When I was last in China, a four month stint in 2002, it was clear that the country was undergoing a massive, and rapid, process of modernization and development but it still felt decades, and in some cases, centuries behind.  Beijing was booming, as were Shenzen, Chengdu, Xian and Guanzhou, but the interior felt… like the early 1900s. And while that’s still undoubtedly true in parts of the country, far less of it seems to be stuck in time thanks to an endless expanse of brand-new highways, high-speed trains, and forests of condominiums and apartments that sprout for what seems to be hundreds of kilometers around major cities. Some of the smaller towns evens seem to have been razed to the ground and rebuilt, despite a ghost-town quiet, a trend that reminded us of some of the deserted villages cum cities in Western Sahara/Morocco that had been “updated” by the Moroccan government as a means of showing progress/occupation.

With that, here are three things about China that stand out with respect to the country’s future. Please excuse my likely naivety.

• Air pollution – the thick blanket of brown fog that sits across the Huangpu River in Shanghai, or across the Beijing skyline, is indicative of the massive tension that exists between China’s rapid development and the subsequent environmental impact. I’ve never seen smog like this. From the 17^thfloor of our hotel, the Pudong skyline was shrouded in constant brown mist. Years ago I was struck by the crust of smog one crossed when flying into Los Angeles; Shanghai’s problem is worse, especially so given the still low level of overall development.And thus it’s no surprise that where bicycles once congregated in packs of hundreds on main thoroughfares, now just a handful drive by, replaced by an endless stream of vehicles. For example, individual auto ownership in Shanghai grew by 22% in 2010-2011 to over 3 million; just 15% of the city’s population. In Beijing an additional 2000 cars hit the roads every day, with total auto ownership now nearing 5 million. Just imagine if these new consumers decided they wanted auto ownership on American terms (where 312 million people own 255 million cars). The impact of this by-product of development, in addition to continued industrialization on both the coast and interior, don’t bode well for the country’s environmental sustainability.That said, I was pleasantly surprised by the public debate in local newspapers and amongst those we spoke to about the need to address the country’s environmental footprint, especially the long-term effects of air pollution and its social and economic costs.

• Infrastructure – if China’s burgeoning auto ownership is part of the country’s environmental problem, its investment in modern infrastructure is part of the answer. In Beijing and Shanghai a massive network of subway lines move upwards of 8 million riders per day at a cost of about $0.35 CDN (2 yuan) per trip. Bilingual, spotless and always crammed (to the point that both cities employ “pushers” to stuff stragglers past the doors), both cities feature underground networks that snake to the farthest corners of the city’s suburbs. Shanghai’s subway system, opened in 1995, now ranks as the world’s largest. Beijing’s is number four and quickly growing.More impressive is the country’s network of long-distance trains, hi-speed bullets that top out at over 300km/hr. The 1300km journey from Beijing to Shanghai takes just 4.5 hours. The 200km Shanghai-Hangzhou jaunt just 45 minutes. Compare that to my 1.5 hour commute between Kitchener and Toronto (120kms)! This speed is necessary given the demands on the system: at its peak, right now for the Chinese new year, those trains help move over 250 million migrant workers from coastal towns back into the interior. To state the evident, the queues at ticket offices snaked for what seemed to be kilometers. Hence why China is soon expected to have more high-speed rail than the rest of the world combined.One final note on infrastructure: it’s evident that one of the benefits of a less-than-democratic system is the ability to move people at will based on the demands of the State. Hence entire neighborhoods are swept aside to make way for new roadways, new subway stops or malls.  This model allows for an incredibly rapid ability to adapt. That said, the story of Beijing’s disappearing hutongs are the downside of this rapid development.

• Real estate bubble – traveling North from Shanghai towards the city of Jilin provides a good microcosm of why people fear the unraveling of China’s heretofore hot real estate market. Apartments, condominiums and state buildings of every possible size sprout like thick forests for hundreds of kilometers outside of Shanghai. The same is true as you travel Westward towards Hangzhou. In some cases, notably in and around major cities, the construction seems to feed a true demand for suburban housing. However one couldn’t help but notice the lack of traffic and lack of people around more rural developments. As I noted above, many of the modernized towns and villages we drove through felt more like Potemkin villages than true responses to demand, and highlighted a significant over-supply of housing in certain regions. The same is true of office and retail locationswhich, more often than not outside of the core, were empty.I’ll be the first to admit that we saw a very small slice of China’s property market. However what we saw of it supports recent views from China watchers that the country’s property market has bubbled. Patrick Chovanec’s writing, available here, provides a good primer on a pessimistic view of China’s real estate market, and short-term future. The question that remains is whether the State can absorb the shocks, financial and social, created by a significant downturn in property and land prices.If there’s any benefit to a large decline in property prices it will be to help tame the country’s rampant inflation. While average CPI (averaged over 2011) was a modest 5.4%, food price inflation was over 9%. I was absolutely shocked at the prices of food – be it in shops and supermarkets or on the street. The phenomenal Shanghai pancake that I paid no more than a quarter for a decade ago, now rings in at dollar or more. In general, the prices of a basket aren’t far from the prices we pay here (in Canada). And thus while Chinese wages have increased dramatically over the past decade (15-20% per year), rising food and property prices must be eating a significant share (if not all) of this increase. Moreover, satisfying the government’s (and the rest of the world’s) desire to rebalance the Chinese economy towards more per capita consumption (over savings) may actually be made more difficult by this inflationary pressure as without effective, and trusted, social safety nets this inflation may (big assumption on my part) buck the usual inflation-spending relationship and lead to more savings as a means of safety. Moreover, while domestic consumption has benefited from state subsidies for the purchase of Chinese appliances and vehicles, there are limits to the long-term capabilities of such policy given a finite consumer market.

