Globalization in Canada

free essayThe Canadian record on Globalization shows a mixed picture. Externally, Canada seems to have embraced globalization with the US Free Trade Agreement and, subsequently, NAFTA. A crucial factor, which should be taken into consideration, is the great free trade debate, which happened 20 years ago when Canadians from all walks of life got confused whether Canada should protect all its borders from the rest of the world or open them up? Ironically, currently, the Canadian government is more often criticized for lagging behind other governments in signing new free trade deals.

The core purpose of this paper is to bring out the globalization and finance situation in regard to Canada as a country. The paper concentrates on the globalization as well as the financial situation of Canada. It also dwells on the issue of how the USA crisis affected Canada. Often, globalization brings into sharp relief many issues at the helm of the modern study of the international political economy. It raises the query of whether and to what level individuals or countries lives in a new political-economic environment. If so, what has brought that new environment into being? Additionally, globalization requires that national communities concentrate on addressing the question of the amount of balance, which they might wish to adhere to for sustaining of economic benefits integration, as well as their concern that international economic integration needs that they learn to live with other risks. For instance, an increased risk economic shocks arising in the external environment, or a loss of political and/ or economic autonomy, as well as a need of learning to live within a complex cross- cultural environment. Thus, Canada comes out as the perfect example whereby globalization has taken a toll in the economy and brought noticeable change in terms of financial breakthrough.

Annotated Bibliography

  • Buckley, A. (2004). Multinational finance. Harlow, UK: Pearson Education Limited.

The book opines that globalization and finance that the social and cultural unity of the country can be affected by the market dynamics. The possibility to sustain the global interactions will be determined by the tensions between the developed and emerging markets. This is important in order to maintain the shape and the texture of the social world whereby all people will survive for many years.

  • Paul, K. (1995). Growing world trade: Causes and consequences. Brookings Papers On Economic Activity, 1.

The writer is of the opinion that globalization had many effects on the economies of the world. Some of them were positive while others were negative. However, he suggests that no matter the consequences, the process was helpful to developed and still developing countries.

  • Makin, A. J. (2009). Global imbalances, exchange rates and stabilization policy. New York, NY: Palgrave Macmillan.

The current wave of globalization has changed the nature of production and also the demand for labor. Previous wave of the globalization at the beginning of the 20th century has brought about a sharp fall of the cost of transportation, which in turn led to the concentration of production plus manufacturing employment. The crisis caused great imbalances in terms of finance across the globe. However, the necessary steps have been taken to ensure that stabilization has taken place.

  • Endres, A. M. (2005). Great architects of international finance. New York, NY: Routledge.

Several monetary and fiscal policies proved effective in supporting robust growth in domestic demand, especially household expenditures. The writer gives an example that, after as recessing as low as 20 percent, the auto sales in Canada have picked up and are now slightly less than 4 percent preceding their pre-recession level.. The author claims that Canadian economy cannot experience an indefinite growth based on the increased borrowing not supported by the households’ income. Before the recession, one-fifth of consumption growth was stipulated by the real estate bubble. It has come to the point where the major share of GDP growth had been due to overbuilding and ove-evaluation of the properties.

  • Saccomanni, F. (2008). Managing international financial instability: National tamers versus global tigers. Cheltenham, UK: Edward Elgar Publishing Limited.

The writer says that owing to the losses associated with US mortgages, from being prime, some financial institutions in the US and elsewhere either went bankrupt or was supported by their Governments. Financial institutions have become wary of lending to each other because of the fear that other institutions will not repay their loans, thereby pushing higher the cost of inter-bank loans. The higher cost of raising cash, combined with the desire to make their balance sheets look more attractive, has brought about banks lowering the amount they lend and at higher interest.

Introduction

Globalization usually means that the developed economies integrate and collaborate. It can also refer to a growing number of emerging economies to such a degree that may have been witnessed during the re-shaping of the economic global balance since World War II (Buckley, 2004). This developed integration of world economic activities comprises the growing tendency for the cross-countries, cross-border and cross-continent trade and the increased flow of goods and services, long -term and short-term capital, as well as enhanced and complicated redistribution of manufacturing logistics that involve multinational enterprises.

