Staying competitive on a global stage

Downward economic cycles can be frustrating for some people as they generally result in layoffs and declines in average wages. In an effort to stay competitive in a downward economic cycle, companies will sometimes choose to eliminate benefits (such as medical or dental), modify pensions in a negative way, or simply keep wages the same as the cost of living increases. However, when economic conditions improve then the upward cycle of hiring and increased salaries follows. Beyond these normal economic cycles are some considerations for future generations for how the global marketplace will impact their employment and financial opportunities.

It is clear that the emerging markets, such as China, India, Brazil, etc are outpacing developed countries in the area of growth. The labour market in the emerging countries is significantly cheaper and most manufacturing facilities have moved abroad. Developed countries have also used technologies and automation to work smarter – not harder. The opportunities for increasing employment in Canada with the other emerging global markets are challenging.

Perhaps this decade will be classified as the period of equalization between emerging and developed markets. The decade ahead will likely go down in history as a period of higher unemployment and a stagnant period of growth if we continue on the current path. We are living in a global market place that is becoming increasing competitive. The five biggest obstacles I see with the current employment situation are: 1) Organised labour demanding higher wages and benefits, 2) Attitude towards doing certain type of work, 3) Environmental attitudes, 4) Companies hoarding cash and not taking as much risk, and 5) Continued advancements in technology. 

It seems there are daily announcements regarding how unsatisfied some fully employed individuals are. A common complaint is not having a wage increase that matches the cost of living. Organised labour has become very powerful in developed countries demanding increased salaries and benefits. On the opposite spectrum we know about the poor employment standards and human rights issues in some of the emerging countries and how people are working for a fraction of what developed country workers make. As employees demand more, are they effectively pricing themselves out of the global market? What is the economic incentive for companies to continue their operations in Canada when other overseas markets will allow for lower costs to produce the same goods?

Some Canadians are choosing not to work because they do not want to do certain types of work. Attitude towards accepting certain types of work as well as salary levels should be adjusted if we want lower unemployment. In this period of equalization is it reasonable to force higher minimum wages, or for university graduates to expect six figure salaries immediately. If we want companies in Canada to hire people here, it has to make sense for them, relative to the global marketplace.

There is always a balance between economic progress and the environment. This is especially the case for a country such as Canada, where 45 per cent of the publicly traded companies on the S&P/TSX Composite Index are in the resource sector. It would not surprise me to see this percentage exceed 50 per cent in the next couple of years. There are economic consequences if we put up too many environmental road blocks for companies. As investors we also have to see how this impacts the companies we invest in. Other countries all over the world are continuing to develop their resource sector with less environment regulations. We continue to send raw resources to other countries that create pollution on route and in processing – a prime example of this is shipping coal to Asia.

Investors have to monitor the changing political landscape. Stringent employment and strong environmental standards have an impact on the companies we invest in. The great country we live in was built during a period where environmental and employment standards were significantly different then today. Most people drive a car to work, take a jet on vacation, enjoy lower energy and power costs to run their home, etc.. None of these activities can occur without an impact to the environment. Shoppers are often looking for the lowest price. The lowest price item is often manufactured in a country outside of Canada. The majority of Canadians would buy something made in a country that lacks appropriate human rights and environment standards if they could save money. In many ways Canadians are being hypocritical when they complain too strongly about projects that may impact the environment. If the product is going to be bought or consumed anyways, then one could argue that we should focus on getting the most economic benefit ourselves.

In controlling growth activities in our own county, we have better control over the standards that are put in place. If we continue to only consume goods manufactured abroad then we have limited control. We have people who can analyse project costs, reduce risks, and address the legitimate concerns people have.

One quote that I recently heard that I liked was the problem in North America today is not that we are taking too much risk, it is that we are not taking enough risk. The excitement of corporations expanding in years past with new ideas has largely been replaced by fear and preservation by many companies. Companies are hoarding cash and operating in regions that have fewer regulations, absences of organised labour, less litigation, and fewer environmental complexities.

Advancements in technology can be both a positive and a negative. The obvious negative is that jobs can be lost through automation. There is a cost to automating through machines to replace manual labour. As labour costs rise then companies have a greater long term incentive to automate. Machines do not go on strike to demand more, and do not require pensions and benefits.

Political announcements and regulations are having an increasingly important role to consider when monitoring the economy and picking investments. As the emerging markets continue to outpace our Canadian marketplace, we should expect the employment challenges to continue on the same path unless our attitudes change, and we become more competitive. Might our current levels of unemployment be closer to the new norm? As one wise person once said, “you can not have your cake and eat it too.”