These three things aside, I don’t pretend to know China well. It’s incredibly complex. Anybody who claims to without having spent significant time there is either lying to you or simply repeating the work of others! Moreover, given the lack of transparency on the state of the country’s banking and property markets, it’s difficult for anyone to know what’s truly going on, let alone where it’s all going.

However even without hard knowledge, the presence of a series of very visible tensions make for fun speculation: between the traditional and the modern; between Westernization and nationalism; between the headlong leap for economic growth and social cohesion; between growth and environmental sustainability. Can the country’s central party navigate these challenges and continue its rapid ascent? Are such tensions quelled by or fuelled by increased calls for democratic opportunity? And perhaps most important for us, how does the rest of the world fit in China’s future?

This last question is what I pondered most while there. For years I’ve wondered what China’s massive labour market, and nationalist/mercantilist trade and development strategies, meant for theories of comparative advantage. The ability to build intra-national (internal) markets of supply based on comparative advantage in domestic regions leaves less need for inter-national markets. Some high-value goods, especially but not limited to resources, fall outside of this realm, however for consumer goods and food production, China’s physical size and still growing (albeit slower and then primed for decline) labour force enables a somewhat lesser dependence on the outside world. Sure, they depend on external markets for exports, however, at some point (if) domestic consumption takes off, the real target will be Chinese consumers. For both them and us. And if China’s central party is still in power, balancing their demands with social stability will continue to rely on an engineered labour market that prioritizes full employment, and the prioritization of domestic forces over international capital.

So while we’ve long assumed that having outsourced low-value production to China, we’d keep the high-value work and sell it to them. It’s increasingly clear that this will be far harder than we ever imagined. Processes of economic development are increasingly temporally compressed while Western cycles of Schumpeterian creative destruction seem to lag. China has sprinted up the value ladder faster than previous emerging economies and now competes in significant segments of the high-value chain. Hence Huawai and HTC compete with Apple and RIM. Li Ning competes head to head with Nike. Shanghai Motors or Geely Automotive cars are as common on Chinese highways as Fords and GMs. And in the not too distant future, Chinese aviation companies will produce a competitor for Bombardier, Embraer and Airbus.

Our future is tied in part to being able to take part in that competition. We’ve been slow to reinvent our economy thanks, I would argue, to the belief that we were far ahead and a complacency perhaps brought on by the resources under us. However, if our goal is to provide Canadians with fulfilling and stable employment than we need to redouble our focus on China and shift it beyond selling them oil and minerals (and worrying about IP). Feeding China’s demand for protein and dairy, environmental technologies (especially as it relates to renewable energy, clean water and the mitigation of environmental issues such as air pollution), and transportation and health-care related technologies should be the priority.

And while we’re far from alone in that goal (and subsequently will suffer from the effects of price competition and potentially real wage deflation) we need to think beyond China as a purchaser of our resources and think of how our products and services can satisfy the wants of a billion Chinese consumers. In fact, if our resources are so in demand, perhaps it’s time to play mercantilist hard ball with resource hungry trade partners to ensure that other sectors of our economy aren’t left behind.

Sometimes the answers are so simple you miss them for fear they couldn’t possibly be correct. Analyzing the rationale for Canada’s participation in a comprehensive economic trade agreement (CETA) with the European Union has reminded me of that.

For unless a magical pot of gold has been promised to us (likely by the Irish … or maybe the Greeks..) and not communicated to the rest of us, a reasoned analysis of the potential costs and benefits of CETA wouldn’t lead one to automatically sign up.

As while the Federal Government continues to bandy about a 3 year old study conducted prior to any of the negotiations that highlighted a potential net benefit of $12billion per year, and upwards of 80,000 new jobs. Two research projects conducted in the wake of the negotiations, and thus using the negotiations as the base of their quantitative assumptions, show much weaker gains. For example, Jim Stanford from the CAW finds that the agreement will actually lead to between 28,000 and 150,000 job losses. Less extreme, research by Kitou and Philippidas show an annual gain of 3 billion Euros, or 5 billion CDN, far less than the Canadian government’s somewhat useless data points.

If the truth lay in Stanford’s figures, we wouldn’t sign up right? And if the figures we’re closer to Kitou and Philipidas’ we’d likely be even more reticent about the procurement and IP related items in the agreement.  

So why in the world are we rushing headlong into this?  The answer is frighteningly simple: if we don’t, someone else will.

Years ago I had the privilege of studying under American political scientist Lloyd Gruber at the LSE. His best known work is “Ruling the World : Power Politics and the Rise of Supranational Institutions.” In it, Gruber highlights that, as opposed to what most think, countries don’t necessarily benefit from signing up to trade agreements. In fact, he says, they often lose. So why do they sign up? Simply because they believe they would be worse off should they choose not to sign up and thus fall behind others in the pecking order of preferential trade, and be left with far fewer cards to play in negotiations. As Gruber explains, “…the losers know the supra-national arrangements they dislike are perfectly capable of functioning without them.” The powerful have “go it alone power” while the weak have nothing but strategy at their disposal.

The question is thus less about the benefits of participation and rather more about the costs of exclusion. And therein lies why I think we’re rushing towards CETA despite its ambiguous benefits, and potentially significant costs. For while we’re negotiating CETA, India and the EU are involved in a similar set of negotiations. And while Canada and India don’t compete on a great deal of products today, there’s no reason to think that in product lines such as automobiles, machinery and high-tech innovation and pharmaceuticals we won’t soon. CETA thus gives Canadian producers a limited window to further lock in consumers.

