Why Your World Is About To Get A Whole Lot Smaller
By Jeff Rubin
Random House Canada
Could some serious pain at the pump be Hamilton's best shot at a whole lot of new jobs?
Brace yourself for record-high gas prices. We're already paying almost a buck a litre as we reel through the worst global recession since the Great Depression.
So just how fast and how high will prices soar when the recession ends and economic engines start firing again in China, India, North America and Europe?
We'll get hammered on more than just the demand side. Some big questions surround supply. We're depleting oil reserves faster than we're finding new source. All the easy oil's been had and we're going to pay far more to find and refine what's left at the bottom of the barrel. And then we have oil producers cannibalizing more exports for their own consumption. In the Middle East, around a third of a million barrels of heavily subsidized oil a day are burned to generate electricity and power demand keeps soaring. And more than a million barrels a day could soon be needed to run massive desalination plants as the fast-growing region faces a peak water problem.
Welcome to the end of cheap oil and the return of a much smaller world, says author and former Canadian Imperial Bank of Commerce chief economist Jeff Rubin.
"Once the dust settles from the various crisis rocking financial markets, we are looking at the same basic demand-supply imbalance that we were looking at before the recession began," says Rubin.
"That imbalance took us to nearly $150 per barrel before the recession set in. In the next cycle, the same imbalance will probably take us to to $200 per barrel before another recession temporarily knocks back prices and demand." If that happens, look for record prices at the pumps.
While we're not about to run out of oil anytime soon, Rubin says we're nowhere near coming up with alternative energy sources that will allow us to carry on with business as usual in an oil-free world. Ethanol's a "head fake" and solar and wind power aren't yet up the challenge.
As triple digit oil prices become the new normal, Rubin says we'll say goodbye to dollar stores, drive-thrus and dining out, SUVs, two-car garages, hour-long commutes by car, road trips, regional airports and disposable incomes. Life looks especially grim in suburbia, where the lack of accessible public transit will carve McMansions into tenement slums before being salvaged for parts and plowed under for farmers' fields. And we'll be saying hello to inflation, slow economic growth, bus passes, a whole lot more train travel, and well-worn walking shoes.
So what's the good news as gas begins what looks like an inevitable climb to $2 a litre? There'll be no shortage of hometown jobs in manufacturing and agriculture. Everyone will be hard at work. "Globalization comes with a lot of verbiage these days, but it's just a fancy word for a very simple process: moving your factory to the cheapest labour market in the world," says Rubin.
"Even better, getting out of the factory business altogether and just buying whatever your factory used to produce from someone else's factory at a fraction of the cost."
But globalization only runs on cheap oil. Without it, higher transport costs cancel out lower labour costs. When oil went from $30 US to $100 US per barrel, the average daily fuel bill for an ocean-going cargo ship shot up from $9,500 US to $32,000 US and manufacturers got stuck with the tab. Instead of paying higher and higher costs to ship raw materials and finished goods around the world, look for those manufacturers to bring back jobs, set up shop in industrial heartlands and serve regional markets.
"From industrial pump parts to lawn mower batteries to home furniture, shipping costs are driving production back to North America from cheap labour markets in China and elsewhere," says Rubin.
"With transport and logistics costs soon to become even more important, padlocks will be taken off mothballed factories, and machinery that hasn't run for years will be getting a new greasing."
Toss in a carbon tax or cap and trade system that penalizes countries that run on coal and, together with triple-digit oil prices, North American industry and jobs will be protected like never before.
Along with more factories, expect more and smaller farms. Soaring energy and transportation costs will clear grocery store shelves of Atlantic salmon from Norway, lamb from New Zealand and strawberries from California. Instead, we'll be filling our fridges with what's grow locally. Everyone will be on the 100-mile diet and looking for deals at weekend farmer's markets. Also expect more back yard and community gardens as we try to save on soaring food costs wherever we can.
So today's baristas at Starbucks and the greeters at Wal-Mart could eventually find themselves working on factory floors and plowing farmers' fields. Jobs will be about the only thing not in short supply in our small, small world, Rubin predicts.
"This transition will not be a layup," says Rubin, who remains confident that we'll prove ourselves to be innovation rich in an energy poor world.
"The infrastructure, the technology, the training, even the work culture will have to undergo a massive overhaul … Many people who have not seen a lunch box since middle school or who haven't had a callous on their hands … may soon become reacquainted with both."
JEFF RUBIN LIVE
Economist Jeff Rubin will be at the Burlington Central Library June 15, 7 p.m., to discuss his controversial book, Why Your World Is About To Get A Whole Lot Smaller.
The program is part of the Engaging Ideas series hosted by Burlington's A Different Drummer Books. Tickets: $10 (includes catering by Grinning Gourmand) are available at both the library and A Different Drummer.