Brexit, Trump, Future Shock and the Fishing Industry

This column will be unlike any other I have written or probably will ever write for The Navigator magazine.

But recent events represent a significant departure from those of the past few decades and I think it is worthwhile to reflect on how they relate to the fishery.

On June 23, citizens of the United Kingdom voted to withdraw from the European Union. As I write this, Donald Trump has emerged as the presumptive Republican candidate for President of the United States. And through most of the primaries, Bernie Sanders posed a serious threat to Hillary Clinton as the Democratic candidate for the same office.

chticamp-crab-trapsA year ago — or even less — all of these outcomes would have been considered highly unlikely. Yet, they happened.

Alvin Toffler died on Monday, June 27. He was the author of a best-selling book titled, Future Shock, which was published in 1970. Based on his observations of cultural upheaval in the United States and other developed countries during the 1960s and five years of research to understand the underlying causes, he concluded that convergence of science, communications and capital was causing such rapid change it was creating a new kind of society.

He then forecast with remarkable accuracy how people and institutions would deal with the opportunities and strains of accelerating change.

All of these events have more in common than might appear on the surface.

In the successes of Brexit, Trump and Sanders, people were voting in protest, to express a high level of dissatisfaction with the way things have been going for them. They were rebelling — in a somewhat radical but peaceful way — against the cumulative effects of a variety of changes that had adversely affected them, due to what they believed were poor choices made by their leaders. So now they want a change of leadership.

At the end of my last column, I said, “Ultimately, true leadership involves creating conditions that enable ordinary people to achieve extraordinary results.” Through their votes, the supporters of Brexit, Trump and Sanders — mostly ordinary people – were telling their incumbent leaders they are unhappy and a new approach to leadership is needed, because they are not getting the results they want.

Why is that?

Essentially, a large number of people are suffering what Toffler described as “future shock” — a perception of too much change in too short a period of time, causing stress and disorientation.

In many ways, the past 35 years or so have been a period of tremendous economic growth. Since the early 1980s, world population has increased by about two billion, expanding the market for just about everything. Deregulation of industries, free trade agreements, the collapse of the Soviet Union and the emergence of China have led to huge increases in international trade, re-working of global supply chains, and low price inflation. New technology — especially information and communication technology — has facilitated these changes and enabled substantial re-engineering of business processes.

John-Rafferty-Photo-(2)One of the effects has been “offshoring” of a lot of production activities from high-wage developed countries. In turn, that has led to very rapid economic development in low-wage countries where the production moved, such as China, India, Vietnam, and Indonesia, creating a large new group of consumers to help drive the overall increase in market demand.

Another effect was a substantial increase in prices for oil, minerals and other basic commodities — including fish — as demand increased faster than supply, stimulating large new investments to increase supply.

Although the overall trend was up, there were some significant down periods along the way, marked by an economic recession in the early 1990s, the “Asian Contagion” of currency devaluations starting in 1997, the “Tech Wreck” stock market collapse after 1999, the “Great Recession” triggered by a financial crisis in 2008, the after-effects of that crisis that continue today and most recently, the collapse of prices for oil and minerals, as market demand slowed while supply increased because of the investment in new capacity.

In addition, we have seen a rise in terrorism, wars in Afghanistan, Iraq, and Syria, the “Arab spring” uprisings and mass migrations of people trying to escape the turmoil in the Middle East and find a better life.

When you add it all up, it has been a tumultuous period.

It is no wonder a lot of people are suffering from future shock.

The world may be more prosperous overall, but different people have been affected very differently. Along the way, new jobs were created but others were lost, with the winners and losers mostly living in different geographical areas. Incomes and employment benefits for most people in the more affluent western countries stagnated or even decreased, while those in the developing world increased.

Many people in the United States, Britain and other developed countries lost their homes as others built great fortunes. Some amassed wealth unimaginable to most people and became part of the “one per cent” who have a disproportionately high share of the world’s wealth, incomes, and political influence.

In other words, the benefits of economic growth have not been shared evenly and the losers, mostly in developed Western economies, are finding ways to let their leaders know they expect better.

Joseph Schumpeter was an Austrian-American economist who popularized the idea that capitalist economies are characterized by “creative destruction” where economic structures change over time, as new businesses built around new ideas continually cause the demise of older ones — for example, the automobile replacing transportation using horses. Foreshadowing Toffler, he suggested such change is simply the natural product of ongoing innovation in technology, business, and economics.

The past 35 years have been a period of very rapid change, as innovation at many levels has led to extensive creative destruction. Although many have prospered, increasing numbers of people are now having difficulty coping with the cumulative effects of the extraordinarily rapid pace of change.

158People who were formerly members of the comfortable “middle class” are no longer comfortable or even middle class. Brexit, Trump and Sanders all offered alternatives that were more appealing, because of promises to slow down — or even reverse — changes many believe are adversely affecting them. Whether or not those alternatives can actually deliver on the promises, remains to be seen.

But the odds are against it, because history has shown the forces of creative destruction are simply too powerful. Many bookstores have closed and others have changed their product assortment, to compete better with Amazon. As Amazon has expanded, the range of goods it offers beyond books, even Wal-Mart, the world’s biggest retailer, has been feeling the pinch.

Who would have expected a few years ago that Uber, which owns no cars, would disrupt the taxi industry around the world or that Airbnb, which owns no hotel rooms, would disrupt the global accommodations industry?