More important than India, however, is that the EU is entertaining the expansion of its trans-Atlantic relations with the United States into a similarly comprehensive economic framework. Given  similar US-Canadian export strengths, in particular around machinery, auto parts and agricultural products, beating our southern neighbours to the punch ensures we’re able to negotiate, in theory, a better deal than were we following them to Europe. The costs to access Europe might be high, in this case opening up government procurement, doing away with buy local and implementing stricter IP regulations, however the costs could in theory be substantially higher should the US sign up first.

The same theory of first-mover advantage applies(d) to Canada’s trade talks with South Korea.  As this article by Barrie McKenna in the Globe and Mail highlights, on offer in the talks are preferential access to Korea’s consumer market, long highly protected. Moving first means securing price advantages via the elimination or significant reduction of tariffs for access to this market. To be sure, there’s nothing holding Canada back from signing up after the US (as we are now positioned to do as the US-SK agreement has been ratified by both sides). But in so doing, we lose a significant amount of leverage as the Koreans negotiate from a far stronger position (on this specific bilateral relationship).

To be sure, some will argue that we enter such agreements in order to get access to cheaper imports.  And lowering our tariffs on imported goods will certainly allow Canadian consumers to enjoy the fruits of cheaper access to our markets.  However, cheaper imports are only positive insofar as they don’t unduly displace domestic labour. Shifting labour from uncompetitive to competitive sectors is certainly fine, and encouraged for its broader effect on productivity. Shifting from jobs with high-multipliers to low-wage, low-multiplier jobs is much less attractive. Others will argue that the benefits of such trade strategies are measured in broader productivity measures.  For example, signing up to NAFTA saw Canadian productivity jump upwards of 13%, leading to significant aggregate income gains. To be sure, signing up to NAFTA is also related to significant job displacement in the Canadian economy, especially in manufacturing. ON the whole, however, the economy has grown as a result.  The impact of CETA on liberalizing domestic trade and procurement, and of opening up highly protected sectors like telecommunications, might all be accurate rationale.

What isn’t good rationale is relying on somewhat irrelevant research to communicate the deal as leading to over 80,000 new jobs. There is absolutely zero evidence that what is currently being negotiated could lead to that. In fact, there’s a much greater chance that the outcome lies in between Jim Stanford’s 28,000-150,000 job losses and Kitou and Philippidas’ more moderate economic gain.

And that’s as things stand today. Remember, the analysis of such deals occurs in a vacuum and doesn’t take into consideration the trade diversion effects that occur when someone else signs up for a similar preferential deal with your partner. So while we may gain moderately in the short-term, those gains are likely to be whittled away as the EU’s other trade partners seek to regain similar access rights. They’ll do so with less leverage and thus give up more in the process. What results in an iterative process of competitive liberalization, a race to the bottom on domestic protection, and thus real free-trade.

So back to the start, why are signing up to a comprehensive trade deal with Europe? It’s not about jobs or growth. It’s perhaps slightly about productivity and improving domestic competitiveness. But ultimately it’s all about not being left out,  being able to dictate a better set of terms for the short-term, and perhaps, one could argue, about setting us up to compete for the long-term.

Is that a good thing? Yes if you’re able to keep up and compete. No, if you’re not. As simple as that. Now decide if you think we can.

For example, the Comprehensive Economic and Trade Agreement currently being negotiated between Canada and the European Union, while an important element of diversifying our trade away from the United States (where we send 75% of our exports), is far from an ironclad winner.

While the government has promised the agreement will potentially add $12 billion and 80,000 jobs to the economy, with notable gains for agricultural exporters, the numbers are based on three year old research conducted on the basis of broad assumptions rather than actual negotiated details. I wouldn’t buy a car, let alone sign the most important trade agreement in our country’s history without an accurate test of the real costs and benefits of participation.

More recent research conducted on the basis of early drafts of the agreement, including that of CAW economist Jim Stanford, highlight that the deal may in fact cause a loss of between 28,000 and 152,000 jobs. Whose numbers are right?  And in which sectors are those supposed job gains or job losses going to occur? Given ongoing weakness in Canada’s labour market, a focus on jobs as opposed to a myopic focus on “growth” is necessary.

Moreover, as a result of intellectual property provisions in the CETA agreement, an estimated $2billion a year will be added to our health care expenditures thanks to the effect of greater patent protection on the availability of generically-branded medications. Given the tremendous burden healthcare currently places on our fiscal budgets (approximately $0.40 of every Provincial dollar), is this tradeoff the right one?  And if the agreement does indeed place an outright ban on “buy local” provisions, and similarly-themed local content requirements, as well as opening up municipal-level procurement to European competition, what will this mean for jobs, wages and prices in Canada?

CETA promises to be the most significant trade deal Canada has signed to-date. It promises access to, in spite of the current economic challenges, a market of nearly 500 million relatively wealthy consumers.  A healthy trade relationship with Europe is essential, as is the diversification of trade away from the United States.   But will Canadian workers, consumers and taxpayers enjoy a net benefit under the terms of this agreement?  Unfortunately we’re heading into this with our eyes closed given the government has shared no research on the specific impacts of the trade deal as currently negotiated.

And there is no shortage of other worthy topics of discussion. Be it Tony Clement’s financial misadventures related to G8/G20 spending, our Canadian position on Palestinian statehood, the future of the long-gun registry or our strategies related to climate change.  The future, let alone the present, isn’t waiting for our input.

