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COLUMN

Globalization Means More Than Sending Lumber South

John Clarke

In his best-selling book The Lexus and the Olive Tree-a New Testament for the New World Order if ever there was one-New York Times correspondent Thomas L Friedman says national economies have become so interwoven that there is essentially only one world economy. Whether you are a company or a country, the threats and opportunities you face increasingly derive from whom you are connected to. 

"In the broadest sense we have gone from a system built around division and walls to a system increasingly built around integration and webs," he says. "Globalization is the inexorable integration of markets, nation states and technologies to a degree never witnessed before. "Globalization means the spread of free market capitalism to virtually every country in the world. Globalization also has its own set of economic rules that revolve around opening, deregulating and privatizing your economy to make it more competitive and attractive to foreign investment." 

The Lexus automobile is Friedman's metaphor for the technological world and the olive tree for the attachment of individuals to the local world they know well. Where the forest industry fits into this new world order may still be a matter for debate in forestry circles. For John Roth, chief executive officer of Nortel Networks Corp, and the acknowledged leader of the technological revolution in Canada, at least until Nortel's profit and stock crash in February, there's not much left to debate. 

For him Canada faces a steady decline in the value of its natural resources compared to human resources. "Conservation and the worldwide recycling movement mean that demand for natural resources is growing at a slower rate than the world economy," he has written in The Globe and Mail. "At the same time developing countries are starting to export more of their natural resources. A continual decline in the relative value of our natural resources seems inevitable." Forestry is one of those resources that Roth sees sliding down the charts. Relative decline, maybe. 

But it's hard to acknowledge that proposition, given that wood products are still the most valuable component of Canada's international trade balance. The implicit question both these gentlemen pose for the Canadian forest industry is whether it's globalizing, whether it can globalize and, if so, whether it's doing so fast enough. Since it replaced the Cold War as the defining influence in world affairs, globalization has become as inevitable as the sunrise. International imperatives are more important than national governments in setting the rules of trade. Economists estimate that in a very few years, half of the 100 largest Gross Domestic Products (GDPs) will be companies, not countries. 

The Canadian forest industry used to be one of the most active global players at what someone has called the bleeding edge in promoting international trade; long before globalization became the buzzword it is today. It had sales offices in the biggest potential markets and spent a lot of time lobbying foreign jurisdictions on the quality of Canadian lumber and how to build with it. It used to lead in developing logging and milling equipment and techniques. Now the big equipment producers are in Finland, Germany, the United States, as well as Canada. 

Part of the problem is an almost incestuous relationship with the US. Eighty-six per cent of Canada's total trade is with the US. Attempts from Pierre Trudeau's time on to diversify into other markets have been irresistibly drawn into the black hole of the huge American economy. The wood industry is internationalizing primarily with the US. The big names are there in corporate Canada and the American icon is unmistakable. Government safaris among the moneychangers in the south in search of even more investment in Canada suggest that Americanization is okay with the policy makers. So mergers and acquisitions, the symbols of globalization, can be expected to continue. That's because in the brave new world bigger is safer and probably better. 

Large, well financed corporations can better withstand the buffeting of the competition of Friedman's no holds barred vision. They're better able to restore value to shareholders no longer satisfied with returns in the range of Canada Savings Bonds. But the trouble with integrating into the American dream is that Canada risks developing a branch plant mentality in forestry. 

When the headquarters of the international companies are in the US, the important policy directions are likely to come from the US. The industry knows it has to change. With technology, it's possible to create building materials to replace wood in any number of applications. Different ways have to be found to manage the forests, not just in pursuit of eco certifications in target markets but because eco certification will inevitably mean less logging in old growth forests. And timber can be grown faster and more cheaply in other regions anyway. 

An idea beginning to sink roots in some academic circles is that the industry in Canada will have to adjust to becoming smaller. Niche markets where high quality timber is still wanted may be in its future. The corporate masters are probably not yet ready to cede ground to those ideas, even in their most reflective moments. But even if smaller were to be its future, a lot of investment would still be needed to make the industry more productive with less. Forestry has a part in the technological revolution. 

Yet for John Roth it's on the way down. Forestry can benefit more than it currently does from ecommerce, of course. It can do with a lot more efficiency in business to business activity and marketing, where it has been slow off the mark. But the true test for globalization will be whether it helps forestry to survive and even grow in Canada rather than through investing in forests abroad. Even if Roth is right, forestry will still need nurturing with enough investment to compete with the knowledge industry at home.

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