IUSION

t in competition
¢he work force

a partially automated microchip assembly
-W plantin Sidney on Vancouver Island. Initial
em plans included a $7 million grant and a $4
for million loan from the federal government
int with $8 million from B.C. Federal govern-
$e. ment support has now been withdrawn,
ta}. apparently because of management difficul-
ro} ties. Assembly is a labor-intensive step in the
|‘. fabrication of microchips often carried out
to in countries like the Philippines, South
th Korea, Taiwan, Malaysia and Singapore.
nsi The benefits to us of such a plant will be

(almost exclusively) employment of low-

«skill workers.
2 3) Provision of services:

@ The B.C. Innovation Office offers
| counselling and referral to assist innovators
YW and investors in the high technology sector.
Int 4) Measures affecting unions:

@ The Technology Assistance Act is a bill
mil. that has been through several drafts, but

ch seems now to have been (temporarily)
en, shelved. It would give the Ministry of Uni-
lox. versities, Science and Communication $50
1 million annually to be spent on grants,
B! loans, and loan guarantees or equity partic-

_ ipation in advanced technology companies;

fot} and would grant exemption from the Labor

Code to companies involved in government-

defined high tech activity who spend at least

a specific percentage of annual Sales on
| R&D. This would prevent unionization of
: He The lebas Code amendments of 1984
“e| significantly lower the power of unions by
st denying them the right to strike against high
19? tech firms if they or the industrial parks in
nd: which they are located are declared to be
int “economic development projects.”

| @ Industry Minister Don Phillips has

recently suggested that union-free economic

mn zones are needed in B.C. This suggestion
ed could be implemented through the estab-
id lishment of Free Trade Zones. ;
nd’ ©The provincial throne speech of 1984
pi proposes the establishment of Free Trade
di) Zones in B.C. (federal action is needed for

| this). They would presumably be created by
at conversion of the Discovery Parks. Such
y ¢ zones would:
mi @ Reduce red tape with customs when
I firms import something, perform some
et Operations on it here (microchip assembly

for example), and re-export the finished
rm article (the present system exempts these
0 itimports from duties, but we use a system of

refundable tariff payments);

 @ Provide subsidized facilities and infra-
t0 structure (thus industrial parks made good

candidates as Free Trade Zones);

Worker
assembles
Circuit

_ board
with
micro-
Chips:

low wages,
few skills.

e Allow the government to enact special
regulations governing pollution, worker
health and safety, occupational hazards,

worker amenities, and unions (legislation of ©

this type is common in Free Trade zones in
the Third World).

The government rationale for promoting
high tech is that it will create economic
growth, help to solve the unemployment
problem and transfer technological know-
ledge to B.C. Pat McGeer predicted that
high tech would replace forestry as B.C.’s
number one industry over the next 20 to 25
years.

But will it work?

British Columbia is not the only region
offering economic incentives to high tech-
nology firms. Other provinces in Canada,
states and municipalities in the U.S. and
other countries, developed and less deve-
loped alike, have elected to enter the compe-
ution. For example, the federal government
has allotted $290 million to create or expand
15 high-tech centres in Canada, the Ontario
government is spending about $100 million
On Six centres, Alberta has three research
Parks and a provincial Venture Capital
Corporation, and Saskatchewan houses
Innovation Place, the largest single research
park in Western:Canada. Since high tech-
nology firms are geographically mobile,
they can encourage jurisdictions to compete
with each other. If we choose to compete
with low-wage countries like Taiwan and
the Phillippines (as we are doing in the
Dynatek case), the subsidies will have to be
high and wages will have to be low. With
Third World wages at about one-tenth of
the B.C. level, it seems unlikely that B.C.
will get very far in the labor-intensive part of
the high technology industry. The Dynatek
fiasco seems to be a case in point. -

_On the other hand, foreign firms do not
show any great propensity to relocate the
parts of their operations that use high skill

But why try to run against the cle-~

ine dersl and industry tide and <>* . on
incl’ that they *- duc i] 2a standard
ya only exacerbate Now in the
cou!

r ( ip pro cout ov ng a clear

incident 19, WNC ines cording to
cong the chips id f

importing Par East ¥¢ paid for
from rounded. The adian and
WEEE computer COMPS hich wiil

" presently
ed_ in-house

ly based
Pranufactu
there is anothey and

ity.
Betviat thought, Pent of

kans to bring the chip

r. Syjuco cited One it” market [ane

neg

Geer, F are Certainly igh - + Discovery become Sey

me Supporter of high Slice of aneing taking a projecas: &technology The erise legislative piers ofthe : e
BY, Said $15. saig. on," he

Ss home _

im i:

Program is the Progra:
vw lishment of hion nice” the next sessien en coe.

down and the recession ends. But this does
not mean that we should seek to stimulate
industrial activities where we suffer from a
“comparative disadvantage” with the rest
of the world (microchip assembly and other
low-skill activities). We will do better if we
exploit our advantages, which lie in part in
our skilled workforce.