To be sure, the current climate of economic uncertainty means we’re all worried about our jobs, about paying the bills, and about taking care of those most dear to us. Moreover, our growing distrust of government and disengagement with policy – dramatically reflected in historically low voter turnouts – leaves many of us feeling helpless to affect change.

But these immediate concerns shouldn’t blind us to the changes that take place under our watch and that future generations will inherit. Our silence on these issues, and our willing disengagement from the electoral process, mean we’re as much to blame as anyone for the outcomes of government policy.

The Occupy movement might suffer from confused and misunderstood economics, but atleast they’re saying something. For most of us have lost our voice, and if that’s true, we risk losing much more as a result.

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From a forthcoming edition of the Canadian Journal of Globalization -

Dan Herman Polity without demos: defining global accountability in global governance.

This article examines how global governance is constructed and held to account for its various constituent parts, and notes that as the geographic scope of cause and effect widens, and as the mechanisms for their governance is increasingly structured along multi-level and networked lines of authority, accountability becomes ever more challenging given the presence of still undefined polity. This forces scholars of global governance not only to question the design, actors and structure of global governance, but also to investigate the deeper meanings of global governance in relation to power, identity and ethics. This paper endeavours to look at both sets of issues, and in the process argues that global governance cannot exist as an accountable mechanism of rule without an overarching commitment to global ethics that has so far escaped its reach.

But such numbers need to be digested with a critical mind. For while the aggregate total revenue from resource extraction is indeed important, it’s broader impact on employment, both direct and indirect, is far less impressive. For while resources comprise near 40% of Canada’s total exports (which works out to about 4% of total annual GDP), the sector employs only 226,000 Canadians. Compare that to the over 1.5 million who (still) work in manufacturing, the 1.7 million in healthcare and 1.8 million in retail. In fact, resources contribute a measly 2.5 jobs per dollar of GDP compared to 9 jobs for every unit of manufacturing activity, 10 jobs per construction dollar, 24 jobs per retail dollars and a whopping 37 jobs per food services dollar. Evidently, this doesn’t infer that a retail or food service dollar is the way forward, quite the opposite. However, what’s clear is that resources are far from a significant (direct) creator of jobs in Canada. Certainly, resource extraction and its subsequent sale, creates significant revenues, profits and spending that circulates in the economy, however this is true for all forms of economic activity.

For want of easily accessible Canadian data, let’s use US industry multipliers as our guide.  The US Bureau of Industry and Security (…think about that combination for a minute…) estimates an industry multiplier of 1.50 for petroleum and gas extraction, and a 1.65 multiplier for other mining activity. By way of comparison, manufacturing provides an average multiplier of 2.31 and services and retail roughly 1.6.  Applying those multipliers to related export income streams yields what I’ll call a ‘full-impact’ GDP total of $311 billion for resource-related income, a third of the nearly $ trillion ($CAD) in manufacturing-related income.  Resources are a significant source of income for Canada but insufficient as a means of ensuring broad employment, especially in an economy where the primary manufacturing sector has seen approximately 350,000 jobs losses since 2006, and about 600,000 since 2000. The (usual) downgrading of those manufacturing jobs to retail and service positions reduces the associated income multiplier thus requiring other industries to pick up the slack. Yet what seems to have replaced those higher-value jobs (measured in terms of multiplier) is construction and retail employment, and to a lesser extent financial services and healthcare. This mirrors Canada’s aggregate position, whereby since 2001 Canada’s manufactured output has grown by a miniscule 0.2%, services have grown by 2.4%. This growth in services, however, is dependent on incomes created elsewhere in the economy.

So where is that elsewhere? It should be in the innovation and development of competitive products for both domestic and international consumption. Yet as noted, we’ve actually seen a decrease in this type of employment. And while Canada’s 600,000 manufacturing job losses pale in comparison to the 3 million lost south of the border, the (similar) trends experienced in both related to stagnant and declining real wages for most income earners and increasing income equality highlights the potential necessity of a strong (i.e. globally competitive) manufacturing sector to buttress high levels of employment and a relatively equal distribution of the proceeds of growth.  Our switch to services from production has indeed led to more growth, yet it’s done so in an increasingly unbalanced fashion.

And while resource income does provide Canada with a powerful income stream, it’s only as valuable as what we do with that income, and the concomitant shift to service related employment is not the answer. As the President of MIT recently noted in an op-ed to the New York Times, “Rebuilding our manufacturing capacity requires the demolition of the idea that the United States can thrive on its service sector alone. We need to create at least 20 million jobs in the next decade to offset the effects of the recession and to address our $500 billion trade deficit in manufactured goods. These problems are related, given that the service sector accounts for only 20 percent of world trade. To make our economy grow, sell more goods to the world and replenish the work force, we need to restore manufacturing — not the assembly-line jobs of the past, but the high-tech advanced manufacturing of the future.”

The US is far from alone in targeting this challenge. All Western economies will seek to do the same, as will developing economies that currently hold significant wage-related advantages.  Rebalancing a domestic economy in the face of this competition means hard-thinking on not just investment and innovation priorities, but also on wages and productivity and their relative global positioning, and the distribution of profits domestically that can counter the deflationary impacts of a more globally competitive wage structure.

