The Nervous 90s

The Cold War ends. Recession sets in. Globalization draws demos

Off the mark, the 1990s made an upbeat start. Heading toward a brand-new millennium, it was fitting to say good riddance to the extremes of the 1980s, already tagged on their departure as a grasping time of staggering highs and depressing downers.

Although a recession loomed several months into 1990, there were good reasons for optimism at the start of the year. One was the rapid recovery of the stock markets, a daily index of economic health, from the crash of Black Monday, Oct. 19, 1987. The TSE got itself together again by the summer of 1989. Then came the fall of the Berlin Wall that November, a signal of the Cold War's end and communism's imminent collapse throughout Eastern Europe and in the Soviet Union.

It was therefore time to bring closure to past problems, to move on, to go forward, as the boardroom clichés of the new decade expressed positive attitudes. The 1990s were bound to bring better things to the world of business. And the optimists did mean world of business. The post-communist planet was now opening up as one welcoming free-market place, including an easier-going China.

“Globalization” thus became the buzzword for going forward into a world without Cold War barriers. It also held the promise of shaking free of other nationalist impediments to commerce — such as export subsidies, then at issue among the 123 member governments of the General Agreement on Tariffs and Trade, about to morph into the World Trade Organization (WTO) in 1995.

And here it was up front in this magazine's first issue of the decade, by editor Wayne Gooding in January 1990: “There is no doubt in my mind that globalization must be the overriding priority of Canadian business in the new decade…the realities of the new decade dictate that Canadian business is international business.”

Leave aside the quibble that global business had been around for a goodly number of centuries, at least since the Marco Polos and John Cabots introduced intercontinental commerce to Europe.

After all, the vision of an earth without boundaries for business fit aptly with the updating of the information highway by means of computer chips, satellite signals and the Internet. It reinforced Marshall McLuhan's 25-year-old mystical idea of the global village — “we have extended our central nervous system in a global embrace, abolishing both space and time as far as our planet is concerned,” as he wrote in Understanding Media.

And globalization did go on in the 1990s, if not in the entirely fulsome ways envisaged at the outset of the decade. Individual examples include some that went rewardingly right, such as Toronto architect-hotelier Isadore Sharp's Four Seasons resorts and hotels, reaching out from the South Pacific to Canary Wharf. Or Bombardier Inc.'s further overseas extension of its aircraft and landcraft enterprises. Another went outrageously wrong, when Calgary's David Walsh and his Bre-X Minerals Ltd. reached out to develop a reputed gold mine on the Indonesian island of Borneo. Falsification of drill tests turned out in 1997 to be what investigators later rated as the mining hoax of all time, costing investors billions.

The globalization of Canadian business generally has a few strong points on some federal government charts. Canadian direct investment abroad, known in Ottawa as CDIA, grew in the 1990s at a faster rate than foreign direct investment in Canada (FDI). By 1996, for the first time in history, the accumulated total value of direct foreign investment by Canadians slightly exceeded counterpart foreign investment in Canada. But the bulk of the money still went across the border (more than half) or the Atlantic (almost one-quarter).

As for trade, most of a 1990s boom was cross-border business as usual–hardly surprising under the influence of the 1989 US-Canada Free Trade Agreement, and NAFTA five years later.

Other factors fueled an unglobalizing mood — currency-exchange shocks in Europe, Mexico and Japan, an end-of-decade Asian slump. The WTO became a demo-designated “enemy of the people” by decade's end at the so-called Battle of Seattle. (Response on the WTO Web site: “Is [the WTO] a dictatorial tool of the rich and powerful? Does it destroy jobs? Does it ignore the concerns of health, the environment and development? Emphatically no. Criticisms of the WTO are often based on fundamental misunderstandings….”)

In Canada, the decade's initial promise turned sour with a 1990-1991 recession, and a long, dispiriting slog toward recovery. Gordon Thiessen, at the close of his time as Bank of Canada governor from 1994 to 2001, recalled how “defaults, restructurings and downsizings became the order of the day.”

As for what he called “the new world economic order” of globalization, the word from the final decade of the previous millennium seems to be to leave all that for another time, please.

Excerpts from Canadian Business

Thank you Saddam Hussein
by David West

Iraqi President Saddam Hussein may turn out to be a great stroke of luck for the Bank of Canada. The reason is that, while international currency traders scarcely noticed the failure of the Meech Lake Accord [in June 1990], they're anything but sanguine regarding international tensions in the Persian Gulf. With the Canadian dollar held aloft by higher oil prices, it no longer requires the same updraft it has been receiving from high interest rates. This means that Bank of Canada Governor John Crow now has leeway to narrow the interest rate differentials with the US, even as the Federal Reserve Bank allows the US rates to drift moderately downward.

