Andrew Allentuck

Monday, April 22, 2002

The Ever After Effect: Waking Up from the Boom Years
by Linda Nazareth
Winding Stair Press, 2001
212 pages
ISBN 1-55366-091-9

What will happen to the Canadian and world economies as the hangover of the tech-driven boom years of the 1990s begins to fade away? Linda Nazareth, who covers macroeconomics for Report on Business TV, suggests that the answer lies in the ability to adapt to change.

Ms. Nazareth's book, published in the weeks of gloom following the tragedy of Sept. 11, didn't have the advantage of foreseeing the strength of the recovery currently underway. Imbued with an unavoidable pessimism, The Ever After Effect nevertheless provides information that can help the reader divine the course of business.

The Canadian dollar, she points out, trades at levels that move with commodity prices. The loonie is not led by commodities, but is priced simultaneously with commodity price changes, she notes. That would seem to make Canada a price-receiver in its commodity export business, which is it is. Yet Canada's fate as a commodity exporters is not as dire as Australia's, also a commodity price receiver in the determination of its currency value. As the principal trading partner of the United States, Canada has fundamental choices to make about its currency and economy, Ms. Nazareth says.

She wisely points out two issues in the fate of the Canadian economy: the exchange value of the loonie and productivity of the Canadian economy. She asks if Canadian governments are committed to allowing the loonie to sink as a way of compensating for stagnating productivity. She quotes Harvard Business School professor Michael Porter and University of Toronto business school dean Roger Martin on the inverse relationship between growth of the Canadian social safety net and productivity. The political issue she raises is whether the federal government would sacrifice some social programs to make the economy more efficient. Her answer is implicitly No. And if Canada were to bond to the U.S. dollar, giving up the loonie? She says that's a difficult choice, for Canada would give up any independence in its monetary policy. The Bank of Canada has little real independence now, but the lack of policy, she rightly says, could be crucial sometime in the future.

If the Canadian dollar and productivity are hostage to social programs, what will revive the economy and Canadian living standards? Ms. Nazareth mention a wealth effect, strong in the US as homeowners find their houses worth more both as fractions of total family assets and in absolute dollar terms even as financial assets tumble in value. That effect has been less pronounced in Canada. In the end, she offers hope, rather faint, that the Canadian economy can gain strength and offer up a better living to more people.

Readable and enriched with interviews Ms. Nazareth has done on RoB television, The Ever After Effect presents the view of the Canadian economy as it was last year looking ahead. Prospects have brightened since then for a recovery. Yet the economy and investors remain on tender hooks. As always, Canada needs the help of exports and perhaps - though she dismisses it - the efficiency of using the US dollar for a currency. Even if you don't agree, The Ever After Effect is provocative stuff with a well reasoned, scholarly base. It's likely to be one of the best books of the year on the Canadian economy.