Thursday, September 6, 2007

GM layoffs expose our house of cards for what it is

In my last post, "The Twisted History of Trent Rapids," I plumbed the convoluted path of policy-making that has led to the current Liberal government's willingness to subsidize a hydro dam on Trent University property to allow Trent to earn some money from leasing the land - instead of simply properly funding Trent in the first place.

Next week I'll comment further on the proposed project in light of the Ontario Municipal Board hearings that occured this summer.

In the meantime, I'd like to discuss other peculiar paths of financial flow and their relationship to unsustainable economics.

Let's consider the layoffs announced last week at GM's Oshawa truck plant. GM announced 1200 workers would be laid off due to slumping US sales of pickup trucks, which accounts for 85% of the sales from the plant.

The slumping US sales are a result of a crash in the housing market. As the Toronto Star's Thomas Walkom wrote last week, the American housing market had been artificially propped up in recent years by the institutional practice of providing mortgages to homeowners who had little chance of ever paying the money back.

People were encouraged to buy houses whose mortgages were worth more than they could afford to pay, with the expectation that as demand for houses continued to increase, so would their prices. Essentially, you could buy a house with virtually no down payment, maintain the minimum interest payments on the mortgage for a few years, then sell the house for thousands more than you'd paid for it, and keep the profit.

This kind of bubble is bound to burst, as it finally did this past summer. Housing prices dropped, and many people were caught with an overpriced asset they couldn't afford to maintain. Homes were repossessed, new housing starts dropped, and so did the demand for imported pickup trucks from Canada.

Making the market even tighter is the rising value of the Canadian dollar relative to the American dollar. One of the main reasons for the Canadian dollar's increasing value internationally is the ever-rising price of oil and gas, largely a product of rapidly increasing demand for fuel from China's rapidly-expanding industrial sector. And who buys the products the Chinese manufacture using Canadian oil and gas? That's right - Americans.

At an all-candidates meeting during the 2006 federal election we were discussing the problems Ontario farmers face in trying to make ends meet due to the fluctuating food prices on the wholesale market, which are mainly determined in the US. The Green Party's position on the problem is to look for ways to detach the Ontario food-production system from the American trading system as much as is feasible. "Tying ourselves to the American economy is like tying ourselves to the mast of a sinking ship," I told the audience.

The truth is that America can't afford its current lifestyle - not even close. The American government has a debt load larger than total budget for many countries. The average American household spends more than it brings in each year. The American empire is in decline internationally, and at home.

The unsustainable economic systems that we have developed in the western world can only last so long before they crumble in a heap of broken promises. Canada is not much better off than the US. One can easily make the argument that our incredibly high standard of living is simply due, in the main, not to our work ethic or brains, but simply to the vast network of natural resources we have had to play with over the past 100 years - a network which is now approaching its breaking point.

Our oil and gas sector is currently booming. Petroleum prices worldwide are going to continue to increase as demand outstrips supply over the next generation. But as we know, the real cost of burning so much fossil fuel isn't going to be fully reckoned until two generations from now, when our grandchildren will face rapidly rising temperatures and climatic instability.

In the short term, too, though, we have a problem. America's consumption levels will have to decline, and with that decline will come a decline in demand for cheap Chinese manufactured goods. And with that decline will come a decline in demand for Canada's oil - and its motor vehicles.

The Ontario government has had the power for a long time to force local automakers to produce higher-efficiency vehicles with lower emissions. This not only would reduce our smog problem and our global warming problem, but would actually force GM and Ford to become competitive again in the marketplace. Instead, the government has repeatedly bailed out the automakers when they've run into financial trouble. This approach, supported by the autoworkers unions, hasn't saved jobs or made the companies more economically viable. It has only postponed the inevitable.

An over-reliance on unstable and unsustainable global markets should be avoided as a matter of policy. Many countries around the world have already learned this. Rampant economic globalization is no longer trendy in most places. But, as John Ralston Saul noted last year in his book The Collapse of Globalism, the political and economic elite in Canada haven't taken notice.

Brazil and Argentina have taken major steps to rid themselves of IMF loans and re-establish their economies under local control. Venezuela has nationalized its oil and gas industry and sought to stem the leakage of oil money to foreign investors. The American empire's influence over South America has diminished drastically over the past generation. But here in Canada, we're still blithely expecting to be able to ride the coattails of the US giant.

The GM layoffs in Oshawa should be a signal that it's time to retool our economy from the inside out.

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