Literature Review

The global financial crisis had a shocking impact on Canada as a country. In the demise of Lehman, the world trade was reduced at a rate of almost 10 percent and an industrial production of 18 percent. Manufacturing output in Canada also reduced by about 20 percent and the auto production dropped further to 70 percent. In relation to this, 28 million of jobs were lost across the world. This includes 430,000 job losses in Canada, at the peak. The reverberations of this crisis can be felt up to date (Paul, 1995). The financial crisis plus the ensuing worldwide downturn has shown the crucial interdependence of the world economy. If based on solid ground, this interdependence of investment and trade create job opportunities and wealth, such as the $400 billion in export of Canadian goods. On the other hand, when there is no solid ground, the world economy may experience uncertainty and instability, as well as unemployment.

After peaking at about 8.7 percent in the month of August 2009, Canada’s unemployment rate has gradually fallen to its current level of 7.3 percent. Though it has not returned to its pre-crisis low, it is in part because the working-age population has continued to develop and potential workers have also continued to look for work. This is in very sharp contrast with the existing situation in the United States, whereby a large number of employees have over time become discouraged and left the labor market. More than 40 percent of the unemployed U.S. workers are long-term unemployed (Buckley, 2004). This compared with 18 percent of the Canada’s unemployed workers is high. In the same standing, the American unemployment rate is 1 percentage point above Canada’s. It is also a full 2 percentage points measured on a like-for-like basis (Paul, 1995).

Though Canada’s labor market has performed better than many other G-7 economies, there is still slack. The participation rate has not recovered fully, and the percentage of the involuntary part-time workers has risen for roughly 5 percentage points. Additionally, wage growth has been moderate, and it is expected to remain so. This is among the reasons explaining why monetary policy has been exceptionally accommodative for long. Interest rates have gotten near historic downs since the crisis started. Adjusted for CPI inflation, the real interest rate has been negative, on average, from the end of 2008 (Endres, 2005). With a financial system that is well-functioning, banks has provided exceptional policy stimulus to Canada’s economy, coming out as consistent with the growing activity and employment as well as being consistent with achieving the inflation target.

Longer-Term Trends

In Canada, the share of jobs in the manufacturing industry has consistently fallen as it also happened across many developed countries, having dropped from 25 percent down to 14 percent in three decades preceding the global crisis. In countries such as Germany, for instance, the employment share dropped from about 32 percent to roughly 19 percent over that duration. In the context, the record of Canada is average, with a noted decline of 18 percent about three decades ago to 10 percent today. In part, it shows the substitution of capital for labor, like the growing use of robotics in assembly lines. It reflects the complicated nature of globalization.

In both services and goods, the present wave of globalization has changed the production nature and also labor demand. During the first globalization wave that happened at the end of the last century, a mixture of falls in the large economies of scale and costs of transport in factories gradually enhanced the concentration of production plus manufacturing employment.

In the present wave that started in the late 1980s, notable steps in computing technologies and communications have lowered coordination costs across the production stages. This has enhanced distribution of the stages to locations that are cost-effective. Among the consequences has been the shift of fabrication jobs to the low-wage locations in the emerging markets (Saccomanni, 2008). In services and complex tasks, like professional and also health services, have become separated into routine components and higher-value-added, thus giving rise to outsourcing plus displacement in jobs. With the increasing part of global supply chains by companies, there will be concentration of a competitive advantage in all stages of production.