Ultimately, the world’s changing and Canada can’t afford to sit back and assume that the geographic serendipity that endowed us with natural resources is enough to ensure that future generations of Canadians will enjoy the quality of life that we have.  We need a strategy to compete in a 21^st century global economy that is dramatically different, and dramatically more competitive, from the past several decades of relative good times. The gradual introduction of millions to the skilled labour force across the emerging and developing world presents a significant challenge to now-orthodox conceptions of wages and incomes in the West. This isn’t about returning to low-value production of textiles and white goods. Rather it’s about competing in the next generation of technology and ensuring a domestic production base. Eventually, growth across the developing world may witness the development of a consumer base that absorbs production from higher-wage countries. However, as we’ve witnessed with China’s emergence, the creation of a broad domestic consumer base is a decades-long process. And in Canada, the US and other mature economies, we can’t wait decades to put people back to work in fulfilling and relatively well-valued work.

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From Multi- to Mini- lateralism…

“Politics has returned to the national.” Those were the words of former British Prime Minister Gordon Brown at the INET conference on April 8–11, 2011. He called for renewed vigour to be applied towards developing cooperative economic and regulatory standards in the face of significant retrenchments towards national economic spheres. As the global economy emerges from the uncertainty of the post-2007 global economic crisis, its future architecture remains clouded from view as a result of continued challenges to the development of a truly representative and practical set of global economic and financial regulatory standards that can better enable sustained progress and development well into the twenty-first century.

This brief paper highlights the tensions and dynamic interplay of domestic and international priorities that underline the challenges to future multilateralism noted at the INET conference. While the immediate post-crisis period was marked by an exceptional degree of coordination related to stimulus spending, interest rate policies and bailout programs, the still-evolving transition to a new normal highlights the increasing tension between long-term global economic cooperation and short-term domestic priorities.

Re-asserting Domestic Sovereignty

While the turn towards the domestic may be novel in contemporary economic governance, it is not without precedent. International relations theorist Peter Katzenstein’s findings on the impact that transitional periods in the global economy have on this two-level dynamic are reflective of this contemporary tension. Katzenstein found that when the structures and hierarchy of the global economy can no longer be assumed to be fixed, “the relative importance of domestic forces in shaping foreign economic policy increased” (Katzenstein, 1978: 595) Katzenstein’s work continues to ring true when applied to the global economy today, where current tensions have their roots both in the previous three years of economic turmoil, as well as in the rapid and intense shift of the locus of economic influence from Washington, London and Brussels to Rio, Beijing and Mumbai. Brown’s comment that “the US and European Union are at risk of being out-everything’d by the rest of the world” is indicative of an increasingly tenuous balance between producers in emerging economies and their rich world consumers. The growing employment needs in both, though structurally distinct, highlight a fundamental challenge to sustained economic cooperation.

The subsequent rise of economic nationalism, albeit still nascent, follows on such immediate and future employment needs and poses a grave threat to the global economy given the barriers such policies raise vis-à-vis the establishment of global economic and financial standards. The world of economic and regulatory multilateralism that marked the second half of the twentieth century is at risk of giving way to an increased focus on “mini-lateralism,” both its regional and bilateral varieties, in the early stages of the twenty-first century.

Among the many lessons served by the post-2007 global financial crisis, none has been as revealing as the level of economic interdependence present. As Claudio Borio of the Bank for International Settlements noted in his presentation on the complexity of international finance, “there is no longer such a thing as absolute sovereignty in economic governance.” Despite the Anglo-Saxon roots of the crisis, the complex integration of domestic financial structures into international networks helped precipitate the bankruptcy of Iceland and the failure of financial institutions in at least a dozen countries across the globe. The broader macroeconomic impact of the crisis saw 10 countries seek emergency lending from the International Monetary Fund, and pushed many governments to nationalize formerly private institutions to ensure the stability of domestic economies.

The crisis revealed deep inadequacies within both global and domestic structures of economic and financial governance. However, it is at the domestic level that such inadequacies hit hardest. The crisis is estimated to have pushed 50 million people worldwide into unemployment (nearly a fifth of these were in the United States alone), and upwards of 200 million into extreme poverty (International Labour Organization, 2009). Subsequent national responses, including the use of capital controls on incoming investment, explicit intervention in volatile currency markets and increases in the use of both tariff and non-tariff barriers are indicative of domestic attempts to mitigate the excesses of economic globalization. As Eric Berglof from the European Bank for Reconstruction and Development noted at the conference, these moves represent the reassertion of host-country control over economic and financial globalization and the reversal of several decades of the prioritization of the rights of capital over other domestic interests.

The prohibitive costs of the crisis are far from the sole cause of the shift away from multilateralism, which is occurring despite the advent of the G20. Rather, the perceived benefits of economic globalization have begun to be clouded by an increasing body of research that links the processes of global economic liberalization with increasing income inequality, and long-term unemployment and underemployment in developed economies. The conference played host to eye-opening presentations by Dalia Marin from the University of Munich and William Lazonik from the University of Massachusetts on European and US experiences with economic globalization over the past three decades. In particular, Marin’s work on European offshoring efforts, and their correlation with increasing domestic inequality, highlights the increased attention being paid to the potentially harmful domestic effects of global economic integration. Marin’s research found that offshoring by rich-country trade partners reduces domestic skill premiums by 20–30 percent, and when combined with increased executive compensation, has seen the gradual decline of highly skilled, middle-class wage levels. Similarly, Lazonik’s work on the decline of domestic employment and real wage levels in the United States finds a strong correlation between this decline and labour outsourcing and increased corporate profits.

