Jane Jacobs and import-substitution.
More way-behind-the-cutting-edge blogging today. I just finished Jane Jacobs' Dark Age Ahead (which I got for Christmas two years ago). I had a pretty mixed reaction to the book as a whole, but her explanation for why Canada didn't follow the US into the early-00s recession is interesting: city-based (specifically, Toronto-based) manufacturing and substitution in final production of locally-made intermediate goods. Jacobs says (p.88-89):
My guess was that the [460,000 in the first half of 2002] jobs were being added specifically in the GTA and that they were materializing because the area was experiencing a significant episode of city import replacing, a process in which companies typically begin providing bits and pieces of producers' goods and services that were formely imported. This process is led neither by export sales nor by sales to consumers. It is led only by perceived opportunity... A number of clues suggested city import replacing. First were bits of anecdotal evidence from manufacturers in the Toronto area that, yes, they were purchasing locally various items that they formerly had to import; second the Canadian dollar was gently rising in value, which is exactly what happens during significant import replacing. And third, Statistics Canada, in an unrelated release, reported that Vaughan [home to several new intermediate goods factory parks] was currently the fastest growing "city" in Canada."
I don't know much or do much economics of trade, but the last thing I read about import-substution (IS) growth was Baghwati poo-pooing it in In Defence of Globalization as official national economic policy for developing countries. I guess what's interesting, if Jacobs is right, is that Toronto's bout of IS-based growth (and presumably Vancouver's during the early 90s) wasn't a result of any official policy -- that is, of import tarriffs or of attached production riders to import sales (i.e. forcing an importer to do final assembly of the imported good in the destination country, i.e. Canada.) Canada has basically signed on to the export-promoting, free-investment (EP) consensus, and is if anything more pro-NAFTA and less politically divided over trade than the Americans. So, the import substitution we experienced wasn't policy-directed but the product of private business-sector responses to the US recession, which otherwise would have dragged our economy down with it. Maybe that's why, as Jacob complains, Canadian economists were so confused by the expansion.
I'm sure there's better reading on this phenomenon out there somewhere. Ian Welsh's posts on cycles of and barriers to effective import-replacement and (Jane) "Jacobian economics" are good places to start. But what made the Golden Horseshoe businesses (spanning several industries) so flexible, the reaction fast enough to prevent us from following (at the aggregate, national level) the Americans into their post-911 slump, at least temporarily? And can spontaneous cycles of import-substitution in an export-promoting policy environment really keep small open economies autonomous from the economic fates of their big trading partners over the long run?
My guess was that the [460,000 in the first half of 2002] jobs were being added specifically in the GTA and that they were materializing because the area was experiencing a significant episode of city import replacing, a process in which companies typically begin providing bits and pieces of producers' goods and services that were formely imported. This process is led neither by export sales nor by sales to consumers. It is led only by perceived opportunity... A number of clues suggested city import replacing. First were bits of anecdotal evidence from manufacturers in the Toronto area that, yes, they were purchasing locally various items that they formerly had to import; second the Canadian dollar was gently rising in value, which is exactly what happens during significant import replacing. And third, Statistics Canada, in an unrelated release, reported that Vaughan [home to several new intermediate goods factory parks] was currently the fastest growing "city" in Canada."
I don't know much or do much economics of trade, but the last thing I read about import-substution (IS) growth was Baghwati poo-pooing it in In Defence of Globalization as official national economic policy for developing countries. I guess what's interesting, if Jacobs is right, is that Toronto's bout of IS-based growth (and presumably Vancouver's during the early 90s) wasn't a result of any official policy -- that is, of import tarriffs or of attached production riders to import sales (i.e. forcing an importer to do final assembly of the imported good in the destination country, i.e. Canada.) Canada has basically signed on to the export-promoting, free-investment (EP) consensus, and is if anything more pro-NAFTA and less politically divided over trade than the Americans. So, the import substitution we experienced wasn't policy-directed but the product of private business-sector responses to the US recession, which otherwise would have dragged our economy down with it. Maybe that's why, as Jacob complains, Canadian economists were so confused by the expansion.
I'm sure there's better reading on this phenomenon out there somewhere. Ian Welsh's posts on cycles of and barriers to effective import-replacement and (Jane) "Jacobian economics" are good places to start. But what made the Golden Horseshoe businesses (spanning several industries) so flexible, the reaction fast enough to prevent us from following (at the aggregate, national level) the Americans into their post-911 slump, at least temporarily? And can spontaneous cycles of import-substitution in an export-promoting policy environment really keep small open economies autonomous from the economic fates of their big trading partners over the long run?
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