How many people would be willing to give up their mobile phones or using Google to find information quickly and easily? Are several hundred million Chinese willing to give up some of their newfound affluence to help out people in Western economies who still earn higher wages than they do?

What does all this have to do with the fishery?

Actually, quite a lot.

Over the past 35-40 years, markets for fish and seafood have increased substantially, driven by increases in both population and consumption per person.

Supply chains and distribution systems for food — including fish — have been completely re-worked, because of competition, free trade agreements, deregulation, and improvements in information, communications and transportation technologies. As in other parts of the global economy, China has become a major force, as a consumer, a producer, and a processor of imported raw material for re-export.

In 1977, the 200-mile limit came into effect, dramatically changing international patterns of fishing and trade in fish products. By 1981, just four years later, practically the entire fish processing industry in Atlantic Canada was insolvent, requiring industry restructuring at substantial cost to the federal and provincial governments. In 1987, it became apparent the Northern cod stock had been overfished, requiring cuts in fishing quotas and a moratorium in 1992 that remains in effect today. Other groundfish stocks were subsequently placed under moratorium, as well.

As these developments unfolded, the industry made a transition to being based on shellfish. We are now seeing the effects of yet another resource regime shift, driven by climate change brought on by global warming.

From 1977 to 2014, global fish production increased from 58.5-million metric tonnes to 167.2, or nearly 2.9 times. Even so, the supply side had difficulty keeping up as demand for fish and seafood increased, leading to overfished resource stocks in traditional fishing areas, including those in Atlantic Canada.

Driven by the pull of the market, the supply of fish changed dramatically, as low-wage developing countries gained access to markets in affluent countries and aquaculture became the fastest-growing food production system in the world, now providing over half the fish for human consumption.

As of 2014, developed countries, like Canada, produced 28,930 tonnes of fish, while developing countries provided 138,279 tonnes. Globally, production from aquaculture currently exceeds production of beef from agriculture. Because aquaculture offers  a year-round supply of fish that are consistent in size, quality, and price, it has changed buyers’ and consumers’ expectations, creating standards that are difficult for fish from capture fisheries to meet.

British Columbia’s once-prosperous salmon canning industry has been turned inside out and upside down, because of salmon aquaculture. Global markets for shrimp were totally disrupted by shrimp aquaculture in Asia and Latin America, until producers ran into problems with disease in recent years, reducing their ability to supply.

Groundfish markets have similarly been disrupted by supplies of low-cost farmed tilapia, pangasius and catfish. Emergence of processing in low-wage countries, such as China and Vietnam, has led to increasing quantities of fish caught in developed countries being shipped around the world for processing, reducing the supply of raw material for plants and putting downward pressure on wages for plant workers in Canada and Norway, among others.

Over the past three or four years, things seem to have been improving. Prices have increased for a broad range of fish products, because market demand has continued to increase faster than supply and Canadian producers have benefited even more because of a weakening Canadian dollar.

But who has benefited?

For the most part, it has been harvesters, as prices paid for raw materials have increased, but wages paid to plant workers have not and returns on capital invested in the industry have remained at very low levels. That is because harvesters have the supply but plant owners and workers have to compete with rivals in low-wage countries. Much of the catch has been shipped elsewhere for processing.

For a few years during the 1980s, Canada was the largest exporter of seafood, by value, in the world. As of 2014, we ranked 10th, even behind Denmark, with a population of 5.6 million and the Netherlands, with a population of 16.8 million, both of which have much smaller coastlines and inland water resources than Canada.

As the foregoing indicates, our industry has undergone a lot of change, much of it game-changing. Through it all, the Canadian fishing industry has largely been whistling past the graveyard in the dark, giving an air of bravery in the face of impending danger. It has steadily resisted making voluntary changes, reacting only to change forced upon it, for example through collapse of fish stocks, market prices, currency exchange rates, or by international competition. We have fewer boats and plants today but otherwise our industry still operates in much the same way it did 30 years ago, despite the fact that our markets and competitors have changed a lot.

Instead of suffering from future shock, we have been determined to prevent the future from arriving, much like the little Dutch boy who saved his community from flooding by placing his finger in a hole in the dike, to hold back a torrent of water.

But, like Brexit and Trump, that comes at the price of retreat from global markets and competition and reduction of economic value. For people overcome by the forces of change, it seems appealing. However, the Canadian fishing industry depends on exporting most of its output to global markets. Retreat is not possible without loss of markets, opportunities, and even more jobs.

The path we are on is not sustainable, because of demographics, low incomes, and poor returns on capital investment. Unless we change significantly, and soon, we will see that no one will want a job in the industry or invest in it. Who will replace the baby boomers as fishers, plant workers and plant owners, as they move into retirement?

In the words of Alvin Toffler, “Change is not merely necessary to life — it is life.”

If he thought the 1960s were a turbulent period — and they were — the turbulence has only gotten worse since then. Change is constant and seems to be accelerating, so we have to learn to live with it, no matter how difficult that may be.

Ultimately, the answer for us is to become an internationally competitive, economically viable industry that maximizes the value we get from our limited resources, allowing us to provide good incomes to attract people to work in the industry and returns on investment that can attract new capital. We have to make the forces of change work for us, not retreat from them. That is what we need our leaders to do, so our ordinary people can achieve extraordinary results, allowing them to feel better about the world and their place in it.

Robert Verge

Managing Director of the Canadian Centre for Fisheries Innovation — Newfoundland

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