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Toronto as Global Financial Centre

And after all, in Ontario, it's the Manufacturing that's dragging down the economy, so technically, having it killed off and replaced by service-based jobs would be a good thing.
I'm not sure, but it appears that this means that killing off the manufacturing sector is a good thing.

Ok, it's obviously not what I meant! But gradual removal of manufacturing jobs to other provinces, and the replacement of those with service-based jobs would be beneficial to Ontario. Seeing as the manufacturing sector seems to be the worst hit, having tertiary industries in its place would make for a more stable economy. I wasn't suggesting completely killing off the manufacturing sector, but rather moving it to other parts of the country, so more commercial jobs move in.
 
Ok, it's obviously not what I meant! But gradual removal of manufacturing jobs to other provinces, and the replacement of those with service-based jobs would be beneficial to Ontario.
You don't understand. The Canadian Dollar would become absurdly overvalued, which would hurt anyone whose expenditures are in Canadian Dollars (i.e. all exporters in Canada) and expose the country to big flows of foreign hot money.

Seeing as the manufacturing sector seems to be the worst hit, having tertiary industries in its place would make for a more stable economy.
Just ask anyone on Bay Street whether the financial sector is stable.

I wasn't suggesting completely killing off the manufacturing sector, but rather moving it to other parts of the country, so more commercial jobs move in.
Last I checked, all areas of the country use the Canadian Dollar as their currency.
 
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As has been said, Canada is going through the same stages the Brits went through under Thatcher, where the manufacturing jobs inevitably leave to make room for more service-sector jobs. The city and country would still benefit having toronto as a world financial centre. If manufacturing jobs have been leaving the developed world in search of lower-cost labour regardless, why not try to capitalize on it?

That being said, I don't think the article did a very good job explaining HOW exactly Toronto could become a world financial centre as a result of this, only that it's possible. Some concrete examples of ways this may be accomplished would have been appreciated. The move from Montreal to Toronto in the 60s/70s was logical because Toronto was the centre of English Canada so there weren't many other logical options for the banks to move to. But today, there are dozens of cities vying to benefit from the financial centre collapse. The article almost seemed like it was justifying a pipe dream.
 
The discussion above about 'hot money' is a classic example of a little knowledge being a dangerous thing. We arent talking about that kind of growth here. More like an offset to our declining manufacturing sector as it right-sizes to something more inline with everywhere else in the world.

The problem with this article's hope is that financial centre's really rely on deep pools of capital and favourale regulatory/tax regimes - neither of which Canada has. We are a small fish in a big pond and there is really no reason why someone wouldnt raise capital in NY as opposed to Toronto (all other factors being equal). The primary reason financial jobs are leaving NY is that their regulatory regime post 911 and Enron is quite demanding. This was London's big advantage over them - the FSA is considered a much better system than what the US uses. Canada though can't even pull together a single regulator.

What I can see happenning (maybe) is Toronto selling itelf as a good place to outsource more transactional work to because we are lower cost than NY or London. We do have talented people and good infrastructure for this work and so on. We could be like a Dublin - but without thier much more competitive tax policies - which is v. important. Also, Dublin was a much smaller and less diversified place so the impact here would be less.

disclaimer - I wrote this in about 2 minutes and this is not my university master thesis so dont parse over every sentence trying to find arguments.
 
The loss of manufacturing jobs is certainly not inevitable, and those sentiments are quite dangerous. Britain has suffered immensely from the complete destruction of its manufacturing sector, and it has contributed to its high inequality and to the economic death of many of its communities. Germany, for example, has preserved its manufacturing sector while developing a strong service sector, making for a much more stable and equal economy. We shouldn't resign ourselves to the death of manufacturing. If it collapses, it's our own fault. The only reason Britain's automotive sector died is because they made awful cars that nobody would buy for anything other than a collector's item. If our manufacturing companies are well-managed, they will thrive.
 
Completely agree with your points!

The notion that there is some sort of inevitability (or even desirable) that manufacturing jobs will disappear is wrong-headed. It runs completely against the valuable and desirable qualities of a diversified economy.
 
What I can see happenning (maybe) is Toronto selling itelf as a good place to outsource more transactional work to because we are lower cost than NY or London. We do have talented people and good infrastructure for this work and so on.

Very good points. The article itself is kind of thin.

It's for the reasons you cite that, if we want to be any kind of finance or financial centre, we need more international institutions which increase the flow internationally of people likely to aid and abet such a process.

The Egmont Group is a great start, even if it seems to all we've got. I would really like to see Toronto build on that in some way. You'd think one of the Toropnto universities would see the opportunity and link forensic accounting and other programs with the financial laundering detection angle. For instance, propose to the Egmont Group to help with an annual statistical report on how things are going, that sort of thing, and build from there.

