Every year has its ups and downs, of course. But there’s something about New Year’s that makes one naturally want to emphasize the positive. So here is my personal list of five positive economic developments from the year past — both globally and right here at home — that warmed this particular economist’s left-wing heart in 2014.
1. Canadian dollar falls back toward purchasing power parity
In its second year of sustained decline, the Canadian dollar lost close to 9 cents (on top of the 7 cents it gave back in 2013). Currently trading around 85 cents (US), it is well on its way back to its purchasing power parity benchmark (which the OECD pegs at 81 cents US). At that level, exchange rates perfectly reflect differences in nominal price levels — with the result that Canadian-made goods and services “look” as expensive in international markets as they actually are. Any higher, and Canadian products seem unusually expensive (and vice versa when the exchange rate is below PPP). This overdue depreciation is already having evident and welcome effects on Canada’s export performance: in an otherwise ho-hum economic year, a 10 per cent increase in Canadian exports (despite the effects of a tumbling oil price on the value of petroleum shipments) surely constitutes the biggest positive in Canada’s 2014 macro performance. (Of course, the accelerating American recovery helped a lot there, too.)
Many bullish pundits, in the late 2000s, welcomed the loonie’s dramatic appreciation as a sign of Canada’s “strong fundamentals” (whatever the heck that means) or “vibrant global demand for Canadian products” (i.e. our oil). They obviously weren’t reading the fine print of our trade data — not to mention our miserable investment and productivity performance. Remember how a strong currency was supposed to make imported capital goods cheaper, thus stimulating productivity-enhancing investments? Good luck with that. Actually it goes the other way, as any cursory review of historical data easily confirms: when Canadian products are internationally competitive (thanks, among other factors, to a competitive currency), that’s when businesses invest to produce more of them. Sadly, the exact opposite has been true since 2004 (when the petro-fuelled dollar first surged past the PPP threshold). Deteriorating performance in capital spending, productivity, exports, and incomes were masked (for a while) by the froth of the resource boom. But the global slowdown, the plunge in oil prices, and the stagnation of non-resource production and exports, have now laid bare Canada’s economic precarious resource dependence. We’re no longer the “golden child” of the OECD, no matter how often Harper cabinet ministers keep claiming it.
Even today the loonie is still modestly overvalued. Given the tendency of speculative currency markets to overshoot, I expect it to fall through the PPP level by the end of 2015, perhaps well into the 70s. The 13-year up-and-down of the loonie was pointless, destructive (with lasting consequences), preventable, and predictably temporary. Perhaps most infuriating of all is the hypocrisy demonstrated by the apologists for unfettered exchange rates. Initially they brushed off any fears that a strong dollar would undermine non-oil industries and regions. But now that the dollar is tumbling back to earth, they are unanimous (and correct) that the dollar’s fall will stimulate other exports and boost job-creation. The same hypocrisy is evident in their regional analysis, too: when former Ontario Premier McGuinty dared to suggest that Ontario’s economic problems were in part the collateral damage of a petro-fuelled appreciation in the loonie, he was denounced as divisive and whiny. Yet today mainstream economists are predicting that Ontario will likely lead Canada in growth in 2015, largely thanks to the effect of a lower dollar on non-resource exports.
If a strong dollar had nothing to do with the problems of non-resource exports and non-oil provinces, how can its decline now be so universally heralded as a good thing? The ultimate source of this glaring inconsistency is the refusal by mainstream economists to contemplate any analysis (no matter how factually based) that might conceivably justify economic policy interventions. That’s why they were silent in the face of a market-driven appreciation (fearing that such an analysis would strengthen the case for policy interventions to soften the currency and/or support non-resource industries — all of which is verboten in a laissez faire world), yet they welcome with open arms the inevitable, seemingly market-driven depreciation.
2. U.S.-China climate deal
The rapid development of China’s economy has had many positive and negative consequences. Among the negative, of course, has been its profound environmental impacts — especially its rapidly growing greenhouse gas emissions. China is now the world’s largest GHG emitter (though on a per capita basis it emits about 5 tonnes per person: just above the world’s average and less than one-third of Canada’s emissions). China’s emissions have been invoked by many climate change deniers and oil industry lobbyists to oppose meaningful action to limit our own emissions. Don’t forget, China is also now investing more in green energy, public transit, and other environmental improvements than any other country — and is poised to reap the industrial and economic benefits of that transition (through exports of environmentally advanced products and other spin-offs).
The climate agreement announced by China and the U.S. in November could be very important in breaking the logjam in international climate negotiations. The U.S. pledged to reduce its GHG emissions to 26-28 per cent below 2005 levels by 2025. China pledged that its total GHG emissions will begin declining no later than 2030 (and likely quite a bit sooner, given the significant deceleration of Chinese growth, and the already-evident reorientation of that growth toward more domestic and more service sectors rather than resource-intensive manufacturing). China also pledged that by that date 20 per cent of its total energy needs would be supplied by zero-emission energy sources (no doubt leaving Canada in the dust on that score). Together the U.S. and China account for over one-third of total global GHG emissions, and their commitments are a significant ray of hope in an otherwise bleak outlook for arresting and eventually reversing GHG pollution.
