Northern Economist 2.0

Friday, 20 July 2018

Is the Russia-America Global CoDominium About to Begin?

Well, I had so much fun writing this and posting it on Worthwhile Canadian Initiative that I decided it was worth posting here too!


In the wake of the Putin-Trump Helsinki summit, there is much speculation about what was actually said between Putin and Trump behind closed doors and the uncertainty spread throughout the American government about whether agreements had been reached on issues such as Syria and the Ukraine.  The subsequent invitation to Putin to visit the White house in the fall – probably just before the November elections – has resulted in further uncertainty especially after Putin’s statement that he proposed to Trump holding a referendum to resolve the eastern Ukraine issue.  So, what is really going on here?
Quite frankly, we have all have been scratching our heads as the behaviour in some respects is reminiscent of 18th and 19th century monarchs gathering to decide the fate of wide swaths of the world in private meetings.  Putin is an autocrat and Trump is a business autocrat who admires political autocrats, so their personal level diplomacy may indeed be a series of moves designed to remake the world and return it to an age when Russian and American led blocs were the only game in town. Both the Russians and the Americans have seen their political influence decline in a multilateral world led by growing Asia-Pacific economies and both countries have been less than comfortable with the rise of China.
One has to wonder if this is an attempt by Trump to forge some type of private alliance with the Russians in an effort to coordinate their interests and deal with their ebbing international influence? The idea sounds like science fiction.  Indeed, the idea of these two countries getting together and establishing a CoDominium actually has substance in an alternate reality – the science fiction world of Larry Niven and Jerry Pournelle.  In their novel The Mote in God’s Eye, which was originally published in 1974, a series of treaties between the Russians and the Americans establishing the CoDominium in the 1990s sets the stage for a global government and the expansion of the human species out into the galaxy.  This of course would place Trump’s musings about setting up a Space Force into quite an entirely different light. Indeed, is Donald Trump drawing inspiration from a mythical civilization disrupting character known as a Crazy Eddie
Trump may be trying to engineer some broader type of Russian-American political alliance to counter their waning influence in the world driven by a nostalgia for the 1960s and 1970s.  After all, the rise of the Chinese economy and the growth of Chinese military influence is seen as a potential concern in some circles.  It does not matter how far-fetched the idea may seem given everything else that has been happening lately whenever Donald Trump takes the world stage.  Disrupting the world, wrecking the liberal economic order and creating chaos and then having America and Russia step in to fix things may seem crazy but does it make sense to foreign policy experts?  And, while Trump may be thinking along these lines what is Putin really thinking? I doubt he is a Niven and Pournelle fan.
Of course, one expects that greater formal cooperation between the Americans and the Russians will ultimately require Congress to sign-off especially if actual treaties are eventually negotiated. On the other hand, if it is all kept informal and behind closed doors, who knows what is eventually going to emerge?

Monday, 9 July 2018

Advanced Industries: A Northern Ontario Economic Challenge


A recently released report jointly released by the Brookings Institute and the Martin Prosperity Institute lays out Canada’s path to future prosperity via advanced industries and the challenges Canada faces in this economic sector.  The report is titled Canada’s Advanced Industries: A Path to Prosperity and is authored by Mark Muro, Joseph Parilla, Gregory M. Spencer, Deiter F. Kogler and David Rigby. These industries are not just in manufacturing but span a number of diverse industries with the commonality being the application of advanced technology and innovation.  Brookings defines advanced industries as: “industries as diverse as auto and aerospace production, oil and gas extraction, and information technology—are the high-value innovation and technology application industries that inordinately drive regional and national prosperity. Such industries matter because they generate disproportionate shares of any nation’s output, exports, and research and development.”

The report argues that Canada’s advanced industries are not realizing their full potential and that these industries need to be targeted to build a dynamic advanced economy for future growth.  About 11 percent of Canada’s employment – about 1.9 million jobs – is currently employed in these higher wage advanced industries and they generate 17 percent of GDP, 61 percent of exports and 78 percent of research and development.  Services account for about half of the Canadian advanced industry worker base followed by manufacturing at about 36 percent.  What is more interesting is the variation in scale, intensity and diversity of this sector across provinces and Canadian CMAs. 

Ontario, Quebec, Alberta and British Columbia together account for 91 percent of advanced industry employment which is just a bit more than their total employment share which is about 87 percent.  Not surprisingly, the CMAs with the most advanced industry jobs are Toronto, Montreal, Calgary and Vancouver.  However, productivity growth in this sector has been lagging relative to the United states. What is particularly disconcerting from the point of view of northern Ontario economic development however is the fact that every Canadian CMA added advanced industry employment between 1996 and 2015 – the exceptions being St. Catharine’s-Niagara, Greater Sudbury and Thunder Bay.  Thunder Bay also ranks low when it comes to the regional value added generated by advanced industries (See figure taken from page 22 of report) whereas Sudbury does better because of the intensity of its mining sector. Moreover, Greater Sudbury and Thunder Bay are also at the bottom of the CMA rankings when the number of advanced industry specializations is compared in terms of local concentrations of activity.

