Monthly Commentaries

Some by-products of globalization. – February, 2006

If we really believe in this new era of globalization, we have to alter our attitudes towards several ingrained concepts that no longer carry their traditional relevance. Two of my favourites are “current account balance” and “cultural identity”. A country’s current account balance is the net result of trade and investment flows with other countries. The US has a current account deficit of some $800 billion, comprising 6.5% of GDP. We are told that it is symptomatic of profligate US consumption and a dependence upon foreign debt that will ruin the US economy and send the US dollar into a tailspin. The real evidence shows that higher productivity in the US has attracted an inflow of investment funds, supporting the US dollar and contributing to stronger employment and greater consumption. Tack on a broad slump in foreign consumer demand and it’s not surprising that the current account deficit has grown so large. Another important factor has been the rapid transformation of the US economy away from manufacturing goods for export to becoming a global supplier of sophisticated technology. While we can’t ignore an imbalance of this proportion, it doesn’t portend the impending disaster that most pundits portray. By comparison, the countries with the next largest current account deficits are Spain, Australia, United Kingdom, France and Italy.

Conversely, the countries with the largest current account surpluses are Japan, China, Germany and Russia – all countries with weak currencies (Canada ranks 16th on the list). Where would you rather invest your money? In our globalized society, “cultural identity” has become an anachronism – what are Canada’s cultural characteristics, or the UK’s for that matter? Western democracies have paid lip service to multiculturalism and embraced tolerance to the point of losing their cultural distinction. In Europe for example, government largesse continues to promote a shorter work week and an earlier retirement age. If they wish to maintain their pension levels and health benefits, they will rely increasingly on larger armies of immigrant workers from North Africa and the Middle East. It’s no wonder that Paris today is reminiscent of Beirut 40 years ago.

I’m not against any of this – it is an inevitable consequence of our global village – I simply believe it’s futile to try to preserve what no longer exists. Peter Sacks Managing Partner