Global Shift

Series Contributors:
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At the 7th annual Toronto Global Forum organized by the International Economic Forum of the Americas, leading economic decision makers from around the world met to discuss pressing national and global issues.

The theme of this year’s conference, Globalisation at the Crossroads, caught our attention here at OpenCanada. Too often the process of globalisation is taken for granted by policymakers, business people and academics. While it is true that resources, people, and ideas are traveling across borders faster than ever, driven by innovation and the spread of technology, the future of globalisation remains fraught with uncertainty. The dream of a ‘frictionless market’ is conceivable in only a few discrete areas.

This uncertainty reflects the fact that the impacts of and responses to globalisation in many spheres of the economy are still poorly understood. Governance frameworks for a globalising world are still evolving. Increasingly, groups of countries, cities, corporations and individuals are unprepared to wait for the dust to settle – they are building new networks, not only to do business but also to confront challenges that are beyond the capacity of any single entity to solve.

These networks are increasingly running up against established economic and political norms and processes, sometimes disruptively. The process of globalisation has been underwritten largely by Western countries, many of which are now struggling to reconcile their political priorities with the post-2008 economic reality. But while they are preoccupied with looking inward, emerging powers are looking outward, claiming their due in global supply chains and demanding more seats at the table, from the IMF to the UN Security Council.  As the U.S. market struggles to regain its footing, consensus over where the economic center lies, or whether it will hold, is eroding.

We find ourselves at a crossroads because of the massive shifts now under way in the global economy and the uncertainty rippling across issues and sectors. We cannot explain away the current state of flux by pointing to climate change and China’s rise. If we want to understand where our globalising economy is headed next, we need to go deeper and consider the state of the global economy from as many vantage points as possible.

We asked the experts at the Toronto Global Forum to tell us what they consider to be the biggest shift now under way in the global economy. What we found was that the “biggest shift” is composed of a diverse series of trends – something that can only be appreciated by viewing the world from the perspective of the trendsetters themselves. Below you will find the critical trends they identified in the areas of new markets, energy, sustainability, and individual empowerment.

NEW MARKETS

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Ferry de Kerckhove

Former Canadian Ambassador to Egypt, Indonesia and Pakistan

There has undoubtedly been a geographical shift in the world economy away from U.S. economic dominance and towards new centres of economic power such as the BRIC’s, with China being, for now, the key player. But if one considers that there has been more technological and scientific progress in the last five years than in the history of humanity, then, clearly, the really important shift in the global economy is the diffusion of knowledge. The globalization of knowledge is in large part due to the attractiveness of the highly productive U.S. model, with its open institutions. This model has been imported, imitated, copied and hacked by emerging and other nations in dire need domestically of knowledge-based expansion. Indeed, China today has yet to translate its progress in science and technology into a truly innovation-based economy.

There exists today a full-blown world market of competencies, abilities, and capabilities.  Innovation itself has changed inasmuch as scientific advances in chemistry, physics or biology are now accompanied by productivity-enhancing restructuring of labour and organizational processes. The Internet in itself has become a giant enabler of knowledge. Its “population” is larger than any country in the world. Facebook alone is the third largest “country” in the world.

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Ray Tanguay

Chairman of Toyota Motor Manufacturing Canada, Inc. and Toyota Canada, Inc.

Chairman of Toyota Motor Manufacturing Canada, Inc. and Toyota Canada, Inc.; and Advisor to Toyota Motor Corporation in Japan

From my perspective, the focus of the question itself – the global economy – provides a strong hint of the answer.

Up until the mid-1960s, in order to sell an automobile in Canada, you had to make that automobile in Canada. In other words, the Canadian industry had an insular, national outlook.

After the Auto Pact of 1965, the Canadian industry was opened up to competition and to sales opportunities across Canada and the U.S.  At that time, we transitioned to a continental view.

Today, the automotive industry is global in nature. Automobiles can be shipped across oceans for just a few hundred dollars. Barriers to trade have been falling away. As a Canadian automobile maker, to be successful, we must therefore be globally competitive.

That’s the most important shift we’re facing. For the automotive industry, that means competing globally while remaining committed to building vehicles where we sell them and respecting local communities.

