CROSSING THE LINE The Lunacy of Free Trade A look at the structure of Canada's economy and international trade shows why free trade can't and won't work for Canada by Marjorie Griffin Cohen 1 "The Americans are bastards," says Simon Reisman three years after he negotiated the Free Trade Agreement for Canada. He and Gordon Ritchie (former deputy trade negotiator) are trying to distance themselves from the miserable fall-out from the agreement they so ardently sold to the Canadian public. It isnt that Reisman and Ritchie are admitting they were wrong. They say the deal was fine, it is just that the Americans have been thuggish in protecting their interests and are too aggressive in pushing the new rules to the limit. They arent being nice guys. Is that a surprise? No surprise to anyone who knew anything about how the Americans negotiated the agreement, or who knew what they said they would do, or who knew anything about the structure of the Canadian economy. The Simon Reisman says FTA was doomed to failure and that has almost nothing to do with good or bad behaviour on either the deal was fine; it's just that side of the border. We got what we bargained for. The results of free trade have been awful. The the Americans are being official unemployment rate, which counts those who thuggish and aggressive are still looking for work, rose from 7.5 percent in 1989 to 10.3 percent by the end of 1991. But the real unemployment rate is closer to 16 percent, if those who gave up looking for work because none was available, and those who want to work full-time but accepted part-time jobs, are counted as part of the unemployed. The most obvious unemployment problems are in manufacturing. The job losses are not simply the result of layoffs with the possibility that people will return to work when the economy begins to grow again. The vast majority of these job losses GONE SOUTH Fee ade are due to capital flight. Firms quickly and permanently closed down. In Ontario, 65 ha hi Canada percent of the job losses in manufacturing between January 1989 and October manfacing 1991 were a result of permanent plant closures. This is in dramatic contrast to eco hade. Ten Ontario plant closures in the 1982 recession, which accounted for 22 percent of ea ago, 20 pecen job losses. Now only about 15 percent of the Canadian labour force works in of he con job manufacturing, compared with 18 percent when Mulroney took power in 1984, ee in manfacing; oda he fige i 15 and almost 20 percent ten years ago. pecen, and in a This is a very rapid decline in the significance of Canadas manufacturing sector. fee-fall. Change in the distribution of the labour force does not always indicate significant PHOTO BY structural shifts. For example, as Canada became more efficient at agricultural HMI MITIC/CAW production, we were able to produce more food with fewer people. So too, manufacturing production expanded while using a smaller proportion of the labour force over time. But the changes now are different. We arent producing more -- - things; since the FTA, manufacturing production has decreased by aver 1 4 percent. Free trade has affected the very ability to produce in Canada. Even more significant is the prospect for the future. Canada has never been particularly well managed, but in the past when things went wrong, governments could try new policies. The tragedy now is that governments ability to act appropriately when the economy deteriorates has been abdicated by almost total reliance on market forces, a turn of events that reflects not simply the political whim of the current government, but that has been codified in international trade law. CROSSING THE LINE Trade law now dictates what is possible. Any new piece of legislation that, for example, might require that a certain portion of resources extracted in Canada actually be processed here, is no longer allowed. We are at the mercy of what the Free Trade with the corporate sector perceives its interest to be in the immediate future. United States would The FTA rests on the belief in the power of the market to sort out all of the be like sleeping with economic problems of any country. It rests on the idea that there is one method by an elephant. If it rolls which growth and development can be achieved. And it is based on a very old, over, youre a dead almost archaic notion of how economies work. This notion is that when all players man. And Ill tell you approach the market on an equal basis, no one will be able to develop a monopoly when its going to roll and thereby control prices. In this ideal world, everyone will be better off with free over. Its going to roll trade because each country will be able to concentrate its resources and labour on over in a time of producing things it is relatively efficient at producing, and will be able to import economic depression things that it cant produce efficiently. No country will have to worry about anyone and theyre going to unfairly hogging the market. crank up those plants The problem with this idea is that we are no longer dealing with trade between in Georgia and North nations, but with the ability of large corporations (monopolies) to move easily Carolina and Ohio, between nations and to pick and choose the most advantageous conditions for and theyre going to themselves. These advantageous conditions depend on the historical position of be shutting them countries, their geographical advantages, and their level of desperation to secure down up here. i nvestment from large firms. When capital is free to move and labour is relatively BRIAN MULRONEY, fixed, the possibility for a happy-ever-after-ending vanishes. PC LEADERSHIP Canada as a country is very different from the U.S. It is a huge land mass but has CAMPAIGN, 1983 a small population. This has meant that holding the country together and moving things from one part to another has required cooperation and considerable effort and ingenuity. Much of the nation is coldd most of the time, while some parts are too dry and others too wet. This makes agricultural production precarious and requires special measures to ensure that food continues to be produced in Canada. The historical context and physical conditions of the land meant Canada developed in very different ways from the U.S. The country grew largely because we relied on exporting natural resources and because we encouraged foreign firms (mostly U.S: based) to own and operate not only the countrys resources but also a substantial proportion of the manufacturing sector. The result is an economy that is fairly unusual for a country that is considered modern, wealthy, and developed. It is also an economy with problems that have a lot to do with the way we developed historically. Canada consistently has high rates of unemployment, and there are always a greater proportion of Canadians unemployed - even in good times - than there are in the U.S. Our regional disparities are greater than in any other western industrialized country, and we periodically experience volatile fluctuations in economic activity that are THE LUNACY OF FREE TRADE 1 7 considerably more dramatic than those of other industrialized countries. Canada also has a relatively poor performance in the delivery of social services. Generally Canadians are proud of their social services, but that is only because we tend to compare the Canadian situation with that in the U.S. The U.S. is a particularly abysmal case, however, and if Canada is compared to almost any European country, its performance in this regard is dismal. With free trade, the structural problems that already existed in Canada were accentuated. While the FTA was promoted by the government and business on the soundness of its economic potential and the substantial economic benefits it promised to Canadians, it was precisely in terms of the economic logic that it was bound to fail. The major beneficiary of free trade was supposed to be the manufacturing sector. According to the economic models used by the government, manufacturing output would increase by over 10 percent. 3 The main arguments for the FTA focused on the need for a fundamental restructuring of the manufacturing sector. Canadian manufacturing was diagnosed as having poor performance in labour productivity compared with major competitors. This was related to the fragmented nature of production within firms, and to their relatively small production runs. That is, Canadian manufacturing firms tended to sell mostly within the country, and they produced a whole range of products for a relatively small market. Free trade, it was argued, would force companies to specialize in product "niches" that would find ENGINE TROUBLE Officiall, 45 pecen of Canadian epo ae highl poceed good, b ina fim anfe nde he ao pac accon fo 78 pecen of hee epo. PHOTO BY BILL MA)ESKY/CAW 1 8 CROSSING THE LINE markets in the U.S. These companies would then be able to undertake large-scale production for specific products and would become more efficient. It was argued that with secure and increased access to the U.S. market, weak and inefficient firms would be eliminated and strong firms that carried out large-scale, specialized production would thrive. While in theory this reasoning made sense, in the context of the real economic situation of Canada it did not. FOREIGN OWNERSHIP Those of us who argued against free trade recognized that the high degree of foreign ownership would affect investment decisions in Canada.