The shifting currents of globalization

The Ontario Government yesterday announced a multi-billion dollar investment deal with South Korean technology company Samsung to build wind and solar energy installations across the Province. The deal will combine Samsung’s expertise and technology with Ontario’s now very available manufacturing labour force.

The Province expects 1,400 direct manufacturing jobs and as many as 15,000 indirect jobs to be created as a result. Setting aside some controversy over the subsidies given to the South Korean company, the deal marks a reversal of fortune of sorts for Ontario, and more broadly, for North American technology. While once we exported technology and imported in-kind labour, now the reverse is occurring. We provide the labour, they provide they technology.

And we’re definitely not alone in making this switch. In California, home to America’s most innovative science and technology companies, including a significant green tech community, nearly 50% of the State’s solar energy needs are met by Chinese companies. They bring the technology and capital, California provides the labour and consumer market.

It wasn’t that long ago that the Chinese and other communist Asian nations first opened their doors to foreign businesses. Discussions that began between Mao and Nixon on the exchange of nuclear technology for closer relations, all in the name of keeping the Soviets contained, grew to full fledged economic cooperation after Mao’s deaths and his successor Deng Xiaoping introduced a new set of capitalist-oriented reforms.

American and European money flooded into China, taking advantage of their massive low-skill, low-cost labour force to build factories that combined Western technology and know-how with Asian labour. And so began our most recent love affair with globalization.

We exported capital and technology, and imported the finished good, and thus in theory imported the necessary labour. Moreover, we received access to massive and growing consumer markets in Asia. The subsequent job losses in domestic low-value manufacturing were mitigated by the inflow of increased corporate profits from our new factories abroad, and the increase in service and knowledge based employment. So long as the proceeds of trade flowed back to America, Canada and Europe, we were happy.

Fast forward thirty years and it seems that trend is now reversing itself. China and its Asian neighbors have quickly leapfrogged that traditional hub and spoke, capital and labour relationship. They increasingly hold the technology and the capital that promotes trade. And while they also have large labour forces, access to our consumer markets means they’re increasingly looking for domestic factories in North America and Europe.

This is the flip side of globalization. Rather than an exporter of capital and technology, we’re now the labour that will facilitate those two factors. And while we grew content collecting the dividends of capital ownership and production outsourcing, we’re now going to see what happens when we lose the power that comes with it.

There’s no question we need both the jobs and the energy that such projects will bring but we’d be well served to take a long hard look at how we got ourselves into this position.

Where are our technology leaders?

Are we competitive in tomorrow’s industry?

And if not, why not, and how can we fix it?

Ontario’s Next Generation job fund and federal funding from Sustainable Development Technology Canada (SDTC) are certainly a start but given the leadership of Asian companies in new green industries, we need to think about how we’ll engrain a culture of innovation in Canada, and build a supportive incentive structure for the commercialization and eventual export of those innovations. This isn’t just a government policy and investment issue (though I don’t deny I believe it largely is); this is about how we teach students at university and high school, how we structure collaboration between academic institutions and between public and private ones, and ultimately, about the way we think of ourselves in the world. If we’re content to be a resource exporting nation then so be it, but in order to ensure stable employment for all levels of skill across the Province and country we need to be much more than that.

The devolution of power from Ottawa to the Provinces and down to cities has left everyone pointing elsewhere for answers and responsibility. Well now’s the time to push that siloed thinking aside and collaborate on a real vision for Canada. Ontario and, more broadly speaking, Canada, needs a strategy. An economic plan for the 21st century; one that keeps Canadians employed, Canadian products on foreign shelves, and one that keeps Canada as a major economic player in the world’s capital and trade flows.

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4 Comments on “The shifting currents of globalization”

  1. Pete Griffiths says:

    FDI from the East into the West isn’t a totally new phenomen though Dan. Japanese corporations invested heavily into the Uk and inparticular the NE of England in the 1980s, the Nissan plant in Washington, Tyne & Weir is the classic example of this. Fujitsu is another.

    Perhaps the scale of what we’re likely to see in the next 20 yrs or so is going be a whole lot larger but I don’t see why to stay prosperous Canada, the UK or where has to be the country named on these next leaders of technology’s birth certificate.

    I wonder if there will be/there is a “race to the bottom” about to take place amongst the Western nations for this FDI? I think there was elements of this in the Japanese FDI on rush as countries and then regions within these countries competed to offer better and better tax breaks.

  2. danxherman says:

    Hey Pete, thanks for your comment.

    I suppose I’m guilty of treating Japan differently then the other East Asian countries given their headstart on both industrialization and high-value trade. For China, South Korea, Taiwan and soon Vietnam and Cambodia, i.e. the countries that have benefited the most from this 1980-forward period of globalization, we’ve just begun to see the creation of strong brands that can compete and now invest abroad.

    As for technology leadership, while I agree that countries/regions can prosper with other industries and through services, sustained economic growth and by in large economic influence and power
    tends to accompany innovation and shifts to the next big thing. For example, the Brits and the cotton trade, the Americans and steel then computers, etc.

    The next big thing for economic development is likely green tech – and if someone else is building it, designing it and profiting from its export, then it will be increasingly difficult for those non-adapters to evolve their economies as necessary. Evidently there’s room for many in these markets but it’s rare that we start from behind.

    Now, that said, I think your race to the bottom is quite likely, and if not, protectionist measures will be. Which is worse/better?

  3. Pete Griffiths says:

    I wouldn’t disagree with any of that Dan, the UK wouldn’t last 2 weeks under protectionism we’re all in on globalisation. Canada probably has a bit more of a choice?

    The UKs financial services sector has basically kept the UK afloat by getting its finger in any new innovation to have taken place in the last 50 odd years, but it’s also prevented the UK doing anything other than just staying afloat. I’m not sure how much longer this can last for though, surely the Chinese will start to take a lot of this financing business, the Long-Twentieth Century would tell us they will.

    I’d be interested to hear how the Canadian banks are seen as fairing these days, they were should have come through the downturn in good shape.

  4. danxherman says:

    From Facebook….

    Ian S. Crookshank
    Well said Mr. Herman, the challenge being felt at even the consumer level. If given the choice of paying a little more for something made here I would, but honestly, most of the time that choice isn’t there. What might be just as concerning is that not only is the technology foreign but it is also built in a different foreign nation as well, so not only do we not have the technology leaders but we are not even involved in the primary manufacturing.

    Joshua Barnaby
    Now I am not a neo con, but I have always agreed with the idea that increased welfare can be attained by working with those internationally through free trade. There are a lot of other benefits to be had in not domestically trying to create a technology that already exists. Samsung is a global giant that quickly brings the idea of electronics to … See moremind. However, it is the largest Korean chaebol turned multinational conglomerate. The tentacles of this organization stretched from cellphones, to heavy construction, to cars, to large ships, to military equipment. Domestically in Korea they operate in all conceivable sectors of the economy. They recently finished the Burj Khalifa the worlds tallest tower found in the UAE. This company has the advanced technology to take on this project and complete at the highest level. That said Asia does encourage joint ventures when they welcome in foreign organizations. It tends to be very lucrative for domestic organizations and there is a technology transfer. Regardless, just wanted to say great article Dan.


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