Being an industrial province, Ontario is suffering from the effects of Globalization that have come to it in the form of competition from the developing countries. Ontario is not alone in this regard but is, in fact, a microcosm of what is happening throughout the industrialized world. Thus, the insight that is generated by discussing this Canadian province may apply to the other places as well.
Ontario has a diversified portfolio of high end industries operating side by side with the mining and logging industries which, by contrast, add little value to the raw material they extract. Thus, what is missing in Ontario’s industrial portfolio are the mid-range value-added industries such as textile, leather, furniture, home entertainment and appliances, and these happen to be the industries where competition from the developing world is fiercest. The auto industry is being challenged at the edges at this time and may soon join the list of the endangered industries.
For several decades, however, these were the industries that thrived in Ontario and throughout the developed countries. But then the poor countries began to industrialize and they supplanted their rich counterparts as suppliers of those products to the world. And that world included the developed countries which came to the conclusion that they have no choice but to leave the field and did so gradually as if dying a slow death.
This outcome was predicted twenty or thirty years ago, and the prophecy was fulfilled exactly as imagined. But did it have to be this way? Could something else have been imagined that would have led to a different outcome? In other words, was this outcome inevitable or was it the result of an ill-advised judgment made by the collective intelligentsia in the developed countries?
If the answer is to the effect that the outcome was not preordained, then there must have been another possible outcome which we missed out on. But what would it have been? Surprisingly enough we don’t have to go too far looking for the answer because the textile industries in the United States have taken steps to adapt to the new economic environment, and they provide some clues as to what the alternative might have looked like.
What these industries do now is buy the raw material locally or from abroad, produce the fabric in the United States inside factories that are capital intensive, and ship the textile to the emerging countries where it is made into garments inside factories that are labor intensive. The garments are then shipped back to the United States and elsewhere around the world where they are sold at competitive prices.
This is an approach that all industries in Ontario and the developed countries could have taken a generation ago but never did. The captains of these industries wasted valuable time because they relied on the predictions which said America and the West will no longer need to produce goods at the low end of the manufacturing industries.
Those who made such predictions believed that everyone who wants to work in the future will find a job at the high end of manufacturing and make tons of money. They thought this was going to happen because the workers in the developing countries will toil in sweat shops to supply the world with the fruits of the loom at the low end of manufacturing, and that they will not develop ambitions beyond this level for a long time.
Well, the predictions proved to be wrong when it was discovered that you still need someone to flip hamburgers in the developed countries and that a number of people flipped over to fill these positions. Young people and a few older ones were hired for the purpose but a number of them quickly got tired of the dead end jobs and flocked to the manufacturing positions in the lowly industries. In fact, some of the factories in America and in Ontario received as many as 50 applications for every job opening they advertised.
Seeing that the world had not turned upside down as predicted, the textile industries breathed a sigh of relief and responded by reinventing themselves upon which they found a good supply of workers in America willing to join their team. Textile returned to the country looking not as it did before but more in tune with the new economic realities.
We must recognize this turn of the events as representing Globalization at its best but we must also view it as being the beginning of a process. Similar approaches can and must be taken with regard to the other industries, and there is no doubt that the private sector will try do so where it can. However, many of these industries have been wiped out already in places like Ontario, and the question is whether or not there is a role for government to play both with regard to reviving those that died and to shoring up those that face a similar fate.
The short answer is that there is a role for government to play. But before we get into this, we should understand that at the basis of our thinking must be the search for strategies that will respond appropriately to the strategies adopted by the developing countries. The aim will be to work with those countries harmoniously so as to complement each other and not try to supplant one another.
What the American textiles did was to identify those parts of the process that were best suited to be handled locally and those that were suited to be handled in the developing countries, and they shared the work. Until we find a better model to work with, this example must be the one to follow because it was tested and has proved to work.
The government of Ontario should now pave the way for similar processes to happen reasonably quickly and not wait for them to evolve because it may take a generation or two for this to happen. The private sector will muddle along as it always does but the government can help in two ways. First, it can provide incentives via the tax code for sharing the work with the developing countries; second, it can coordinate the efforts with foreign governments based of the following principles:
The development of the countries that were left behind need not take place under conditions that look like a wrestling match, a combat or a war between two worlds. Rather, the exercise should look like a wedding between the two groups and be that in practice. What must be understood is that the aim of the developing countries is to industrialize as quickly as possible and become like the developed countries. It must also be understood that the latter want the developing countries to succeed and they are willing to help.
Thus, instead of working at cross purposes, each side doing something that may be detrimental to the interest of the other, let the two sides coordinate their efforts so that the development of the lagging countries progresses in a way that is beneficial to both sides. To this end, the work in every industry should be dissected into parts, those that are capital intensive and those that are labor intensive. At first, the developing countries will do the labor intensive parts while the developed countries do the capital intensive parts.
But as the developing countries progress, they will gradually get more of the capital intensive parts of the job while the developed countries get more of the labor intensive parts. Eventually there will come a time when the two sides will have the same mix of jobs, and the goal of achieving industrial equality between the nations will have been reached.
As an incentive for the developing countries to go along with this plan, the advanced countries will agree to come to the negotiating table as soon as a developing country feels it is ready for the transfer of technology. The two sides will negotiate the manner and sequence in which this will be done and then explore how the developing country may reciprocate.
One way to reciprocate that is beneficial to both sides, for example, will be for the developing countries to open their markets ever wider for more goods, services and investments to flow from the developed world.