(But, ironically, FINTRAC is in Ottawa. Hard to build an international cluster when you can't get a domestic one together -- what are the changes of getting that moved to Toronto?!)
 
Yes, it is true that developed countries are not destined to lose their manufacturing sector if government and businesses are able to retool to produce more high end goods like Germany and Japan.

There is no way Toronto can become a place to outsource back office work given that Hyderabad and Bangalore can do the same for 1/4 of Toronto's cost, and aspiring to be like Dublin at this stage of the game is like aspiring to be Cleveland or Pittsburgh in the 1970s. The global financial sector will still exist and play a large role in the economy, but it won't be as big as it has been for the past 10 years. We definitely could make the money markets less complicated here (like getting a national financial regulator), but there's almost nothing to suggest that Bay Street can be as powerful as Wall Street or Canary Wharf or Central Hong Kong.
 
Charlotte, North Carolina became the second largest banking centre in the United States a few years back because of just two banks. Bank of America and Wachovia became two of the largest banks in the US and both were headquartered in Charlotte. It brought a lot of money and power to the city.

There's no reason to think we couldn't do the same here. The five big Canadian banks are quite healthy compared to their US peers. I'd be quite surprised if they didn't make major American moves once the smoke clears. Royal Bank now has a stock market value that's double that of Citibank (once the largest bank in the world). And as they grow bigger they will create more work here.
 
The idea that a strong financial sector is harmful to the manufacturing sector is still ludicrous. 'Hot money' is not a real thing, and it has no real connection with the financial industry itself. It is Naomi Klein speak for foreign investors pilling into an economy which is perceived to offer favorable returns. It doesn't matter what that economy is based on. We saw it with resources, China is seeing it with manufacturing and it has effected everything from Tulip bulbs to real estate. Any economy that is marginally succesful sees 'hot money.' The only way to avoid it is to be poor (in wish case you tend to become a victim of capital flight, 'hot money's' evil twin).

For the sake of argument, lets say that Bay st. becomes wildly succesful. The financial capital of the world. Things go crazy. New York trembles type scenario. By definition, this is good for the economy. Some low value exporters would probably be hurt as a result. So what though? If the Canadian economy at large grows and expands, even if manufacturing contracts, it is still good for the economy as a whole. Remember, manufacturing only accounts for 11% of Canada's employment. The idea that the other 89% of the economy should suffer to support a small group of privileged exporters is odd indeed. If you want a leftish critique, the low Canadian dollar screwes poor people by lowering their purchasing power and, hence, quality of life.
 
We shouldn't resign ourselves to the death of manufacturing. If it collapses, it's our own fault. The only reason Britain's automotive sector died is because they made awful cars that nobody would buy for anything other than a collector's item. If our manufacturing companies are well-managed, they will thrive.

Isn't this a contradiction? You point out that the only reason Britain's automotive sector died 'because they made awful cars,' a fair enough point, but then claim that if manufacturing fails in Canada 'it's our [society's] own fault.' It's one thing to say Britain's car makers failed because they made bad cars, but it isn't like Britain as a society let or allowed them to fail. It cant be both the responsibility of manufacturers and society to ensure a given firm prospers. The history of manufacturing in Britain would suggest quite the opposite, that they tried desperately to prevent manufacturing from failing through a robust program of nationalization, subsidies and import tariffs.

Curiously, manufacturing output in England (as well as most developed economies) measured in value and produce has risen at a steady rate since WW2 and picked up during the late 80s & 90s. Sure, total employment in manufacturing and it's share of GDP has plummeted to generally between 11-18% in most countries. But output has risen. Productivity increases have been the main reason Britain is perceived to have no manufacturing, more so than off shoring. Unless productivity stagnates, employment in the sector will continue to decline no matter what you do. The best parallel is agriculture, which has gone from being just about the entire economy in most societies a few hundred years ago to under 1% in Canada today.
 
Canada is an enormous economy in the global top 10, and even a major financial services sector wouldn't be enough to distort the entire economy. Even a massive financial sector would only be one component of a well-diversified whole, including natural resources and, hopefully, manufacturing. In terms of currency fluctuations, Canada has already been consigned to the realm of the petro-currency, so anything that would take the dollar away from tracking the price of oil would likely be a good thing.

