This is a post from Alex Carrick's blog that covers the Canadian construction industry.

Since 1985, Mr. Carrick has held the position of Canadian Chief Economist with Reed Construction Data's CanaData, the leading supplier of statistics and forecasting information for the Canadian construction industry.

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Construction Industry Forecasts

Notes from Alex Carrick - Apr 27, 2009

Alex Carrick
A North American Common Market and Common Currency

This blog entry is a little more speculative than most, with a longer-term time horizon. It looks further down the road. Sometime, not tomorrow, not even five or ten years from now, but eventually, there are circumstances under which it will be just about inevitable that Canada, the United States and Mexico will combine as one seamless market with a common currency. The set of conditions taking us in that direction are as follows.

The Loss of Manufacturing Jobs

I have written before about how Canada and the United States are losing manufacturing jobs at a rapid pace. Over the past four years, Canada has shed 500,000 assembly line workers and the U.S. has eliminated five million, but over a slightly longer period of time. It is adult male workers who are being affected the most as manufacturing jobs are going to low-labour-cost producers in developing and emerging nations.

Nor is this a pattern that is likely to change, given the globalization that is underway.  Even China, as it continues to industrialize, is seeing its most labor-intensive work move to poorer nations. The same goes for the hope that high-tech jobs will provide new employment opportunities. Yes, that will be the case at first. But over time, assembly of solar panels, new battery types, etc., will be moved to locations of cheapest production.

How to Address the Problem?

The problem of finding low-cost labor is not limited to manufacturing. Since the turn of the century, it has spread to services. This is a phenomenon with potential serious repercussions for Canada and the U.S. as well. But it is in manufacturing that the most fractures are appearing. How can the outsourcing problem be addressed? Protectionism is not the answer, since this leads to retaliation and income loss world-wide.

Canada and the U.S. have been losing manufacturing jobs during periods when their currencies have been alternately weak and strong versus each other. One way to hang onto employment would be through a major collapse in the value of the U.S. dollar versus offshore currencies. However, this is not desirable, since it would bring on another even worse set of problems − ultra-high interest rates and possible permanent recession.

 

Altering Expectations

Another answer would be for labor to adjust its expectations. I wrote awhile ago that unionized labor in the manufacturing sector was in for a rough ride. The withered fruit of earlier sowing is currently on display in the problems of the Detroit car manufacturers. U.S. and Canadian autoworkers are being required to make significant concessions in their labour agreements to enable Chrysler and General Motors to simply survive. Unionized workers in the public sector are not faced with the same competitive pressures.

Cheaper Workers from Other Regions − The European Example

A third way is to acquire cheaper workers from other regions. Mexico is one likely source. This is where the example of Europe comes to mind. In the better times that preceded the current recession, several European countries (e.g., Ireland) had spectacular growth thanks to one particular course of action adopted by the European Union. The EU accepted into membership several former soviet and eastern bloc countries. Those nations provided inexpensive itinerant workers to other regions. They also became investment sites for lower cost production by major industrial firms in richer-member nations.

Turkey and the EU

A future round of EU membership may bring in Turkey. That nation has a predominantly Muslim population of 70 million. The social disruptions that would accompany lower-paid Turkish workers flocking into Germany and France means that those two nations have been less than enthusiastic about granting quick approval. Nevertheless, the structure of the European Union, with its guarantee of labour mobility among member nations, offers the potential for overcoming problems in labour compensation.

On the perhaps far-away day that Turkey is granted European Union membership, the future for North American industry will be altered considerably. From a competitive standpoint, it would be hard to see how a move towards a common market and common currency, extending from Canada through Mexico, could be resisted.

How Soon?

Will this come about any sooner? Probably not, given the extent of the resistance to further political and economic integration between the three countries as conditions now stand. And especially given the amount of concern in the United States about illegal immigration from Mexico that was exhibited during the Presidential election campaign.

A North American borderless market will require a huge shift in the mindset of many people. Nevertheless, it makes a great deal of economic sense. In the interests of retaining jobs and maintaining prosperity, it is likely to become more of a discussion point in the future. People will eventually get used to the notion. It is one of those ideas that, if and when it arrives, will seem predestined and inevitable under the right circumstances.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.


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Member Comments

Posted by Razoir
05/04/2009
I don't think a common currency and open borders are the answer. It will just eventually create larger bloc that will outsource its labour to a cheaper bloc. It also does nothing for the citizens of Canada who will face considerable downward pressure on their earnings as they compete with cheap labour at home, presumably from Mexico. In the meantime, who will be providing a social safety net for these workers--Canadians? And what are we supposed to do with our burgeoning popuation of cheap labourers from Mexico when we reach the end of the line and they demand wages comparable to ours? Send them home? Watching the inane thrashings of the federal government south of the border, I have no confidence in a common currency. Our federal government is doing a much better job of protecting Canada's currency and maintaining its value. Free trade, yes. Open labour market, and common currency no.
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