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Jean-René Halde

President and Chief Executive Officer, Business Development Bank of Canada (BDC)

In my view, one of the most significant shifts taking place is the extent to which the world is being reshaped by the economic success of emerging-market economies (EMEs).  Over a decade ago, the majority of global economic growth came from advanced economies, whereas in 2012, advanced economies accounted for only 20% of global growth.  Moreover, EMEs’ success has profoundly altered the global business environment.  While the U.S. remains Canada’s largest export market, EMEs are becoming increasingly important destinations for Canadian exports: two of Canada’s five largest export markets—China and Mexico—are EMEs and Canadian export growth in these markets has been significant.  In the past decade, the share of Canadian exports to the U.S. declined from over 85% to less than 75%, whereas exports to China quadrupled and those to Brazil nearly tripled.  At the same time, businesses from EMEs are also becoming global players in their own right.  While Canada remains the U.S.’s largest overall trading partner, China has already overtaken Canada as the country from which the U.S. imports most.  To remain globally competitive, Canadian businesses must adapt their strategies to take advantage of opportunities outside the U.S.

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Benoit Daignault

Senior Vice-President and Global Head, Financing and Investments, Export Development Canada (EDC)

In today's global economy, the burgeoning middle classes of emerging economies are creating huge new consumption markets. At the same time, these emerging economies are trading more and more within, creating new trade routes and supply chains that Canadian companies have to access. Certainly, the recession taught us that we need to diversify our trade, so any form of trade liberalization is a plus, but it has to be fair, effective and balanced. The "new generation" of FTAs that we're seeing today, like CETA and TPP, go way beyond tariffs and address many of the issues that are critical in today's integrated, global economy. We're hopeful that this will give Canadian companies freer access to key emerging markets and pave the way for much more Canadian trade.

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Warren Jestin

SVP and Chief Economist, Scotiabank

Global economic activity remains highly uneven, with U.S. consumers getting back in a spending mood and Europe showing signs of crawling out of a lengthy recession just as China and some other new world powerhouses are losing momentum.  From a Canadian perspective, the cyclical recovery of U.S. consumer spending and the prospect of a comprehensive trade deal with Europe are positive for exporters. However, on a longer-term basis, the real game changer in terms of opportunity is the rapid emergence of domestic demand in Asia and Latin America. These nations are making the transition from world-class producers to consumers at an astonishing rate and will account for an increasing share of global economic activity over the balance of the decade.

While highly accommodative monetary policies should keep short-term interest rates in the major developed nations near historic lows, global financial markets will remain prone to sudden bouts of volatility as investors first anticipate and are then forced to adjust to a tapering of the U.S. Federal Reserve’s massive bond buying program.  For Canada, this suggests that longer-term borrowing costs will be rising.  With investors now more positive on U.S. prospects and less positive on many commodities, the Canadian dollar also is likely to stay below parity, probably gravitating towards 95 cents (US) in the months ahead. 

ENERGY

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Tony van Bommel

Senior Managing Partner, Energy/Cleantech Venture Fund, BDC Venture Capital

The shift to distributed energy generation, the vast majority of which will be renewable energy generation, will change the utility model drastically over the next decade.  This is not unlike the effect that the mobile phone has had on the telecom industry, where large monopolies were broken up and new business models emerged. The challenge then and now is for the regulatory environment to keep up.  Already utilities are searching for ways to participate in the distributed revolution.  Some have bought or invested in the development of large energy renewable projects, others have merely bought power, while others have sat on the sidelines.

The utility business model of today will be unrecognizable by 2020. Already today it is being restructured. In Germany, over 50% of renewable energy generation projects are customer owned, forcing large utilities to think of services they can sell to the smaller independent operators versus investing in larger energy production projects. In developing nations, distributed generation will greatly speed up the reliability and availability of electrification.  This will affect their economies in a significant and positive way.

Overall, the shift to distributed energy generation will impact the global economy by reducing energy costs, reducing the impacts of fossil fuels, and increasing economic productivity worldwide. It will change the business model of many organizations, both large and small, around the world.

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Ralph Shay

Partner, Dentons Canada LLP

The world’s economy is tied closely to the availability of energy.  Look back a few years and the headlines were all about “peak oil” and the economic collapse that was sure to follow.

A shift in technology has changed everything, allowing countries like the U.S. and Canada to extract oil and gas that was once uneconomical or even impossible to reach. The promise of greater energy independence for the U.S. in particular will have a profound effect on the global economy and the balance of power.

There are governments in other parts of the world also hoping to take advantage of untapped reserves. Countries like China, Argentina and even the UK are hoping to find ways to increase their energy independence using new extraction techniques.

These new sources of oil and gas are not only affecting dependence on imports from the Middle East, they are also creating employment hubs in previously under-populated and impoverished areas. This, too, will have an effect on the global economy, with energy jobs moving into new regions.

