falling_coins

Recent incidents of Canadians losing jobs to temporary foreign workers have panicked Conservative Minister Jason Kenney into imposing a moratorium on the use of these workers by the restaurant industry.

Importing low-wage labour works against Canadians looking for a raise. However, Canadians looking for a job are also hurt by recent trends in foreign trade. An outflow of spending from Canada indicates weakness in the ability of the economy to generate jobs.

The Canadian current account deficit measures the amount of spending of all types that is leaking abroad: spending on goods, services, travel, or on insurance by Canadians, but also interest, dividends, profits and fees remitted from Canada to foreign owners and holders of Canadian securities. The difference between what spending goes abroad and what foreigners spend (plus what Canadians earn abroad) turned sharply negative in 2008; it was about $60 billion in both 2012, and 2013.

Overall the current account deficit totalled about $275 billion over the last five years. Statistics Canada has estimated that each $1 million in spending represents on average about 20 full-time jobs (with job creation higher than that in services, and lower in manufacturing).

Using the StatsCan employment multiplier, the 2013 deficit in foreign trade represents 120,000 lost jobs. 

While goods trade is running a $10-billion yearly deficit, yearly deficits in services trade and investment income of about $25 billion each reveal structural problems that need to be addressed.

Outflows of investment income reflects the extent of foreign ownership: how much interest is being paid on to foreign owners of Canadian debt, and especially how much in profits, dividends and management fees are being paid to absentee owners.

The Canadian dollar is sinking, which reflects the continued imbalance in the external accounts and a policy decision to allow the dollar to fall.

A lower dollar creates problems however, in addition to the decline in the standard of living it represents when Canadian money buys fewer goods and services.

While resource exporters will gather in more Canadian dollars for goods priced in rising U.S. dollars, foreign merger and takeover artists will be taking advantage of a cheaper Canadian dollar to go bargain hunting among the remaining Canadian-owned companies.

Foreign-owned transnational companies conduct trade internally, not at arms length. Transnational, footloose companies locate production offshore in low-cost jurisdictions irrespective of public policy pressure exerted to lower Canadian wages either from a falling currency, or by bringing in foreign workers, or abolishing federal support for welfare as the Liberals did in the 1995 budget ending the Canada Assistance program, or gutting EI as successive Conservative, Liberal and Conservative governments decided to do.

Foreign ownership of the Canadian economy has created a series of problems studied over the years and largely neglected today because dealing with the problems requires an ability to assert Canadian interests over those of absentee landlords, something Canada gave up in successive trade deals with the U.S. in 1989 (FTA) and 1994 (NAFTA).

People in Hamilton will remember what happened when US Steel came calling, buying up Stelco, promising to maintain more than 3,000 jobs, then shutting down steel-making operations. Recent layoffs show the American parent is winding up the Canadian company.

The bilateral trade agreements Canada signed with the U.S. and then the U.S. and Mexico provided American companies what they were seeking in protecting overseas investments, opening up services trade, protecting intellectual property rights, and gaining the right to sue Canadian governments.

Yet Canada has to live with the same protectionist legislation that was the excuse for the negotiations in the first place.

Worse, in the deals Canada gave up strategic tools for upgrading and processing raw materials such as export taxes or specific assistance programs other than in national security or, ironically, energy. Thus, the structural weaknesses revealed by the current account deficits are more difficult to address because of the constraints imposed by the “charter of business rights and freedoms” signed by Canada with the U.S. in two free trade agreements.

Tourism was the low-cost Canadian economic strategy adopted by the Chrétien government, as the former prime minister explained in his memoirs. Cross-border visits by Americans were sabotaged when our free trade partner to the south began requiring passports be shown by all U.S. citizens returning to Canada.

And yes, even though Canada is prepared to build a new bridge (with no tolls like the ones holding up a bridge in Montreal) to Detroit to facilitate bottlenecked commerce, the project is held up indefinitely. And then there is Keystone XL, another free trade story free traders pretend does not represent a failure of their favourite policy.

A Parliamentary committee is currently studying Conservative trade policy. What Canada needs is a strategy to promote investment in Canada. With the Canadian share of the Canadian market shrinking in the first five years after 1989, and the Canadian share of the U.S. market as well, the FTA did not promote either stronger Canadian companies or more successful exports.

The devaluation of the Canadian dollar in the mid-1990s was the result of failed economic policy. It helped promote exports, but at the cost of lowering the Canadian standard of living.

The current devaluation of the Canadian dollar is the result of the failure of the Harper Conservative government to address real economic issues. No amount of billboard or TV advertising can substitute for jobs lost by government inaction.

Duncan Cameron is the president of rabble.ca and writes a weekly column on politics and current affairs.

Photo: Robert Fairchild/flickr

Duncan Cameron

Duncan Cameron

Born in Victoria B.C. in 1944, Duncan now lives in Vancouver. Following graduation from the University of Alberta he joined the Department of Finance (Ottawa) in 1966 and was financial advisor to the...