General Motors has announced that it plans to close five facilities in North America, one in Oshawa, Ontario and four in the United States by the end of 2019. https://business.financialpost.com/transportation/consumer-demand-and-competitiveness-why-gm-closed-its-oshawa-plant The company plans to reduce its employees by fifteen percent that includes a quarter of its executives. https://www.cnn.com/2018/11/26/business/gm-oshawa-plant/index.html The Oshawa plant will experience the largest loss of employment (2,973 of 6,700 production jobs) https://business.financialpost.com/transportation/consumer-demand-and-competitiveness-why-gm-closed-its-oshawa-plant The proposed closure of automotive plants and resultant loss of employment indicates the continuing trend in loss of traditional manufacturing and employment in Canada and the United States. This has important implications for both the countries. This article will explore the problem and suggest policies to mitigate the issue.
The global restructuring will save General Motors $6 billion annually by the end of 2019 that it will invest in electric vehicles and self-driving vehicles. https://business.financialpost.com/transportation/consumer-demand-and-competitiveness-why-gm-closed-its-oshawa-plant The Oshawa plant has been running at one-third of its capacity for the last several years while customers increasingly prefer SUVs and hatchbacks over sedans. https://www.cnn.com/2018/11/26/business/gm-oshawa-plant/index.html After topping out at 17.5 million auto sales in 2016, US production declined to 17.2 million in 2017 that is expected to decrease further this year according to BMO. The same trend is observed for Canada. In 2017, Canada produced 2.07 million cars in 2017 that is predicted to fall below two million this year. Like other traditional manufacturing industries, auto production is decreasing in Canada and the US due to the combined effects of automation, artificial intelligence and globalisation.
Globalisation has allowed and encouraged companies to move their production facilities from Canada and the US to low-wage destinations like Mexico and China. This has allowed companies to take advantage of lower wages of workers thereby boosting their profits. However, it has led to the decline of traditional manufacturing like auto production and loss of manufacturing employment in these two countries. This has contributed to the shrinking middle class in both these countries, like in other developed countries, which is deleterious economically, socially and politically. Also, manufacturing including auto production has become increasingly affected by automation and artificial intelligence. While General Motors plans to close plants and lay off thousands of workers, it opened a new Canadian Technology Centre (CTC) in Markham and is hiring software engineers and coders to work on developing vehicles of the future, electric and self-driving vehicles. https://www.cbc.ca/news/business/gm-canada-president-says-electric-vehicles-are-the-future-but-they-won-t-be-made-in-oshawa-1.4931107 It has hired 450 employees and plans to hire another five hundred by 2020. While investing in automation and artificial intelligence is important, they are often labour-replacing and leads to fewer workers being employed. Therefore, the increased introduction and incorporation of automation and artificial intelligence in manufacturing including auto production, leads to less manufacturing employment and increased unemployment among traditional manufacturing workers. This again leads to shrinking middle class in Canada and the US that is harmful economically, socially and politically.
The combined challenges of globalisation and technological innovation require appropriate response. The governments of Canada and the US help manufacturing companies operate in these two countries. They can expand on existing as well as introduce new financial and non-financial incentives to companies to manufacture in Canada and the US, and encourage those with foreign manufacturing plants to reshore manufacturing facilities back to these two countries. The governments can lower corporate tax rates, increase subsidies, allow companies to repatriate foreign-earned revenue at low tax rates, provide tax breaks to incentivize companies to manufacture in Canada and the US, and encourage them to bring back production facilities from abroad. These existing measures and expanding on them may increase the manufacturing base in Canada and the US while boosting manufacturing employment. However, it is important to realise that some types of manufacturing and their respective jobs are gone, and will never return to these two countries as it is financially not feasible to produce certain types of products and compete with low-wage foreign manufacturers. These include low-valued manufacturing like the manufacturing of basic clothing. These types of manufacturing and their consequent jobs will not return to Canada and the US irrespective of the level of financial and non-financial incentives that the governments provide to the relevant companies.
The skills and experience of the adversely affected workers sometimes become obsolete and are insufficient to secure employment. There are government programs to educate, retrain and reskill the adversely affected workers so that they can gain the education, skills and experience that the jobs available require. If the governments of Canada and the US expand on these programs and make them more user-friendly and financially possible for the adversely affected workers, it will be easier to rehabilitate these workers back into the labour market. This will be very beneficial for the adversely affected workers and their families, and help them to live a decent living. This will help to stem the shrinking middle class in both the countries and these workers will be able to make greater economic and non-economic contributions to these societies.
It is important to realise that the increasing use of automation and artificial intelligence in the manufacturing and service industries may lead to fewer jobs available as automation and artificial intelligence seem to labour-replacing. With the introduction of automation and artificial intelligence, companies seem to be able to produce the same level of manufacturing or service output while employing fewer workers, who are often highly skilled and trained to operate in workplaces that champion automation and artificial intelligence. It is possible, especially in the future, that with increased incorporation of automation and artificial intelligence in the workplace, there may not be enough jobs available to job seekers. This is especially true for jobs that require relatively low skill levels and are in danger of being replaced by machines. When significant number of people cannot find employment, it may lead to increasing poverty, less economic contribution and increased populism among the adversely affected group. This may threaten the economic, social and political stability of a country. The governments of Canada and the US may explore increased social programs, including the introduction of universal basic income (UBI), to mitigate the possible adverse impacts of increased adoption of automation and artificial intelligence in the workplace. A study by the Office of the Parliamentary Budget Officer (PBO) revealed that to offer guaranteed basic income (GBI) of $16,989 less 50 percent of any earned income to single individuals and $24,027 less 50 percent of any combined earned income to couples, will cost the government $76 billion approximately in 2018-2019. After subtracting $32 billion of federal support for low-income individuals and groups, the net cost to the federal government of implementing GBI would be $44 billion. https://www.pbo-dpb.gc.ca/web/default/files/Documents/Reports/2018/Basic%20Income/Basic_Income_Costing_EN.pdf This is thirteen percent of projected total federal government expenditure of $338.5 billion for 2018-2019, which means that it is financially possible for the Canadian federal government to implement it. According to Karl Widerquist, the net cost of implementing universal basic income (UBI) in the United States with $12,000 per adult and $6,000 per child with a fifty percent marginal tax rate would be $549 billion per year. This net cost would amount to less than 25 percent of U.S. entitlement spending, less than fifteen percent of overall US federal spending and less than three percent of GDP. It indicates that implementing UBI is financially possible for the US government. https://works.bepress.com/widerquist/75
The traditional manufacturing industries and manufacturing employment have been declining in both Canada and the US. The planned closure of the GM plants is an indication of this continued trend. It has been due to the combined effects of automation, artificial intelligence and globalisation. Some service sector industries and employment are also increasingly vulnerable to automation and artificial intelligence. The governments of Canada and the US can expand and use new financial and non-financial incentives to attract companies to produce in these two countries and employ workers as well as reshore manufacturing. The two governments can increase investments in educating, retraining and reskilling of the affected workers. Also, it is important to realise that automation and artificial intelligence are replacing workers. Therefore, it is important to expand on existing social programs to support the affected citizens in these two countries. Both Canadian and US governments can explore the introduction of universal basic income as it will financially support the citizens of these two countries and eliminate poverty while it is financially possible for both governments to introduce the program in their respective countries.