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Hirobumi Kawano

President, Japan Oil, Gas and Metals National Corporation (JOGMEC)

The shale gas revolution is changing the global energy landscape dramatically and making a significant impact on the global economy.

A large part of global growth in energy consumption will be caused by increasing energy demand in non-OECD countries. Regarding LNG, the demand is expected to expand in emerging Asian economies such as China and India, in addition to the traditional largest consumers, Japan and Korea.

The shale gas revolution in the U.S. expands its influence in global energy markets. Canada, the largest energy supplier to the U.S., is seriously considering ways to diversify its trading partners. Russia, traditionally the largest exporter of natural gas to the European market, is decreasing its share there and may now be seeking alternatives. Moreover, East Africa, the frontier in oil and gas upstream business, is expected to be a promising new supplier to the global energy markets. All these countries appear to have strong interests in the Asia-Pacific market. In addition, traditional suppliers such as South East Asia and Australia would seek to maintain their well-established existence in the Asia-Pacific market.

The shale gas revolution and the development of the Asia-Pacific market will lead to dynamic changes in the global energy balance and economy.

SUSTAINABILITY

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Pier Carlo Padoan

Deputy Secretary-General and Chief Economist, Organization for Economic Cooperation and Development (OECD)

I see two shifts. Firstly, the sense that collective action is important is stronger now. Emerging economies recently have proved to be weaker than expected, undermining the idea that there might be parts of the world that are immune from the global financial crisis. There is a new conscientiousness that there is a global dimension to the problems we’re facing. Secondly, there is a growing appreciation of the fact that economic growth per se is not sufficient to solve problems. We understand now that for a multidimensional environment, we need multidimensional policies.

So now the challenge is to adapt our policies to focus not only on quantitative growth, but also on quality and distribution of growth, because all these elements are correlated. We need to ask, what will policies designed solely to boost growth do to say, inequality? What about sustainability? Because it’s not just about growth anymore.

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Marc Rosen

Professor, Faculty of Engineering and Applied Science, University of Ontario Institute of Technology (UOIT)

The most important shift that I perceive in the global economy is a move towards sustainability. Although hard to define precisely, this implies a shift towards stronger environmental stewardship, toward an economy that allows for economic progress in an equitable and vibrant manner, and that fosters good living standards and social harmony. This shift is particularly prevalent in the energy sector, where the sustainability of our energy systems, in terms of resource supply, environmental impact, affordability and other factors, is increasingly becoming a topic of interest not just among researchers and practitioners, but also among politicians, decision makers and the public. Despite the differing challenges faced on a day-to-day basis by societies across the globe, I detect an underlying pervasive trend towards sustainable development, and I find this to be quite heartening.

EMPOWERING THE INDIVIDUAL

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Hon. Glen Murray

Minister of Infrastructure and the Minister of Transportation for Ontario

I think in advanced and emerging economies, it is the shift from an economy in which production was the activity that most directly generated wealth on a significant scale, to innovation replacing production as the most important driver of wealth. That shift has dramatically changed the dynamics of economic development and growth. It has also created an enormous challenge for public policy by making the very important task of retaining capital and talent and the attraction of capital and talent – already difficult in a borderless global economy – even more challenging.

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Gail Hillebrand

Associate Director, Consumer Financial Protection Bureau

The need for consumer protection in financial services is a key trend in the global economy.  As a result of the U.S. mortgage crisis, whole communities suffered because of the absence of robust consumer protection designed to prevent harm to individuals and families.  A proliferation of financial products, some with unsafe features, confronts consumers with choices in the financial marketplace that are both numerous and complex. The U.S. Consumer Financial Protection Bureau (CFPB) was created in response to the need for more protection of consumers as they choose and use financial products and services.

By reducing the complexity and expanding their capability, we will close the gap between the financial world as it is and the financial world as it should be. That will improve life for consumers and strengthen national economies and the global economy.  Effective regulation and evenhanded oversight helps to make markets safer for everyone. At the same time, we have to help consumers at all stages of life become more prepared to make the choices about money that will serve their own life goals.  Building financial capability is a lifelong process that must involve many elements of society. Financial education must start at home and in the schools, and continue in the workplace and the community.  Regulatory oversight and work to enhance consumer financial capability are complimentary.  Consumers, responsible businesses, and the economy as a whole all benefit when more prepared consumers make choices in a well-regulated market.

In the series

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What's Holding Europe Back?

Many are wondering when or if the Eurozone will shake off the recession. OECD Chief Economist and Deputy Secretary-General Pier Carlo Padoan explains why achieving higher sustainable growth defies simple solutions.