24 February 2009

Richard Florida on Economic Resets

I recently listened to an interesting talk by U of Toronto's Richard Florida on recessions and where do we go from here? Florida's idea is that recessions act as resets for the economy, allowing the big old companies to die off so that new operations can grow and take their place.
Perhaps a better analogy is 'forest fire'. The US stimulus plan is specifically failing to eliminate the failures. As the Russians would say, don't reinforce failure.

Richard Florida on the Current podcast

The podcast does come across as a bit of a pump job for the greater Toronto area. I generally agree with his thesis, however. Royal Bank logged a C$1.14 billion profit in 1Q2009, and CIBC was similar (C$141 million with a C$708 million write-down). So yes, the Canadian banks are doing very well, relatively speaking. He's totally correct that too much money has been spent on housing and consumer goods. I found it interesting primarily because Florida is suggesting ways forward. There's too much hand wringing going on these days.

Canada's biggest weaknesses in my opinion are a lack of consistent funding for the 4th sector of the economy (R&D) and lack of diversity in some areas (i.e. too much reliance on resource extraction). For example, the Canadian government is inordinately fond of funding infrastructure and equipment purchases for universities rather than providing on-going support for salaries and maintenance. Greater emphasis should be placed on processing raw materials before they exit the country. Why do we export raw logs from time to time?

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