Manufacturing and Active Labor Market Policy

Yesterday, I concluded remarks on the GM bailout with an assertion that we can do better -- that while we were rushed into what seemed an all but inevitable response to the GM and Chrysler bankruptcies, we now have the space to think more carefully about industrial policy.

Margaret Wente, in her column today, picks up on the same theme. She too draws on Robert Reich's Financial Times column from Sunday. As I noted earlier, he, like many others, understands that the bailout is not a rescue but a reprieve. It will not solve problems but merely buy time. Wente understands this. Yet to my mind, and this is something Wente doesn't address, the important issue is what we do with that time.

Canada has been toying with the idea of active labor market policy for more than a quarter century. In the 1980s, it put forward the Labour Force Development Strategy, which made some significant changes to EI around training. And when I spent some time in CEIC's (now HRDC) policy shop in the early 1990s, there was a substantial effort underway to develop more comprehensive labor market policies. But here and subsequently it always seemed the results were piecemeal.

It would seem that this is an opportune time to at least entertain the idea that fully supporting workers in transitioning from dying to emerging industries, with full training and income support, is a far more viable project than propping up dying industries. Sweden, the world leader in such policies, spends three percent of GDP on this. In Canada that would be a little more than $4 billion. This is a lot of money, but compared to $13 billion to stave off the inevitable it is a genuine bargain.

It is also a way to underwrite the process of creative destruction that Joseph Schumpeter for one saw as the engine of innovation. If workers are able to make relatively painless transitions not only from old to new jobs but old to new industries, then the new looks much less frightening. And if this innovation sparks growth, the cost of active labour market policy is offset at least to some extent by increased revenues.