In general terms, the trends mean that the demand for unskilled labor in advanced economies is dropping, relative to that of skilled workers. Estimates point out that, going towards the end of this decade, a shortage of about 18 million skilled workers will occur, as well as a surplus of 35 million unskilled laborers across advanced countries. The broad shifts in demand for and supply of labor contributes to rising inequality. Over the past 20 years, incomes in Canada have increased twice as fast for the earners in the top 10 percent for those in the lowest 10 percent. The slot of the top 1 percent is the third highest among the member-countries of Organization for the Economic Co-operation and Development (OECD) after the United States and the U.K. The last time that inequality in the United States was severe in this degree was in the 1920s. Moreover, labor’s share of the national income is now at its lowest level for half a century across the advanced economies, including Canada. When income inequality get measured using the Gini coefficient, the widely-used metric of income inequality, then Canada is in the center of OECD countries.

Macroeconomic Context

A plan to develop better jobs in the environment considers the worldwide economic change that is currently underway. This starts by recognizing Canada’s barriers of depending on the local market. After the crisis, the main strategy of Canada’s economy became to develop domestic demand plus encouraging businesses in Canada to retool and become reoriented to the new worldwide economy (Paul, 1995).

Some stimulative fiscal policies and monetary proved better in developing robust development in home demand, especially expenditures in households. For instance, after dropping almost 20 percent in the recession, the auto sales in Canada rebounded and are now less than 4 percent preceding their level before recession (Saccomanni, 2008). As fruitful as it has developed limits of the growth model have become clear. Particularly, Canadians might not indefinitely develop through depending on households to increase borrowing power. 10 years preceding the recession, Canadians developed wealth in homes so as to finance a fifth of growth consumption. Activities of housing are now close to some record percent of GDP, and there are many developing signs of building plus overvaluation in real estate market segments (Endres, 2005).

Responding, the government instituted 4 timely tightening of terms in mortgage insurance. However, the elimination of household net financial deficit is going to leave a $50 billion gap in the entire Canada’s economy for two years. The gap can be filled via exports as well as business investment.

The economy of the U.S. is going through a slow recovery from the occurrence of the Great Depression (Saccomanni, 2008). The hopeful thing is that there is some progress being made banks in U.S have increased their capital substantially. American homes have recovered 2/3 of their $16 trillion drop in net worth from after the crisis. However, there is an estimation that it will use several years for homes to create that balance.

Given Canada’s dependence on the U.S. market, their exports are still below their pre-recession peak. Taking 9 percent of their exports heading towards fast-growing developing-market economies, their export performance has been second worst in the G-20 over the past decade. This si sometimes blamed on the strength of Canadian dollar. Though it might be true, it is might not be the most crucial reason. For the last 10 years, Canada’s poor performance in export was defined two-thirds via the market structure and the other third through competitiveness. In short, the underperformance of Canada before the crisis was a deeper reflection of whom they traded with than how efficiently they did it (Endres, 2005). They are exposed overly to the United States and also not properly exposed to fast growing markets.

USA Crisis

The worldwide financial crisis emanated from hard times in the United States housing dealings. Huge mortgages number– so referred to as sub-prime mortgages – were given to Americans who had poor histories of credit and sought to benefit from the low interest rates plus lax credit standards. With home prices lowering and mortgage rates going higher, a large number of the sub-prime borrowers cannot re-pay mortgages.

Many sub-prime mortgages got sold to investors worldwide through the process of securitization, which changes other assets and mortgages into exchangeable financial instruments like collateralized debt obligations (CDOs). People investing in CDOs and other financial instruments of the same caliber were subjected to relatively large losses because borrowers in USA failed to honor their mortgages (Makin, 2009). Moreover, the complication of these instruments and the lack of certainty surrounding their value has brought about a “market freeze” for products thus exacerbating losses carried by investors.

Due to the losses associated with US mortgages, which are far, from being prime, some institutions of finance in the US and other parts of the world went bankrupt or were supported by their Governments. Financial institutions have grown wary of lending to one another due to fear that the institutions will not service their loans, thus pushing higher the inter-bank loans costs. The high cost of raising money, combined with the desire to let their balance sheets appear attractive, has brought about banks lowering the amount they lend at high interest. The “credit crunch” is causing decreased consumption as well as investments, bringing fear of a worldwide recession (Paul, 1995).