Of course the failure of manufacturing is a failure of corporate management rather than society as a whole. German manufacturing companies were, on the whole, vastly better managed than their British--or for that matter American--counterparts. The steel industry is a good microcosm of manufacturing as a whole. The American steel industry is perennially on the verge of collapse, surviving only through trade barriers and unusually high prices. When you hear the steel industry lobbyists, they always complain about Asian competitors and the USW. But the Asians are not the only ones making steel successfully. Western Europe is filled with thriving integrated steel mills. Do they have no unions? Hardly. Their wages and benefits are far better than those of American steel workers. What's the difference? They've continuously upgraded their facilities. The newest integrated steel mill in North America is at Nanticoke and it's thirty-five years old--in the United States the newest was built in the 1950s. To give you an idea of how outdated these plants are, Stelco in Hamilton requires a dedicated powerline from dedicated generators at Sir Adam Beck I in Niagara because some of its equipment is so old that it is from before North America standardized on a 60hz electrical frequency. How the hell do they hope to compete with continuously upgraded mills in Europe, let alone brand new mills in China or Korea? Less spectacularly, much of the Big 3's equipment hasn't been upgraded in decades. That contributes to their perennial quality problems and inflexibility compared with their Japanese counterparts. While this is all obviously the fault of management and the breathtakingly short-term horizon of Wall Street, there are significant steps that governments can take to encourage better long-term management of industrial companies. Tax policy should be used to encourage continuous equipment renewal. I would even be very supportive of seeing government partner with private companies to make large, long-term investments that would be difficult to finance privately. For example, a steel company could partner with the government to build an entirely new, ultra-modern mill. Sure, it might seem like a boondoggle during the next steel price crash, but in the long term it would be a great asset. Lake Erie Steel would never be built today, but it's an absolute gem today making some of the highest quality steel in North America, and it kept Stelco alive through its bankruptcy. A more extreme example is the oil refinery in Newfoundland that was denounced as a catastrophic boondoggle and was even shuttered for several years. Today, it's a thriving and very profitable private business, and a major contributor to diversifying Newfounland's economy.

From a theoretical standpoint, the biggest problem is that so many people view the only alternatives as the polar opposites of protectionism and Schumpeter fundamentalism. In my opinion, both are deeply flawed in the present circumstances. As we all know, protectionism only coddles incompetent management. Domestic purchasers are forced to buy inferior products until finally the whole system collapses as people refuse to drive Ladas. Allowing creative destruction to run free is equally problematic since, in a global economy, it's quite likely that your steel mill that is destroyed by competition will be replaced by a new mill created across an ocean. That's why I think a happy medium between the two is the best option, helping companies to gain backing for investment from sources other than the quarterly-results-focused Wall Street and Bay Street. Any manufacturing company that doesn't invest in renewing its physical plant will inevitably fail. Tax policy should also be used to encourage new investment. More unusual approaches could include regulation on executive compensation designed to encourage a more long-term horizon. There are many possible solutions, but an important first step is to define the heart of the problem: a lack of investment.

Exactly, Ed! Charlotte has become a major financial centre (though declining with the loss of Wachovia) and one of the U.S.'s fastest growing cities because of two dynamic institutions. Obviously Wachovia made mistakes, but Bank of America has built a large and relatively successful franchise without abandoning its Charlotte base. It's definitely a model that the Canadian banks should consider emulating. You can't go two blocks in New York City these days without running into a TD Bank, so they're starting. I'd like to see them buy some of the big, high-profile American franchises while they can get them for virtually nothing. Even better, they should buy some of the Asian and Latin American subsidiaries of the huge American institutions. Citibank is selling its massive Mexican division for a pittance. That seems like a perfect fit for Scotiabank. Canada's insurance companies, especially Manulife, have been much more international than our banks. Toronto has real potential to become a major global insurance centre.
 
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Just to comment on what I said earlier on the likely future of Canada's manufacturing sector...All I meant was that if you look at manufacturing employment as a percentage of the labour force, and you look at that trend over the last 50 years, Canada is lagging almost every other industrialized nation (including Germany and Japan) in that the percentage of people working in manufacturing was actually higher than expected. This was largely considered a result of the extended period of low Canadian dollar. Now that most people (well the market anyway) is not predicting a return to these levels, it is fairly likely that our manufacturing sector - as a % of the labour force - will also decline. That is part of the long-term evolution of the economy that we should prepare for (moving up the value chain so to speak). The US is perceived to have gone through this transition ahead of us, which is why we hear a lot of people out there trying to develop policies to turn us into a sort of Canadian Massachusetts. Its not going away completely, just smaller and (will need to be) smarter.
 
That's a perfect example. If Manulife could grab AIG's Asian operations, that would be a huge coup.

Some of that surprised me, so I just had a quick look at some basic statistics. The proportion of the population employed in industry in Germany is 29.4%, compared with 22% in Canada and 20.6% in the United States.
 
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