A Rising Exchange rate on our dollar complicates the problem of selling our exports.Some politicians apparently believe that a strong dollar is good for Canada and that a rise in the exchange rate is good for our exports. This could only be so if the rise in the price of our exports abroad due to the rise in the value of our currency can be offset by a rise in productivity which cheapens the cost of production despite the rise in price due to the rising exchange rate . But how can that happen?
Theoretically it can happen in two ways. One way is virtuous, perhaps , the other definitely not virtuous. The first possible virtuous way is if new technology which increases output without causing job loss in the industry concerned appears on the scene, paid for by rising profits in the industry. This might happen.
But all too often the incentive of new technology is to displace labour. Workers are replaced by machines and not necessarily absorbed in new industries. Furthermore, there is the danger that industries under pressure from rising exchange rates will seek to raise productivity by forcing workers to work longer hours with less pay or lay off some workers to reduce labour costs while simultaneously trying to increase output. This is the non virtuous way.
It is this latter approach that all too often has been resorted to by manufacturing concerns in the auto industry in the United States . The labour unions in Canada are understandably opposed to these kinds of anti-worker labour practices and have vowed to fight this pressure for reduction in wages, working conditions and benefits. So if the Federal government wants to give itself and manufacturing interests some leeway to plan for virtuous productivity gains it needs to restrain the Bank of Canada`s enthusiasm for higher interest rates. Because higher rates result in a higher exchange rate for the dollar and greater pressure on the manufacturing export industries.
It sounds complicated but its what the new globalized world is all about. Thinking smarter about economic policy makes good sense for everyone.
Theoretically it can happen in two ways. One way is virtuous, perhaps , the other definitely not virtuous. The first possible virtuous way is if new technology which increases output without causing job loss in the industry concerned appears on the scene, paid for by rising profits in the industry. This might happen.
But all too often the incentive of new technology is to displace labour. Workers are replaced by machines and not necessarily absorbed in new industries. Furthermore, there is the danger that industries under pressure from rising exchange rates will seek to raise productivity by forcing workers to work longer hours with less pay or lay off some workers to reduce labour costs while simultaneously trying to increase output. This is the non virtuous way.
It is this latter approach that all too often has been resorted to by manufacturing concerns in the auto industry in the United States . The labour unions in Canada are understandably opposed to these kinds of anti-worker labour practices and have vowed to fight this pressure for reduction in wages, working conditions and benefits. So if the Federal government wants to give itself and manufacturing interests some leeway to plan for virtuous productivity gains it needs to restrain the Bank of Canada`s enthusiasm for higher interest rates. Because higher rates result in a higher exchange rate for the dollar and greater pressure on the manufacturing export industries.
It sounds complicated but its what the new globalized world is all about. Thinking smarter about economic policy makes good sense for everyone.
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