© Free Trade Zones: Free Trades Zones
are mainly a method for attracting foreign
firms through subsidies, low wages, sub-
standard working conditions and relaxed
regulations. In other countries, these firms
make little impact on the rest of the econ-
omy (they import more of their inputs than
domestic firms do), they tend to duplicate
goods that are produced in the domestic
cocnomy, little technological knowledge is
transferred to the host country, environ-
mental damage is common, and the firms
that locate in the zones tend to move out
when incentive payments are withdrawn.
Wages are the main benefit to us from these
foreign businesses,,and, if there are alterna-

levels. If we want this part of high technol-
ogy, then we will probably have to produce
most of it ourselves. To do that, we will have
to pay more attention to new products that
orignate in Canada, and make sure, at the
same time, that our universities and techni-
cal schools produce enough highly skilled
graduates to staff these firms.

We can therefore expect that B.C.’s pol-
icy will have little effect on growth and
employment in B.C. We will experience
costs, of course, as we subsidize the firms
and lower our wages (our only direct benefit
form foreign-owned enterprise), but the
benefits will be minimal.

What's Wrong with B.C.’s Policy

@ Economic Growth: Two facts lead
people to associate high technology with
economic growth: first, the worldwide
industry has grown fast, and second, the
industry spends a lot of money on R&D.

High growth rates in the world industry
do not necessarily mean that a great oppor-
tunity is there for B.C. The U.S. market
share is falling as Japan and Germany
increase theirs, and as Third World coun-
tries expand into this area. Thus B.C. faces.a
highly competitive international situation.

On the R&D side of the argument, there

is no reason to expect that foreign firms
locating in B.C. will spend heavily on R&D
in B.C. Experience has shown that R&D
tends to be kept in the home country.
Further, the connection between R&D and
economic growth is not clear cut. Small
countries, like Canada, have been able to
grow fast while “importing” technology
from elsewhere. Thus, we cannot expect
that an increase in R&D expenditures will
necessarily stimulate growth. The Eco-
nomic Council has made a case that Can-
ada should increase R&D expenditures
somewhat, but it seems sensible to carry this
out at the federal level. This is especially
important now that the new Conservative -
government has announced plans to double
R&D expenditure in the country. B.C.’s
integration with the Canadian economy
makes a separate policy costly and redund-
ant. There is no reason, however, why B.C.
should not “do its part” in a national
scheme. We need to make sure that local
innovations are supported.

@ Employment: The recession we are
now living through was caused by monetary
policy (first in the U.S., then in Canada) that
creates high (real) interest rates (now over
8 per cent, far above historical averages). It
is fashionable to ignore this, and to discuss
the problem of unemployment in terms of
technical change and international competi-
tiveness, but these explanations overlook
the real causes of our troubles.

There is some evidence to suggest that
there is a long-run problem in employment,
however. Output per worker has increased
substantially in the last two years, and we
may look forward to difficulties in achieving
full employment even if interest rates come

tive employment opportunities available,
then the low wages may represent a loss to
us. Even if some of the employed workers
would be otherwise unemployed, increased
wages to them may not offset the costs of
attracting these firms. Such development
strategies have been adopted by poor coun-
tries desperately trying to cope with their
unemployment problem. We do not need
them in B.C.

British Columbia’s policy for high tech-
nology may not work, but if it does, it will
lower wages below what they might other-
wise be, put B.C. workers into low-paid
low-skill jobs, and pay for these jobs with
government subsidies. The government
often uses the language of economic neces-
sity to justify these policies, arguing that this
is the only way that we can achieve eco-
nomic growth.

We believe that, as argued above, the
crude growth objective is undesirable. We
must pay attention to wages and quality of
life as social goals, not merely as means to
push the growth juggernaut along.

But goals are not the only problem with
this policy. There are other possibilities for
us, and they are ones where we exploit our
advantages in the present competitive
world. We do not have an advantage in
supplying unskilled labor to the interna-
tional economy. Third World countries
with low wages, low unionization levels,
poor working conditions and governments
like the Marcos dictatorship in the Philip-
pines that use draconian measures to ‘“dis-
cipline” their labor forces will outbid us. But
we do have an advantage supplying skilled
and highly skilled labor. Our universities
and technical schools are among the best in
the world. We can continue to havea highly
skilled workforce by concentrating our
efforts on education rather than on schemes
to soak up undertrained workers.

A policy toward high technology based
on this view is possible. It would drop the
anti-union wage-lowering policies of the
B.C. government, and substitute a policy
that stresses our advantages in the world
cocnomy. Two components of such a policy
would be:

@ Increased expenditures on education
and other measures designed to increase the
skill levels in the workforce (retraining, for
example);

© Subsidies to innovative firms (Cana-
dian where possible) that promise to
become self sufficient in time and use skilled
workers.

The economic problems in B.C. do not
need increased inequality for their solution.
The way out of our present problems will
need an expansionary B.C. expenditure pol-
icy (increased expenditures on education,
social programs, tree planting, and so on)
coordinated with a federal policy that deals
with the problem of low capital investment
levels caused by high real interest rates. A
recovery created in this way would make a
return to stable growth with reasonable
inequality levels in B.C. possible. A B.C.
growth policy that lowers wages and cuts
social spending will frustrate that possibility.

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LS nen errr ctcwmcres caret

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PACIFIC TRIBUNE, OCTOBER 17, 1984 e 7

er SROER! RENT OE

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