Stalled. Michael Hlinka

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СКАЧАТЬ wishful thinking. It might be nice if everyone were paid more money (because we’re all consumers, aren’t we?), irrespective of whether anyone works harder and/or smarter and adds more value. But it’s not how any economy works. Wages move in lockstep with productivity and anything that enhances productivity leads to higher wages. And the reason why wages grew so robustly in the 1950s was a combination of capital deepening and a workforce that flat-out busted its @ss.

      It just occurred to me. I haven’t told you who wrote the words for the first interpretation. It was Robert Reich, who is currently Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley. He was formerly a professor at Harvard University’s John F. Kennedy School of Government and Mr. Reich served as Labor Secretary during the Clinton administration.6

      You can’t make this stuff up.

      The 1960s

      John Fitzgerald Kennedy was an inspirational figure. My parents loved Canada, grateful for the opportunity it had provided them, yet they still had a small bust of JFK that sat on a living room table. If there was one person who symbolized the 1960s, it would be Kennedy, and there is one single quote that defined him above all else: “My fellow Americans, ask not what your country can do for you, ask what you can do for your country.”1

      The words inspired a continent, at least temporarily. The irony is that before the decade was out, this quote had been turned on its head: North Americans were increasingly asking what their country could do for them, and expecting more and more.

      JFK had a wonderful ability to turn a phrase. If the “ask not” quote is his most famous, perhaps number two was “Those who make peaceful revolution impossible will make violent revolution inevitable.”2 The years after JFK’s death were turbulent, but there was a peaceful revolution that had been going on since the middle of the Second World War, and the ripple effects were felt in both the developed and developing worlds.

      It was the so-called “Green Revolution,” referring to improved agricultural practices that started in Mexico in the 1940s, and spread across the globe over the next two decades. This revolution’s George Washington was an American scientist, Norman Borlaug. He developed new, disease-resistance strains of wheat. These products, combined with mechanized farming, made the United States, a country that had previously had to import half of its wheat, a net exporter by the decade’s end.

      The Green Revolution involved more than developing new and more robust strains of plants. It also crossed into fields as diverse as agronomy, soil science, and genetic engineering.3

      Almost unbelievably — because of the latter in particular — there is some “controversy” around the Green Revolution. There have been criticisms levelled against it, including that increasing food production has led to overpopulation (suggesting it would be better if more people starved to death?) and that some places — specifically Africa — have not benefitted to the same extent as others because of a lack of infrastructure and corrupt governments (clearly Borlaug’s fault!).

      QUESTION 17

      Which do you think a critic of the Green Revolution is more likely to have?

      ☐ A full stomach.

      ☐ An empty stomach.

      The Green Revolution was — and is — an unmitigated good and if there ever was someone who deserved a Nobel Peace Prize, it was Norman Borlaug, who received the award in 1970.4

      Canada benefitted from the Green Revolution. One of the consequences was that fewer people actually produced more food. In 1951, 2.9 million Canadians lived and worked on farms. That number was cut in half by 1971.5 This change freed them to do other things; that is, to provide other goods and services, enabling the economy to grow even faster.

      A transition was continuing. Canada, which had had an economy based on agriculture in the nineteenth century, was becoming increasingly more reliant on manufacturing, and its single most important sector was automobiles.

      General Motors, Ford, and Chrysler were a tight oligopoly that controlled the North American automotive market. They manufactured on both sides of the border and all faced the same problem: there were stiff duties on both imports and exports. This meant that in order to sell Thunderbirds in Canada, Ford had to produce Thunderbirds in Canada. Otherwise, the tariffs made the cars prohibitively expensive. This hindered the economies of scale that are required to manufacture efficiently.

      A compromise solution was eventually reached — the Auto Pact of 1965.

      Its key points were:

       for tariff-free entry of Canadian automobiles or original equipment parts into the U.S., automobiles must contain at least 50 percent North American (U.S. or Canadian) content;

       for tariff-free entry of U.S. finished vehicles or original equipment parts into Canada, manufacturers in Canada must satisfy the following criteria:

       manufacturers must maintain a certain ratio between the net sales value of vehicles made in Canada and the net sales value of vehicles sold in Canada;

       the amount of Canadian value added for all classes of vehicles made in Canada must be at least as great as the amount achieved in the base year.6

      The Auto Pact created a unified North American market that discriminated against manufacturers located off this continent. It meant, practically speaking, that if Canada accounted for 10 percent of the North American auto market revenues, 10 percent of the total value of all cars sold in a calendar year had to be built here. This allowed a company like Ford to do all of its production of one model in Detroit, and sell them across North America, as long as it did all of its production of another car in Windsor, Ontario.

      This was good for both countries, but the impact was more pronounced in Canada: the productivity gap between Canadian auto plants and U.S. plants narrowed markedly in the wake of the Auto Pact.7

      Geography — as well as culture — made it inevitable that the United States would be our most important trading partner (and vice versa, though many Americans are unaware of this fact).

      A trade relationship can be impacted significantly by exchange rates.

      A quick step back in history. Coming out of the Second World War, there was a desire for the developed countries of the world to maintain the value of their currencies. I still remember a picture from my high-school history textbook of a German man in the 1930s pushing a wheelbarrow full of bills in order to purchase a single loaf of bread. The painful lesson was that runaway inflation could lead to economic and social chaos that in turn could lead to horrendous political solutions. Therefore, exchange-rate stability was a paramount goal of international policy in the 1940s and 1950s. This led to the Bretton Woods agreement.

      The U.S. dollar (USD) was established as the global reserve currency, the benchmark against which other currencies were valued. Exchange rates were fixed for the world’s currencies, with one important exception — the Canadian dollar.8 From 1950 to 1959, the Canadian dollar (CAD) was allowed to float, and for much of that time it traded at a slight premium to the USD. However, in 1960 it started to fall sharply. Canada returned to a fixed exchange-rate system from 1962 to 1970, with a new rate of 0.925USD to buy 1CAD.9

      The combination of a fixed dollar and managed trade wasn’t optimal. If Canadian productivity was lower (it was), a depreciating CAD would have levelled the playing field.

      Here’s how. There’s an American who makes СКАЧАТЬ