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Econowatch: A decade’s end

A look back at a decade of triumph and heartbreak in the north american economy


 

Congratulations, ladies and gentlemen, you have survived your worst fears.

When we began Econowatch a little over a year ago, the world economic order seemed to be breaking  all around us. We warned that things were going to get a whole lot worse before they got better, and indeed they did. World governments pressed ahead with emergency policies that had only ever been considered in theoretical discussions of worst-case scenarios. The good news is, those policies successfully doused what can be thought of as a global economic forest fire. Often, forests grow back stronger and healthier than before, but it takes time.

These days, we hear a lot of fretting that world economic powers are headed toward a “lost decade” with stagnant growth and stubborn unemployment. Well, folks, look in the rear-view mirror—or better yet, look at the graph below—and you will discover that our stock market is pretty much exactly where it was nine years ago. Now, if this were just about stock prices, it wouldn’t be such a big deal. But in fact, the Canadian and especially the American economies have stagnated in a host of ways over the past 10 years. The most striking might be private sector employment in the U.S. There were 108.4 million private sector jobs south of the border in October of this year. In October 1999 there were 1.1 million more. Another example? American industrial production is down about four per cent from a decade ago.

And where are the numbers bigger than they were a decade ago? Well, mortgage delinquencies in the U.S. are at an all-time high. Claims for jobless benefits are also in uncharted territory. On the more positive side, retail sales are more than 25 per cent higher than in 1999. But that’s no great mystery when you consider that consumer debt is up by 60 per cent over the same period.

Believe it or not, though, the point here is not to despair but to focus on our resiliency. To avert financial calamity, the world’s financial powers transferred the staggering cost of financial malpractice onto the public books. You’d be well justified to complain about this, but it’d do no good. Problems this big belong to everybody, and instead of watching the system implode quickly, we all get to pay to fix it slowly. We’ll pay through higher taxes, weaker growth, higher interest rates and a whole lot more uncertainty than we’ve ever known before. The well-educated, flexible and relatively debt-free will find the future a lot less scary than others.

For a long time, we were taught to believe that markets only ever go up. By now, it’s clear that they can gyrate sideways for a long, long time. But that, in itself, isn’t a disaster. We’ve seen all this before—weak markets, expensive energy, high unemployment, bouncing interest rates—and we lived through it. By some measures, it might be another lost decade while the forest recovers. But hey, we’ve just lived through one of those, too.

THE GAME CHANGERS

The Chinese worker
Toiling for low wages, the Chinese labourer churned out cheap goods to fill the aisles of stores like Wal-Mart. This reorganization of production helped North American companies turn big profits, but it also made China an economic force to be reckoned with.

Michael Osinski
He wrote the computer program that would be used by financial insitutions to bundle and sell mortgages—a time bomb that would bring Wall Street to its knees with the subprime crisis. Osinski retired to become an oyster farmer.

The Google guys
Larry Page and Sergey Brin turned a university research project into an Internet search and advertising juggernaut that rivals Microsoft. With free video, software and phone services, Google has upended entire industries.

The U.S. consumer
With an unrivalled appetite to buy and spend, American shoppers fuelled the economy through the 2001 recession and powered home and auto sales to new heights. But when they lost steam in recent years, so did the economy.

The oil sands
The commodities boom reshaped the Canadian economy and labour force, not to mention national politics. Everyone knew someone who moved to Fort McMurray to work in the oil sands—or at Tim Hortons for $17 an hour.

WHAT HAPPENED TO?

RadioShack
The name was a fixture in Canadian shopping malls until a dispute in 2005 with the U.S.-based RadioShack Corp. forced a Canadian name change to The Source by Circuit City.

Netscape
It was the Web browser that introduced the world to the Internet. But in 2007, Netscape’s owner, AOL, announced it would no longer support the browser, effectively killing it.

Canada 3000/JetsGo
Two of the biggest discount airlines in Canada went bust in what would be a brutal decade for the industry. First it was 9/11, then record fuel prices and finally the economic crash.

Pontiac
With its “We Build Excitement” slogan, the GM brand was much loved by Canadians. But Pontiac, which launched in 1926, was axed by GM in April as part of the automaker’s restructuring.

FAMOUS LAST WORDS

Economists are notorious for flubbing forecasts—even the best do it from time to time. And when it comes to making predictions about the economy, business people and politicians are no different.

“After their substantial run-up in recent years, home prices could recede . . . Any bubbles would tend to be local, not national, in scope.”—then- U.S. Federal Reserve chairman Alan Greenspan, March 2003

“We’re not going into a recession.” —Prime Minister Stephen Harper, October 2008

“Eventually, Canada and its biggest trading partner will move to a common currency. But the broader point is that we must have a discussion on this now.”—Paul Tellier, former CEO, Canadian National Railway, December 2001

“In today’s regulatory environment . . . it’s impossible for a violation to go undetected.”—Bernard Madoff, October 2007

DISORDER YEARS

TOP 10 COMPANIES

Ten biggest Canadian companies (by revenue) in 2000
1.   General Motors of Canada*
2.   Nortel Networks*
3.   Ford Motor Co. of Canada
4.   DaimlerChrysler Canada*
5.   George Weston Ltd.
6.   CIBC
7.   RBC
8.   The Seagram Co.*
9.   Bank of Montreal

10. Bank of Nova Scotia

* Companies that went on to file for bankruptcy, were broken up or acquired

Ten biggest Canadian companies (by revenue) in 2009
1.   RBC
2.   Power Corp of Canada
3.   Manulife Financial
4.   George Weston Ltd.
5.   EnCana Corp.
6.   Imperial Oil
7.   Suncor Energy
8.   Petro-Canada
9.   Onex Corp
10. Bank of Nova Scotia

CHUMPS AND CHAMPS

When you have a decade as volatile as the one we just experienced,  those who win win big, and those who lose . . . well, you get the picture.

Bankers
From pimping shoddy dot-coms to even crappier collateralized debt obligations, it was a lucrative decade for the red-suspender set. Canadian banks fared especially well, coming out of the crisis largely unscathed. But even in countries where big banks went bust, it’s back to business as usual—they face public scorn, but still collect huge bonuses.

Taxpayers
Unlike bankers, taxpayers have no one to bail them out. As the orgy of stimulus spending comes to an end, governments, including Ottawa, have racked up record deficits. Expect the taxman to come knocking soon.

Steve Jobs
iMac, iPod, iPhone . . . for the mercurial founder and CEO of tech giant Apple Inc., the last decade can be summed up nicely in one word: iWin. True, he faced criticism for concealing his heath problems. But in the end Jobs redefined consumer cool while helping to save the music industry. Up next: the iTablet?

Dubai
In a decade marked by mindless excess, Dubai stood apart. From palm-shaped islands and indoor ski hills to the world’s tallest building and largest mall, Dubai’s ability to waste money was limitless. Now the creditors are calling, and Dubai is shaping up to be the world’s biggest financial flop.

Warren Buffett
When Buffett gave away a US$37-billion gift to the Bill and Melinda Gates Foundation in 2006, he made charity look easy—like everything else. During the darkest days of the crisis, his words of calm assurance helped to jump-start consumer confidence. But will his bold US$39-billion bet on railroads prove as sage?

The Big Three
After years of signing insane labour agreements and pumping out cars nobody wanted, the end of cheap money meant Detroit automakers could no longer hide from reality. Mass layoffs and bankruptcies were a sad inevitability.


 
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Econowatch: A decade’s end

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    Reward the incompetent failures at the expense of the productive and the successful. And don't bother complaining about it. NOW can we all agree that we have all collectively failed capitalism?

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