It is subsequently of little surprise that the use of trade barriers and discriminatory regulation, whether explicit or “murky,” is of increasing popularity among developed economy governments as a means of mitigating the worst effects of economic globalization. According to World Bank figures, over 500 explicitly discriminatory trade measures have been implemented since 2008, with the vast majority implemented by industrialized countries. Of the 141 measures found to target least-developed country exports, over 100 have been implemented by G20 countries (Evenett, 2009).  Moreover, Bussiere et al. (2009: 41) found that 24 percent of all financial regulatory changes implemented in 2007 were unfavourable to multinational enterprises, up from 12 percent in 2003-2004. While periods of economic liberalization and globalization are empirically associated with economic growth, the long-term vulnerabilities and dislocations they produce at the domestic level may act as catalysts for the predominance of domestic or “mini-lateral” priorities over multilateral ones.

Conclusion

The global economic crisis highlights the limits of orthodox economic thought on the benefits of globalization. Aggregate growth measures alone do not properly capture the systemic vulnerabilities produced by economic liberalization on domestic constituencies. As Lord Adair Turner noted, “economics must begin to focus on job creation, rather than simple measures of economic growth, as the key indicator of economic progress.” The rise of protectionist economic strategies, be they a reaction to the complex interdependence of contemporary capital movements or a reaction to the social dislocations related to real wages and employment, signal a shift away from strict economic globalization to a more nuanced “mini-lateral” version that ensures space for, and a privileging of, the domestic over the international. The inherent vulnerabilities of the latter have proven to hold too great a degree of risk for domestic political leaders. When combined with the dramatic rise of emerging economic powers, globalization in the twenty-first century will likely be radically different from its twentieth century version, and is likely to return to the adage that all economics, like all politics, is ultimately local.

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Dan Herman is a Ph.D. student at the Balsillie School of International Affairs at Wilfrid Laurier University. His research focuses on the political economy of international trade.

Works Cited

Bussiere, M., E. Perez-Barreiro, R. Straub, and D. Taglioni (2009). “Protectionist Responses to the Crisis: Global Trends and Implications” (unpublished). Frankfurt: European Central Bank.

Evenett, Simon (2009).“Crisis-era protectionism one year after the Washington G20 meeting.” Global Trade Alert. November.

International Labour Organization (2009). “Tackling the global jobs crisis-recovery through decent work policies: Report of the Director-General,” International Labour Conference, 98th Session 2009, Report I(A), ILO, Geneva.

Katzenstein, Peter J. (ed.) (1978). Between Power and Plenty: Foreign Economic Policies of Advanced Industrial States. Madison: University of Wisconsin Press.

Those two suburbs are great examples of the India of the future – one with towering office buildings, throngs of bilingual, suited professionals and modern urban infrastructure. Home to every international and domestic heavyweight company imaginable, they’re at the heart of India’s outsourcing economy and a large part of the country’s accelerated growth rate since the late 1990s. And both are served, at least in part, by modern infrastructure. For example, Delhi’s subway puts Toronto’s to shame; construction began in 1998 and in the twelve years since they’ve put together 180kms of air-conditioned, bilingual and digital service, including a link to the airport. Evidently, as this NYTimes article notes, there’s much to be desired from the government’s service provision in Gurgaon, but relative to the rest of the country, it’s an oasis of modernity. Jaipur hopes to do the same as it builds a new 32km subway system to serve over 3.5 million citizens who are witnessing entire city blocks being rebuilt to office towers and shopping centres.

And while these cities are geared in part towards foreign multinationals, one of the most striking aspects of India’s marketplace is the strong set of domestic companies that seem to dominate the consumer space. From automobiles to textiles, domestic brands are front and centre. For example, I’d estimate that over three-quarters of the cars and trucks on the road are domestic led by Tata Motors, Mahindra and Maruti-Suzuki. Foreign brands seem very limited, with Hyundai the only one to stand out. The same rings true in infrastructure, construction, beverages and telecommunications where big names such as Tata, Reliance, Kingfisher and Bharti dominate on billboards and television advertisements throughout the country. Together, the domestic and international presence in India has contributed to a burgeoning middle class of between 50 and 200 million Indians (depending on the metrics used to define “middle class”, and a grouping that comprise over 40% of India’s population by 2025.

However, this picture of India marked by modern mega-suburbs, impressive research and development centres , and a growing middle class contrasts with the stark reality of much of the India we saw. This “other” India was far less developed than I had imagined, and was far more reminiscent of a sub-Saharan African standard of development than a Chinese one. And given India’s impressive post-1990s growth rate (average 8% growth since 2000) and its over 300 billion in foreign exchange reserves it’s easy to overlook the dramatic developmental challenges it still faces. Notably, and despite impressive efforts at decreasing poverty, it’s still home to the world’s largest number of malnourished children (very visible on the streets of Delhi) and approximately 40% of the population qualifies as living in poverty. Moreover, despite the bright lights and air conditioning that adorn India’s burgeoning corporate offices, energy demand far outstrips energy supply as witnessed by blackouts in each of the five cities we spent time in. And unlike my experience in China where I saw very broad and quite spread out development across both major and minor centres, India’s development is much more “spikey” and seems to have completely neglected non-urban centres. In contrast, throughout China I was consistently surprised at the scale of development and reconstruction in small cities, especially those far removed from the eastern seaboard. And finally, and perhaps most indicative of the cultural uniqueness that exits in India, was the continued relevance of caste amongst people we met, and their self-identification as belonging to one group and others from an another.

