Why London …

Posted on August 10, 2011

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I watched a neighbour, once, trying to start his broken-down pick-up truck. He sat in the driver’s seat and turned the key. Rrrr-Rrrrr-Rrrr it went, ending with a thunk. He sat there, waited a minute or two, and then turned that key again: Rrrr-Rrrr-Rrrr, thunk. And again, and again, and again until he finally gave up. Joe Fontana reminds me of my neighbour.

The London Free Press, on the front page last Saturday, asked “Why London?” The question sought to explore why London is suffering under a higher than average unemployment rate.  Meanwhile, Mayor Fontana, turning the key once more, is calling together industry, labour, and politicians in an effort to get that stubborn economic engine to roar to life.

What Fontana does not yet realize is that the North American economy will not come to life, no matter how many times the key is turned.

Here is why:

The North American economy since the Second World War has been based on three pillars: consumer demand, debt, and cheap energy.

Consumer demand is anchored on housing and automobiles. Around these two commodities an entire economic system was erected bringing together construction, transportation, agriculture, and retail. Every home and car has to be built, sold, re-sold, fueled, outfitted, maintained, and repaired. And for them, an entire infrastructure has been constructed.

Mass home ownership gave rise to the suburbs, and the automobile culture that emerged from them is powered by debt and  cheap fossil fuel energy.

For the enterprise to be successful, however,  the workers on whom it all depends–the middle-class–need good, reliable incomes to support the debt necessary to finance purchases of homes, cars, and all that go with them. For thirty years this was managed by employing workers, at decent wages, in the factories that produced the cars, appliances, electronics, clothing, and everything else taken for granted as essential to the modern home.

This all started to come undone in the late 1970s and through the 90s. Capitalism is dependent on growth. The prime directive of corporations is to maximize share holder returns. How is both the economy and profits grown in a mature, consumer economy? Economies of scale and reduced labour costs.

Economies of scale have been realized through scorched earth industrial extraction methods: clear cutting, slashing and burning, mono-cultures, strip mining, mountain top removal, drift netting, etc … And labour costs are reduced by moving production offshore to less developed and less regulated economies.

In moving production offshore, however, there emerged an inherent contradiction in firing those workers who comprise the consumer market. This contradiction was addressed in three distinct ways: First, the politicians responsible for managing the transition promised cheaper goods–workers could enjoy the same trappings of a middle-class existence for a lower cost; Second, layoffs from high wage, value added manufacturing jobs would be replaced by jobs in the lower wage service economy; Third, the loss of growth, or shrinkage, in disposable incomes would be replaced by cheap and readily accessible debt.

As Canadians transitioned from a manufacturing to a service economy, most accepted the trade-off of security and good wages for cheap goods and easy credit. However, the new arrangement was founded on an impossible ideal: home values would forever increase, offsetting consumer debt, and energy would remain forever plentiful and cheap.

In 2008 the chickens began to come home to roost. Oil prices climbed to nearly $150 a barrel while US banks, looking to squeeze ever more from mortgages, had created a tremendous ponzi scheme that finally collapsed leaving us where we are today.

The continued growth in Canada’s economy, touted by the current government as good management, is largely dependent on industrial resource extraction and, in the Alberta tar sands, highly destructive resource extraction. In some ways Canada has returned to an early 20th century, unsustainable, resource based economy.

When Fontana sits down with his  business, labour, and political partners, he will be doing so against a backdrop of market panic, economic uncertainty, and an evaporated consumer confidence. If those around the table hope to restart London’s economic engine, they will be sorely disappointed when they turn the key. That post-war economic and social contract has long ago been broken and the debt fed boom of the 90s will not be resurrected.

The challenges that face not just London but every city in North America are daunting. From resource depletion, to biodiversity loss, to environmental degradation brought about through industrial extraction and agriculture, to increasing energy costs that will impede any effort at growth, to a consumer economy that is weighed down by debt and hobbled by the loss of a productive capacity.

If London is to have an economic future, its political leadership must begin by refusing to follow. Globalization–and similar schemes that express an economy that benefits, almost exclusively, a financial elite without any stake in the health of our communities–will only lead to a further erosion of the city’s economic well being. Instead, political leadership should ask, where will London be in a decade or in two decades when energy prices double again either as a result of supply or carbon mitigation? The answer to that question must be the centre of a regional economic model focused on agriculture, food processing and manufacturing.

Ironically, opportunity has been knocking hard on London’s door in the form of a climate change study that should lead to a mitigation and adaption strategy and that, if viewed holistically, could offer an avenue to transform and rebuild London’s economy. But Joe Fontana appears unable to recognize that knock as anything other than a bothersome impediment to turning the key of a broken down truck.

Rrrr-Rrrr-Rrrr, thunk.

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