petitions in November than October. Still, the first 11 months of this year resulted in 1.3 million U.S. bankruptcy filings, about 21 per cent more than in all of 2008.
Graph of the week
A real recovery • The very modest GDP growth in the third quarter suggested a recovery in Canada won’t be easy. But there are more encouraging signs that the recession is truly over. Both consumer spending and business investment posted the biggest gains since 2007.
Signs of the times
- Don’t stand between a banker and his bonus. The board of the Royal Bank of Scotland threatened to resign en masse after the British government suggested it might veto bonus payments for 20,000 investment bankers. Hundreds of the bankers have already reportedly quit in protest. The bank received a nearly $80-billion bailout last year, and has come under intense scrutiny for its bonus plans.
- Fore! Close! The game of golf has been sent running for cover by the recession. This year, 114 courses have closed in the U.S. as players cut back on green fees. Several others have been forced into bankruptcy as values of some courses have fallen as much as 50 per cent in the real estate crash. The industry has been hit by its own credit crunch, too, as golf course lenders have turned off the taps.
- Alligator farmers in Louisiana, the alligator farming capital of the world, have felt the bite of hard times. Last year, the farmers picked 500,000 wild alligator eggs. This year, they haven’t taken any as demand for luxury alligator skin products, from watch straps to hand bags, has disappeared. Their troubles have been made even worse by an oversupply of alligator skin in recent years.
- Damn the recession, it’s full speed ahead for the cruise ship industry. Royal Caribbean just launched Oasis of the Seas, a US$1.4-billion ship that rises 20 stories above the sea. Norwegian Cruise Line has an equally big ship in the works—the US$1.2-billion Norwegian Epic. Despite the downturn, the companies say they’re taking the long view with ships that will be plying the seas for 30 years.
After months of shedding workers, Canadian companies are finally hiring again. Some 79,100 jobs were created in November, including many in the key private sector. That blew by economists’ forecasts and, when combined with similarly positive U.S. jobs data, raised hopes that the economy is recovering faster than expected.
“Job numbers tend to be quite volatile, but there may be something to this.” - Eric Lascelles, chief economics and rates strategist, TD Securities
“November’s net hiring was all the more encouraging in that it included a swing back toward paid employment at the expense of self-employed jobs.” – Avery Shenfeld, chief economist, CIBC World Markets
“The solid November report offsets the prior month’s disappointing drop.” - Benjamin Reitzes, economist, BMO Capital Markets
“Canada’s economy is transitioning from recession to recovery.” - Sal Guatieri, senior economist, BMO Capital Markets
“This was a surprisingly strong report with details matching
the ‘wow’ factor in the headline print.” - Ian Pollick, strategist, TD Securities
“We consider this pace of job growth to be unsustainable.” - Millan Mulraine, economist, TD Securities
“With the unemployment decreasing and the participation rate rising, there is no doubt that the Canadian labour market is improving.” – Yanick Desnoyers, assistant chief economist, National Bank Financial
The Week Ahead
FRIDAY, DECEMBER 11: The U.S. Census Bureau will release retail sales figures for November. Sales are expected to rise slightly.
MONDAY, DECEMBER 14: The capacity utilization rate of Canadian industries will be reported by Statistics Canada. The rate hit a record low of 67.4 per cent in the second quarter of this year.
WEDNESDAY, DECEMBER 16: Statistics Canada will report manufacturing sales for October. Sales were up 1.4 per cent in September.
By Andrew Coyne - Friday, October 30, 2009 at 11:12 AM - 27 Comments
Even if the Canadian dollar were to mirror the U.S. in value, Andrew Coyne says that’s no reason for celebration
Once again the dollar is flirting with parity, and once again everyone is very excited about it. Why? Objectively, there is no more significance to the dollar being worth US100 cents than any other value, except that 100 is a nice, round number.
Yes, it means the Canadian dollar is worth as much as a U.S. dollar. But so what? The only reason anyone pays attention to this is because they have the same name. If we were to call our currency something else—I have long favoured “the pelt”—then the mere fact that on any given day, between one currency being worth more than the other and the reverse, their values happened momentarily to coincide would attract little notice. But because they are both called the dollar, it gives rise to the entirely occult belief that the two ought naturally to be at par, the approach of which is celebrated as if it were some kind of cosmic convergence. Continue…