For Canadians, the deal puts even more pressure on the Harper government to pull its head out of the sand on climate policy. But we shouldn’t hold our breath for any epiphany from Ottawa. The ink wasn’t even dry on the U.S.-China deal when the Harper government changed its standard excuse for inaction: it used to blame China for its inaction, but it now says it won’t regulate GHG emissions from the petroleum sector (Canada’s largest and fastest-growing source of GHG emissions) because the U.S. is not regulating its oil industry. (The biggest U.S. emitter, coal-fired electricity generation, is now in fact being reined in by Obama’s new Clean Air Act extensions.) But with conservatives like Preston Manning and Jack Mintz now publicly acknowledging that GHG taxes are necessary, Harper and co. are clearly on the losing side of history on this issue. Let’s hope their abysmal and irresponsible record on climate policy becomes another potent election issue.
3. Syriza wins EU elections in Greece
The new activist left party Syriza came first among all Greek parties contesting the EU elections in May, winning 27 per cent of the vote in that country. It marked the emergence of the party (once a loose coalition of protest forces, now a more unified and focused electoral party) as a serious contender for power in the country that has suffered most from self-defeating austerity. Syriza’s steady development (both in quantitative support and the sophistication and unity of its message) marks the most hopeful sign that Europeans are finally ready to reject austerity and demand a radical shift in focus. Syriza’s growth has been echoed by the equally encouraging growth of other radical left parties in hard-hit countries of the Euro zone (like Podemos in Spain and Sinn Fein in Ireland). Their success indicts both the inhumane and ineffective policies of austerity itself, and the complicity of conventional social-democratic parties (who played along with the whole austerity crusade in hopes of retaining their “respectable” credentials). PASOK in Greece, once a powerful and hopeful force for change, more recently the unprincipled and incompetent administrator of austerity, has been rapidly and rightly consigned to the dustbin of history.
Parliamentary defeats for the Greek government have now forced a new national election there later this month, and it is no exaggeration to suggest that the future of the euro is at stake. Austerity offers only more years of misery, stagnation, and waste — culminating, in a worst-case scenario, in the rise of violence and extremism (just like hopeless stagnation produced in the 1930s). Yet austerity’s defenders (from Brussels to Frankfurt to Athens) have nothing better to offer. The dramatic but pragmatic measures proposed by Syriza are the best hope for a constructive escape from austerity. Incidentally, the current edition of Red Pepper magazine contains two fine articles on the history, politics and organizational strategies of Syriza and Podemos.
4. Tim Hudak’s right-to-work platform crashes and burns
As right-to-work laws crept north across the U.S., it was only a matter of time until they reached our border (passing in Michigan in 2012) — and then until it invaded Canada’s political discourse through conservatives wanting to ape America’s stridently anti-union, inequality-promoting institutional context here at home. Tim Hudak’s Progressive Conservatives in Ontario were one of the first mainstream right-wing parties to formally propose right-to-work laws. (Brad Wall’s Saskatchewan Party also endorsed the idea but didn’t act on it; Alberta’s Wild Rose Party also had right-to-work in its platform, but is no longer a credible force.) If Hudak had won the election, the virus would quickly spread to other provinces.
An effective counter campaign from the labour movement, progressive researchers, and others put Hudak’s party on the defensive. He actually jettisoned the right-to-work idea from the formal party platform weeks before the election was called, and demoted the true-believer Randy Hillier (architect of the idea) from his shadow cabinet (for other reasons). No one believed that the cat had changed its spots, however — all the more so when Hudak began his campaign by promising the elimination of 100,000 public sector jobs. Combined with the glaring errors contained in his “million jobs plan” (here is my contribution to exposing the problem and considering its implications), Hudak’s campaign will go down in Canadian political history as one of the most disastrous ever. Hopefully this experience will discourage other conservatives from trying the same thing. On the other hand, the episode also proved that the labour movement must never stop explaining its role, its values, and its broader economic and social effects to the broader population. If we allow ourselves to be isolated as a pampered special interest group, rather than a force for the universal improvement and inclusion of workers, then sooner or later a more effective Hudak-like character will win the day.
Incidentally, the current edition of the Toronto and York Region Labour Council’s newsletter Labour Action contains a typically thoughtful and sophisticated analysis of labour’s campaign against Hudak’s proposals — and what it means for the upcoming federal election.
5. Indonesia’s new anti-poverty plan
Here’s an economic moment that didn’t get much attention at all in Canada, but which I find both important and hopeful. I happened to be travelling in Indonesia when the ballots were counted in the recent Presidential election, and the liberal-ish challenger Joko Widodo was declared winner over Suharto-era general Prabowo Subianto. It was a delicate but important moment in Indonesia’s political evolution, and the subsequent successful transition indicated that change can indeed occur peacefully. The fact that international business overwhelmingly favoured Joko, fearing Subianto’s erratic nationalism, was important, too — and will no doubt limit what the new President is able to achieve.
One of Joko’s first major policy moves was the introduction of a comprehensive new national anti-poverty strategy in November using some very innovative techniques. Pre-activated mobile phone SIM cards will be used to facilitate the payment of modest income supplements to poor and very poor families. Some have dubbed it the largest cash transfer payment system in the world. Given the desperate plight of tens of millions of poor people in a country with incredible natural and human wealth, this is a remarkable and hopeful initiative.
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There’s my round-up of five hopeful economic events from 2014. Can you predict what tops my list of hoped-for outcomes in 2015? You get three guesses, and the first two don’t count…
Jim Stanford is an economist with Unifor.
Photo: Margot Trudell/flickr