 

Boosting advanced manufacturing in Canada according to this report requires a strategy of “four C’s” – capital, competition, connectivity and complexity.  Capital is of course the most fundamental – that is, investment in machinery and equipment but also knowledge capital such as information and technology systems.  The weakness in business investment has been a long-known factor in Canada.  As for competitiveness, Canadian industries have traditionally had less exposure to intense competition and this may be limiting the capacity of its advanced industries to innovate.  Fixing this requires greater market competition and indeed deregulation and easing foreign ownership restrictions.  Connectivity involves Canadian firms participating more in global value and production chains and networks.  Finally, complexity requires firms to master the technological complexity and specialization of the modern economy and this is often measured by patent activity which in Canadian CMAs is generally below American ones.  Policies for building connectivity and complexity in the end also involve the unleashing of greater competitive forces within the Canadian economy in order to achieve the market size or scale within which advanced industrial output can grow.

Thus, a major obstacle for Canada when it comes to growing its advanced industrial sector is its highly regional nature which in the end results in barriers to internal trade, less competition and small market sizes that militate against the scale needed to grow output.  In the case of northern Ontario, even with the growth in local entrepreneurship which has been quite noticeable in its larger cities such as Thunder Bay and Sudbury, it remains that without growth in market size, new innovative ideas will be like so much seed fallen in rock if the companies cannot grow their output.  In the end, any regional economic policy must focus on increasing the scale of output by boosting market size either via exports or via immigration and local population growth.

Saturday, 7 July 2018

Why So Few Seeking Municipal Office?


With the July 27th nomination deadline for municipal office in Ontario rapidly approaching, attention has been drawn to the observation that the number of candidates seeking municipal office in Thunder Bay seems to have dropped.  The accompanying figure plots the number of candidates seeking a position on Thunder Bay City council as of July 6th.   With the exception of the race for Mayor which has seen a healthy increase in both the quantity and quality of candidates, there has been a drop in most of the other ward races with McKellar Ward being an exception.  

 

Current River had four candidates last election while at present there is only one.  McIntyre and Neebing also only have one candidate whereas they had four and three respectively last time.  Northwood and Red River are down to two each from four each last time and Westfort only has three compared to four last time.  The drop is most noticeable in the At-Large Race which had 19 candidates in 2014 and only 5 to date.  The total number of candidates for the City of Thunder Bay was 51 in 2014 and currently sits at 28 – a drop of 45 percent.

Of course, the decline in the At-Large race is partly a function of the fact that a number of At-Large councillors have opted to run for Mayor.  Given that the number of candidates running for Mayor has grown while the councillor candidates have declined, it suggests that being the top dog in Thunder Bay is perhaps a more attractive job than being a councillor. Another possibility is that there is a general lack of interest in running for municipal office in Thunder Bay this time given that the same faces have had the positions locked up for years barring the entry of fresh faces and repeated defeats have reduced the candidate pool in the long run.  Even though there are now some openings, there may also be a feeling of why bother given the headaches of holding office in a city with so many economic and social challenges.

Yet, there may be other explanations.  Explaining this decline, the Thunder Bay City Clerk has suggested that the earlier deadline compared to other years may be a factor.  In the past, candidates had from January 1st to mid-September to decide to run but a change in the Ontario Municipal Act shortened the period to May 1 to July 27.  This could indeed be the case given that Greater Sudbury, which is a larger city than Thunder Bay at present (July 7th) also only has 28 municipal candidates seeking office down from 70 last time and they have 12 wards plus a mayoral race.  There were ten candidates for Mayor in Sudbury in 2014 and currently there are only 4.  Of the twelve ward races, ten are down from 2014 (See Figure).


If this drop in the number of candidates is replicating itself across Ontario it means that the changes to the Ontario Municipal Act that have shortened the nomination period may actually serve to reduce the quality of our local democracy by having the unanticipated effect of reducing the candidate pool.  Deciding to run for office is not something that one takes on lightly and a longer period to decide may be beneficial.  Certainly, having the deadline in the middle of summer when minds are preoccupied with vacations may also not be a help.  On the other hand, if you are going to run why should a shorter decision period matter? Perhaps there are other changes that have occurred that have made filing more onerous? Has the volume of paperwork or the fee required gone up? There are still about three weeks left to go before the nominations close.  We will have to see if a surge in candidates declaring occurs.