And thus while India’s massive demographic weight alone supports its rise as a superpower, doing so in a sustainable manner will largely be determined by the country’s ability to meet the concomitant challenges of poverty alleviation, broad nationwide development and energy security.  The country’s infatuation with security issues emanating from its northern neighbour, and a very heavy media focus on political corruption will be equally formative.

Ultimately, India’s rise is much more nuanced than I believed prior to my visit. For India’s aggregate economic figures, and the focus on its so-far successful democratic and federal model, conceal issues related to poverty and inequality that need to be addressed for the country to continue its upward trajectory. As Indian author Shashi Tharoor writes in the the Elephant, the Tiger & the Cellphone , “India in the first decade of the twenty-first century is a young country, an optimistic country, a country marching confidently towards the future…but it is still a land of land of contrasts, where millions lives wretched lives amid poverty and neglect… We must do much more to promote education, health care and an end to caste and gender discrimination. Only then can we produce Indians truly ready to take India to the top in the twenty-first century.”

I spent countless evenings sitting at local restaurants talking with the Uighur equivalents of me about their lives in China, the challenges of minority status in China, and the persecutions they faced. And while many were initially reserved while in public, on several occasions I was ushered into back rooms where, away from over-jealous listeners, I was told of family members and friends who had disappeared for their roles in advocating for rights, cultural preservation and local autonomy.

What struck me at the time was the fervor with which my hosts explained their desire for voice, for recognition and ultimately for a role in deciding their own fates. The violent protests and reprisals that engulfed the province in 2009 thus came as little surprise. If anything I wondered why it had taken so long to boil over. What I heard over bowls of soup was a desire for recognition and respect no different than what Hegel’s Philosophy of Right taught us about man’s desire for recognition when he wrote it in 1833.

Weeks before, as I travelled through the country’s predominantly Tibetan countryside in Sichuan and Northern Yunnan province, I experienced the same. On several occasions I shared tea with young Buddhist monks who, eager to speak English, and once away from prying ears, shared their perspective on their rights and their desire to determine their own futures. The rapid influx of Han Chinese into traditionally Buddhist regions only served to sharpen their demands. And like in Urumqi, the protests that swept through monasteries across the region in early 2008 was far from surprising. Eventually those demands for recognition and the tensions they cause boil over.

The current unrest and upheaval in Syria is fundamentally no different. Yes, the issues, actors and contexts are extremely different. However, as our brief time in Syria in 2009 taught my wife and I, the confluence of stagnating economic prospects and a lack of voice provided kindling for the current fire.  I remember a conversation one night with a local engineer about Syria’s “supposed democracy,” his words not mine, and the growing angst that the lack of free speech and truly democratic accountability was catalyzing. Syria was ripe for change, he said, because people were demanding a voice. Once again, the subsequent protests fail to hold much surprise.

What’s interesting is that there are places we’ve been to where, based on what seemed like public consensus, I’d swear the revolution should be right around the corner – like Cameroon –  but where nothing has happened, and others – like Tunisia – where just over a year ago we heard not the slightest indication of what was to come. The mix of factors that determines the speed of change is huge – economic issues, the strength of the state, communications tools, grassroots organization etc.

But beyond these specific contextual factors, what’s interesting is that Fukuyama’s once-negated thesis on the natural evolution towards democracy looks increasingly apt. Many thought that the survival of autocratic regimes in Asia and the Middle East discredited Fukuyama’s work. Contemporary events however might just bring him back en vogue.

Ultimately, what still needs questioning is his thesis on “the end of history.” Recent events might mark a progression but is contemporary democracy really it?

Much ink has been spilt debating the merits of continued corporate tax cuts in Canada. But it’s fair to say that much of this debate misses the point. For corporate tax cuts are only one element, amongst many, of an economic strategy that will facilitate the development of a highly skilled, flexible workforce that will provide the foundation for a competitive Canadian economy well into the 21^st century.

In isolation, corporate tax cuts are proving to have very little impact on either job growth or foreign direct investment. For example, the federal corporate tax rate in 2009 was 18%, down from 29% a decade ago. Similar cuts in Ontario have made this province tax regime one of the most competitive in the developed world, ahead of both the US and EU averages. But instead of leading to more investment in employment-creating or productivity enhancing projects, all they’ve done is pad corporate profits and savings rates – while business investment and private sector R&D development inputs have actually decreased, as shares of GDP, across Canada.

The impact on foreign direct investment was similarly muted. Even the Canadian Association of Manufacturers and Exporters (an invariably staunch supporter of corporate tax cuts), have admitted that “over the past decade, reductions in Canada’s effective and average combined statutory corporate tax rates have had little observable impact on net flows of foreign direct investment into the country.”

So why, in the face of Canada’s so far ambiguous (and perhaps that’s being generous) record with corporate tax cuts, are policy makers and economists still battling over their implementation – and why are we now looking to reduce them further (target of 15% in 2012)?

Jack Mintz from the University of Calgary is often pointed to as a primary source of support for the cuts in corporate taxes. His work, as well as research by the OECD, highlights a large body of empirical evidence that shows that higher corporate taxes have a negative relationship with economic growth, therefore cutting taxes should expand the economy.

That this theory has not played out in the real economy should make us leery. But the bigger issue is that much of the empirical basis of this work is on the effects of cutting corporate tax cuts in high tax economies – not what should be done once corporate tax levels have been made competitive. This is an important distinction, because otherwise the theory would point to 0% tax rates across the board.

So further tax cuts have neither a strong theoretical foundation, nor any recent evidence of real impact on job creation and productivity. Further, they could be counterproductive. As Jim Stanford of the Canadian Auto Workers notes, by choosing to allocate tax revenue back to corporations and consumers rather than to productive investments in infrastructure, we actually cost ourselves the opportunity to create 50,000 new jobs.

