Tag: walid hejazi

• Competitiveness and currency

  The Globe and Mail published an article yesterday morning called, “Why a lower loonie is (mostly) good for Canada.” It talks about the recent decline of the Canadian dollar from parity last May to roughly USD $0.92 today. But that the drop is essentially because of a rising US dollar. 

  Irrespective of what’s causing the devaluation though, the article takes the tone that it’s generally good for the country:

  “On net, this could be seen as a good thing because it’s making Canadian goods and services more competitive,” said Michael Devereux, a professor at the University of British Columbia’s Vancouver School of Economics.

  But this viewpoint always gets me concerned. 

  Canadian goods and services shouldn’t be competitive because they’re cheaper; they should be competitive because they’re the best damn good and services in the world. And so my fear with statements, like the one above, is that it almost makes us believe that a weak dollar is a prerequisite for competitiveness. It’s not.

  In fact, research done by Professor Walid Hejazi at the Rotman School has shown that a weak Canadian dollar actually lowers productivity levels and creates a disincentive for innovation. Why bother to innovate when you can always get your goods and services to market at a lower cost than your competitors?

  Thankfully, the outgoing Senior Deputy Governor of the Bank of Canada (and upcoming Dean of the Rotman School), Tiff Macklem, has acknowledged this perspective. In a talk at Queen’s University last January, he said:

  “What should Canadian businesses do? First, don’t count on a weaker Canadian dollar. Hoping for a weaker Canadian dollar is not a business plan. A sustainable export strategy cannot rely on expectations of a more favourable exchange rate, since Canada is likely to remain an attractive investment destination.”

  That sounds like good advice to me.

  2014.01.12

• Labour Day thoughts…

  Today is Labour Day (or Labor Day for my American friends).

  Many of us simply think of it as the official end of summer, but it’s also the day we’re supposed to celebrate the labour union movement and the achievements of workers. Given this, and the fact that yesterday’s post was about Detroit, it seems like an appropriate time to talk about jobs.

  In many ways, the woes of Detroit are simply an extreme example of what’s happening in many advanced economies. The loss of manufacturing based jobs is creating a void that is not being filled – or is being filled differently – by new industries.

  The first piece to this is what I mentioned yesterday: education.
  

  Manufacturing jobs allowed unskilled workers to make good middle class salaries. But other than a few remaining instances – such as in Fort McMurray, where high school graduates can make six figures working in the Canadian oil sands and the average price of a home is pushing $800,000 – I think it’s pretty clear that the opportunities for unskilled workers is on the decline.

  Therefore (and this is old news), we clearly need to figure out ways to retrain existing workers and ensure that the next generation is equipped with the skills and knowledge to compete in this new world. The problem though – and this is the second piece – is that I’m not sure the new economy will require the same raw number of people.

  What I mean by this is that scaling up production of an automative plant is quite different than scaling up an internet platform like Twitter or Tumblr. You just don’t need as many people, which is why the returns to being smart have grown massively for those few. And this is part of the reason we’re seeing rising income inequality across the board.

  Now, I don’t know what the answer is, but I think we’ve already shown that the transition to a new economy isn’t going to be a smooth one. To that end, I’ll leave you with one last thought which came from a former professor of mine at Rotman, Walid Hejazi.

  His argument is that it’s actually unethical for governments to subsidize unproductive sectors of the economy, such as a manufacturing, in order to sustain jobs. The reason being that you then have high school students telling themselves that they don’t need to go to University because they can simply go work at the local plant and make decent money. But what they don’t realize is that there’s a very real expiry date to those opportunities and, when it comes, it’ll be much harder for them to be retrained.

  What are your thoughts?

  Here’s what venture capitalist Fred Wilson had to say today.

  2013.09.02