DP column 25.10.2013: Canada’s Automotive Industry

Canada’s Automotive Industry
Can there be Pareto Efficiency?

Canada’s automotive industry is the backbone to middle-class income families in Ontario. Author of the article Greg Keenan, sheds light on the effect globalisation is having on the Canadian auto sector. I will discuss whether the government should intervene through providing subsidies, implementing trade barriers, or whether an alternative is available.

Global automakers are beginning to divest their production away from Canada and to rival auto centres such as the United States, Mexico and other emerging markets. The decline in demand for our domestic auto sector is not necessarily a result of their productivity, skill or determination. Canadian autoworkers are loosing their jobs to other countries due to globalisation. Why globalisation? Income inequality. Henry Ford’s ‘Ford Model T’ brought the end of hand crafting and the introduction of assembly lines. The automobile has increasingly become a mass produced & consumed car, the dependence on technological input has grown in concert. As technology becomes more sophisticated, the only human skill required will be ‘babysitting’. As a result, technology will require low-skilled workers to oversee production, thus, rendering Canadian autoworkers obsolete.

The Canadian government essentially has three options: subsidies, trade barriers and reeducation.

The Canadian auto sector already receives around $200-million a year in government subsidies. However, this is socially unfair as taxes collected by low-wage workers are redistributed to autoworkers with above national average salaries. Sustained subsidies will only hurt the industries competitiveness over the long-term.

Trade barriers could temporarily halt the reduction of domestic autoworkers by limiting goods manufactured outside of Canada. A protectionist policy can protect jobs & wages at the expense of consumers and labour-productivity. As a result, consumers will bear artificially high prices and autoworkers will lack the drive for productivity improvements.

Reeducation will be the sensible and socially responsible choice. Governments shouldn’t concern themselves with short-term measures (i.e. GDP) but invest towards long-term measures. An eventual loss of auto manufacturing jobs will result in many being structurally unemployed, unable to find other jobs as a result of lacking in skill diversity. Government investment in to reeducation programs will teach autoworkers the skills necessary for other industries (e.g. Oil-drilling), thereby ‘cushioning the blow’ between autoworkers losing jobs and gaining future employment.

While pareto efficiency is only a concept, it is an ideal to which the Government should strive towards.

DP.

PDF: Canada’s Automotive Industry

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