How it Affected Canada

So far, Canada’s financial system has not been affected significantly by the worldwide crisis compared to those of other industrialized nations such as the US and Great Britain. The World Economic Forum has of late ranked Canada’s banking system as the best all over the world. Canadian banks making profits are well-capitalized as well as well-positioned to handle economic shocks. As well, with the six largest Canadian banks holding over 90% of the banking industry assets, we can say that the banking industry is relatively in stable conditions. Furthermore, the framework set to regulate Canada’s financial sector is more responsive and wiser, in some respects, than that of the US (Buckley, 2004).

Relative to their America colleges, banks in Canada were not much active in the less profitable lending and securitization processes that are at heavily affected by the current financial crisis. In 2006, less profitable loans accounted for not more than 5% of new mortgages in the whole of Canada, compared to about 22% in the US. Furthermore, whereas over 50% of all mortgage debts not cleared in the US were sold off to investors by the process of securitization, over 75% of mortgages in Canada were recorded by financial institutions in their balance sheet in the traditional way (as of 31 December 2007) (Makin, 2009).

While the financial system in Canada seems to be performing relatively better compared to those of other nations, Canada’s economy is nonetheless being affected by the global economic crisis. The economic hardships experienced by their largest trading partner – the US – are leading to weaker Canadian trading with the outside world and further problems in the manufacturing sector. Moreover, the Canadian energy and natural resources sector, which is very strong is likely to be affected as the world economic leads to lower demand and poorer prices for goods. Although Canada has been insulated from the worst of the financial slowdowns to date, their effect in the US and other places has affected, and will continue to affect, this nation.

With Canada exporting over 75 percent of its total exports to the United States, its economy relies more on the financial well-being of its southern neighbor. Though it would be hard put a dollar figure on the impact, it is an unnecessary strain to the economy.

It is regrettable though that the United State continues to move from one crisis another. A company based in Ontario that produces baseball bats for many major league players is afraid that the border delays may stop its products from reaching the United States in time good for spring training. If it takes longer time to obtain the product in hands of all best players in the globe, then it will be a huge problem. Fears similar to these are being heard from the hardship stricken auto manufacturing sector, where officials pointed out that a slow down at the border could cause jobs to be lost. It could cause temporary shut downs, and there’s a large number of workers out there who would not get paid in the three or more hour disruptions (Makin, 2009).

The failure to avert the United States spending cuts comes hand in hand with the news that the Canadian economy has stagnated for over the last three months. In both countries, a variety of the federal departments, as well as agencies, play a bigger part in safeguarding safety and security for the subject, in question, and some concentrate on these priorities in the shared border context. For instance, the Royal Canadian Mounted Police intends to ensure the security plus the safety of all Canadians and their institutions, at home and globally, and also looks at issues like this as the border integrity. The involvement in bilateral and Integrated Border Enforcement Teams (IBETs), which makes sure that shared borders remain open to the legal trade and travel when closed to criminal or the terrorist forces, is crucial in this regard. Yet another example is the Canadian Border Services Agency (CBSA), which usually administers and also enforces regulations that govern cross-border trade and travel, as well as the international agreements, as well as conventions.

Conclusion

Conclusively, economic globalization is one of the most influential forces that operate to shape the contemporary world. Globalization affects in some ways what is consumed; the manner and where business is conducted; how savings are marshal and employ; and communication between people. It is constantly developing the composition and structure of societies, creating opportunities for terrifying implications for others (Makin, 2009). Globalization is making it simpler for people to grow aware of cultures of far-away lands, but it may be also establishing a sense of losses for individuals regarding the values they hold and ways of their lives. It also results in tight constraints in terms of the autonomy of the national communities, which choose to partake in the global economy. Thus, the markets present many opportunities for a new growth, and new development, as well as higher welfare. However, global economy also presents new risks for all participants as it raises the issues of improved efficiency that co-exists with greater inequality. There is also the issue of whether industrialized countries and emerging markets can manage tensions brought about by the intensive interactions in terms of their economies.

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