Interestingly, the strength of the dollar leans more on the international perception of Canada as a petro-economy than it does on reality. The characterization may have been correct in 1973, but is much less appropriate now. In 1972, crude petroleum exports accounted for about 5% of total exports, with this share rising to 11% by 1974–the year of the first oil price shock. Since 1983, however, these have only been 3% of total nominal exports….
—Vol. 63, No. 10, October 1990

Brace yourself for life in the slow lane
By George Vasic

We start 1994 by asking the same old question: is this the year the Canadian recovery will finally kick in? The good news is that economic growth did move up a notch in 1993 to 2.5%, compared with 0.7% in 1992. The bad news is that while you can expect to see at least as much growth in 1994, chances are it won't be a lot more….
—Vol. 67, No. 1, January 1994

The new meddlers
By Peter Foster

Many Canadian businesspeople have turned into creatures with one eye on the market and the other on the next batch of government incentives….

The shining seas are linked by a chain of historical incompetence, from the Glace Bay heavy water plant, through Bricklin, Sydney Steel Corp. (Sysco), Cape Breton Development Corp. (Devco), Canadair Ltd., Mirabel Airport, Consolidated Computer Inc., de Havilland Inc., Ontario Hydro, Ontario's investment in Suncor Inc., Manitoba's investment in Churchill Forest Industries, Petro-Canada, the Lloydminster heavy oil upgrader, Novatel Communications Ltd. [of Alberta] and on and on….

Many of the new meddlers claim they have learned the lessons of the past — that direct intervention… doesn't work. What is now needed, they claim, are not blueprints but frameworks:…the circumstances under which free enterprise can flourish. The fundamental interventionist argument remains, however, that business just can't flourish by itself…what we have at work here is a combination of unshakeable ideology and desperate democracy.
—Vol. 66, No. 1, January 1993

The man, the myth, the corporation
Norman Bethune makes a postmortem conversion to capitalism

Anxious to cash in on China's economic miracle? Unsure where to start? On a recent visit to Canada, a delegation of 23 Chinese executives and academics had some startling advice: exploit your shared nationality with Norman Bethune, who is known and beloved by all in China….

Alas, just as we were set to spread the word, we learned that it may be too late. A 10-month-old Beijing firm, with a branch office in Weston, Ont., is already well on its way to cornering the Bethune market….The Bethune International Group['s] (TBIG)…current projects, which it says are worth more than $2 billion, include the Bethune Expressway, the Bethune Montreal Garden and the Bethune International Business Centre in Beijing; the Bethune Ronebeng Small Zone, an office complex in Chengdu, and the Bethune High-Tech Tower in Harbin…[also] the Bethune Mutual Investment Fund of China….

[I]t's hard not to marvel how the name of a Canadian doctor who went to China to help amputate “the tentacles of the octopus of monopolistic capitalism” has been co-opted.
—Vol. 68, No. 4, April 1995

Money talks when money walks

There's one sure way to check out how Canada stacks up in relation to the rest of the world as a place to do business. Simply look at the amount of money being invested in the Canadian economy. So how are we doing? Not very well…. This year, Canada will account for less than 4% of international direct investments made around the world. Back in 1980, we attracted more than 11% of worldwide direct investment flows….
—Vol. 72, No.1, January 1999

The IOU blues
By Jayson Myers

Did you ring in the New Year to the sound of the cash register? For many Canadians, it was a fitting way to close out 1997 — a year in which a long-awaited resurgence in consumer confidence and consumer demand for goods and services propelled the economy to its best performance of the decade….

All of this would be great except for one thing — incomes are not keeping pace with spending activity. Total personal income in Canada increased by more than 26% between 1989 and 1997. But personal income, sales, payroll and excise taxes have risen even more rapidly….

When inflation is taken out of the picture, real after-tax incomes are up by only 1.5% since 1989…and the average real per capita disposable income in Canada — the ultimate buying power of individual consumers — has fallen a full 12% since 1989.

We have sustained our appetite for new goods and services by borrowing more and saving less. Household debt, including mortgages, has risen to 98% of personal after-tax income in 1997 from 65% in 1993. At the same time, the rate of personal savings has plummeted….

These changes leave us in a precarious position, with little income left over to cushion the effects of higher interest rates, a correction in financial markets or stricter lending on the part of Canada's financial institutions…. Should these possibilities come to pass, Canadians will either have to liquidate more of their personal investments to make ends meet or put the brakes on spending.
—Vol. 71, No. 1, Jan. 30, 1998