Hence the focus on corporate tax cuts fails to address the most important issues related to the future of our Canadian economy. Our key issue is not corporate profitability, or even driving economic growth. Rather, it is productivity. Canadian labour productivity lags behind our American counterparts by 25 per cent, and over the last decade ranks second last amongst G7 countries and far behind most comparable EU countries. A decade of large corporate tax cuts has not improved this; it’s unlikely another decade of them will either.

So perhaps some tweaks to the tax code, such as targeted subsidies and tax incentives for productivity-enhancing investments in new technologies, research and development and job creation activities, and maybe even tax cuts aimed directly at  small and medium sized businesses, could be beneficial. However, implementing blanket tax cuts for large corporations, when we already have a competitive tax regime, is not the answer.

What will attract both domestic and foreign investors in the future is a productive and highly skilled workforce, and further incentives for long-term investments that boost productivity and our ability to compete. This means that ongoing investments into education, retraining and infrastructure (both digital and physical), are the keys to building a Canadian economy able to withstand the pressures and uncertainties of a hyper-competitive global marketplace – rather than continually lowering tax rates to pad corporate profits. If we’re serious about competing with the world then Canadians need to look beyond political and economic rhetoric and focus on the real issues and actions that can help facilitate the ongoing development of a highly-skilled, flexible workforce that positions Canada as a place to invest.

–

Dan Herman is a PhD student at the Balsillie School of International Affairs and a Senior Associate at the Ottawa-based Institute on Governance. You can follow him on Twitter @danherman

While a lot of ink has been spent anointing the recent popular uprisings in North Africa and the Middle East as “Wiki Revolutions” or “Revolution 2.0” thanks to the role that social media may have played in facilitating the coordination of mass protest efforts, as a forever skeptic of such hype, I thought I’d check out what the numbers, rather than rhetoric, tell us about the three countries most often mentioned.

So to begin with, the basics –

In short: young, educated, urban populations with dismal job prospects, albeit in relatively (nominal terms) equal societies.

And then, the tech basics -

*Note that user numbers spiked by between 25 and 50 per cent in January 2011 across all three.

The latter chart tells us a few important things, notably that Twitter is of minor consequence as a medium compared to Facebook, and more importantly, that both are rather insignificant compared to mobile phones and by inference, texting.

Evidently one would need to account for the reach and influence of those Twitter (and Facebook) users to ascertain the aggregate role of social media in catalyzing and coordinating the uprising across these three nations but it’s hard to fathom that these were more effective tools than the phones in the pockets of the vast majority. Perhaps this latter inference explains why on January 29^th, the day Egypt literally shut down the Internet, the protests, coordinated better than ever, reached their (then) heights. Or as the Atlantic reported, perhaps hand-to-hand distribution of flyers did the trick. Social media tools are just tools, and if not them, other tools will replace them.

Now my former boss has anointed this a “Wiki Revolution” for its birth in individual, uncoordinated actions. He argues that leadership is no longer a necessary element of social uprisings, noting that, “enabled by social media, leadership is coming from the people themselves.” This, however, ignores how social unrest works – past and present. Revolutions have in some cases been led by organized opposition movements, but as often they’ve been led by relatively ragtag groupings of student groups and non-governmental organizations that have their roots in individual action. The colour revolutions across Central Asia and the former Soviet republics provide good examples of the latter. What’s new about similar groupings in North Africa and the Middle East is not the lack of leadership or planning from those involved but rather the relative anonymity of that leadership in online spaces. Moreover, at some point there’s no difference between 100 people who coordinate their efforts under the guise of a specific organization and 100 people who do so on a Facebook page. And as many others have noted, there was no lack of leadership amongst the activists who organized and coordinated the first protests.

And ultimately, all this talk about the role of social media misses the point. Revolutions don’t happen because of tools, they happen because of schisms in the fabric of society. We seem to have forgotten history. Whether it’s the colour revolutions over the past decade, or the Philippine uprisings in 2001 that is commonly known as the first ICT-enabled revolution, let alone those that happened thanks to the radio and the handwritten pamphlets that were passed around in France back in 1789 , revolutions happen regardless of the mediums available.

Sure the Web 2.0 adds another layer, but it’s by no means necessary nor sufficient to enable them. Rather they happen as classless, or perhaps trans-class, challenges to the status-quo, and this cohesive societal backlash only happens when the perceived gap between have and have not, and between the desire for rights and the perception of rights received gets too big.

So while I don’t doubt that social media tools helped coordinate the uprisings, let’s not get too dogmatic about their role as mediums. If anything, perhaps the easily replaceable nature of these tools tells us that Marshall McCluhan’s famous pronoucement on “the medium is the message” needs questioning. For if the medium can be replaced but the outcome remains the same, what does the medium actually do? And does the type of medium matter? Or is simply the fact that mediums convey the power of the message behind it, notably that there exists some form of popular support for the message being sent.

Silver spoon revolutionaries will no doubt rejoice that thanks to the Web 2.0 they can now feel part of the plight of those repressed elsewhere but let’s not kid ourselves, retweeting and “liking” a Facebook page does not constitute involved or engaged participation. Rather, short of taking part in the protests or making tangible investments into change, we quickly forget and move on to the next one, feeling good about ourselves on the way. The hosts of the uprisings, however, get to move on (hopefully) to the slow and often painful process of rebuilding and readjustment that like the initial causes, have their roots in society and economics, not technology.