Now trending: Mass layoffs
TheGlobeandMail.com – ROB/Commentary/ROB Insight
Dec. 4, 2013. Scott Barlow
Both Bank of Montreal and Potash Corp. announced layoffs on Wednesday, cutting more than 2,000 jobs from the Canadian work force. By now, it’s clear that wide swaths of employees are at risk from the combined forces of technology and globalization.
The global economy is exhibiting a tectonic shift from scarcity to the economics of abundance. Industry can produce whatever’s needed efficiently – companies are just having trouble making money from it.
Potash Corp.’s woes – sharply lower fertilizer prices – are not of their own making. The price slide began in July after OAO Uralkali withdrew from Belarus Potash Co., a European potash marketing group that, along with Canada’s Canpotex, controlled 70 per cent of the world’s potash supply and enjoyed considerable influence over prices. At the time, Uralkali CEO Vladislav Baumgertner also announced that the company would change its pricing strategy, and predicted global fertilizer prices would fall 25 per cent as a result.
In Bank of Montreal’s case, layoffs were in the personal banking divisions, and while details are scarce, I strongly suspect technology-based efficiencies are responsible for the newly unemployed. The document handling, accounting and human resources functions that used to be done by hand are now done by software that doesn’t ask for raises, and doesn’t need benefits.
The bank can provide more services with fewer employees. This higher level of productivity is another form of economic abundance.
Trade barriers are the traditional way to create artificial scarcity. If a Chinese auto manufacturer were able to sell cars profitably for $4,500 in Canadian showrooms, trade barriers would no doubt be erected. The scarcity of dirt-cheap cars is artificial in the same way that potash prices were. Otherwise, Oshawa and Windsor would look like Detroit. And artificial scarcities are everywhere in the Canadian economy.
Banks have never been subject to foreign competition. The federal government is desperately attempting to address the artificial scarcity in domestic telecom services. And supply management regimes in various parts of the food industry show no signs of loosening their grip on pricing.
Technological solutions are steadily replacing both blue- and white-collar jobs, and the problem is only going to get worse. But although engineering more artificial scarcity might protect corporate profits from lower prices in the medium term, it is not a sustainable solution – eventually there won’t be enough people employed to maintain demand.
Continually high levels of unemployment are politically unacceptable and creating artificial scarcity is offensive to the laws of free markets. Both trends might, however, represent a necessary transitional stage as an acceptable political solution addresses the need for wealth distribution.
The providers of capital are protecting themselves from an environment where their capacity is well in excess of demand. Governments are maintaining a difficult balance, helping business through trade protections while also mitigating the poverty-related effects of worker dislocation.
I know it doesn’t sound like it now, but over the long term all of this is good news, as London School of Economics economist Carlota Perez has pointed out. Abundance is wealth, and the ability to provide goods and services with increasing ease and efficiency will eventually improve the standard of living for everyone. It’s just going to take the political will to do unpopular things.
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