Like their political systems, the economic systems of Canada and the United States have much in common. Both countries evolved from societies based mainly on family farms. Both then had an era of industrialization followed by a transformation to a primarily service-based economy, and both have important technology sectors and an economic influence that reaches worldwide.

By the 1960s, the geography of manufacturing was changing. In the old economic core, higher pay and benefits and better working conditions won by labor unions led to increased production costs. This threatened the high profits demanded by the owners, managers, and shareholders of manufacturing corporations. A number of companies began moving their factories to the southeastern United States where wages were lower and corporate profits higher because of the absence of labor unions.

44. U.S. LABOR TRANSITION REPORT

In 1994, the North American Free Trade Agreement (NAFTA)—a free trade agreement that added Mexico to the 1989 economic arrangement between the United States and Canada—was passed. Many manufacturing industries, such as clothing, electronic assembly, and auto parts manufacturing, began moving farther south to Mexico or overseas. In these locales, labor was vastly cheaper. Further, employers saved on production costs because laws mandating environmental protection as well as safe and healthy workplaces were absent or less strictly enforced.

Another factor in the decline of manufacturing employment has been automation. The steel industry provides an illustration. In 1980, huge steel plants, most of them in the economic core, employed more than 500,000 workers. At that time, it took about 10 person-hours and cost about $1000 to produce 1 ton of steel. Spurred by more efficient foreign competitors, the North American steel industry applied new technology to lower production costs, improve efficiency, and increase production. By 2006, steel was being produced at the rate of 0.44 person-hours per ton and at a cost of about $165 per ton. As a result, the steel industry in the United States reorganized, producing much of the steel in small, highly efficient mini-mills distributed throughout the United States. In total, the steel industry now employs fewer than half the workers it did in 1980. Throughout North America, this efficiency trend has resulted in far fewer people producing more of a given product at a far lower cost than was the case 30 years ago. Remarkably, even as employment in manufacturing has declined over the last three decades, the actual amount of industrial production has steadily increased.

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The economic base of North America is now a broad tertiary sector in which people are engaged in various services such as transportation, utilities, wholesale and retail trade, health, leisure, maintenance, finance, government, information, and education.

As of 2014, in both Canada and the United States about 80 percent of jobs and a similar percentage of the GNI were in the tertiary, or service, sector. There are high-paying jobs in all the service categories, but low-paying jobs are far more common. The largest private employer in the United States is the discount retail chain Walmart (1.4 million employees), where the average wage is $12 an hour, or $24,000 a year, full time. This is just barely above the poverty level for a family of four in the United States. Because many Walmart employees are part time, a large percentage of them do not receive benefits, including health care. Walmart creates mostly retail jobs because, for the most part, its wares are manufactured abroad.

The Knowledge Economy An important subcategory of the service sector involves the creation, processing, and communication of information—what is often called the knowledge economy, or the quaternary sector. The knowledge economy includes workers who manage information, such as those employed in finance, journalism, higher education, research and development, and many aspects of health care. It also includes the information technology or IT sector, which deals with computer software and hardware and the management of digital data.

Industries that rely on the use of computers and the Internet to process and transport information are freer to locate where they wish than were the manufacturing industries of the old economic core, which depended on locally available material resources such as steel and coal. These newer industries are more dependent on skilled managers, communicators, thinkers, and technicians, and are often located near major universities and research institutions.

Crucial to the knowledge economy is the Internet, which was first widely available in North America and has emerged as an economic force more rapidly there than in any other region in the world. With only 5 percent of the world’s population, North America accounted for 11.4 percent of the world’s Internet users in 2014. Roughly 78 percent of the population of the United States uses the Internet, as does 85 percent of the Canadian population, compared to 73 percent of the European Union and 39 percent of the world as a whole. The total economic impact of the Internet in North America is hard to assess, but retail Internet sales increase every year. Indeed, although overall purchases were down during the recession of 2008 to 2011, online purchases in the United States and Canada steadily increased.

The Internet has entered many aspects of life in North America. In the political sphere, social networking (Facebook, Twitter, YouTube, and others) now plays a large role in recruiting volunteers and eliciting cash contributions, especially during recent U.S. election cycles. Beginning in 2009, social networking through Facebook, Twitter, and YouTube became an integral part of public communication, often referred to on daily TV news programming. It is now a major source of information for North Americans about international events, such as the Arab Spring demonstrations around the Mediterranean.

The growth of Internet-based activity in North America makes access to the Internet increasingly crucial. Unfortunately, a digital divide—a discrepancy in access to information technology between small, rural, and poor areas and large, wealthy cities—has developed, because about a quarter of the North American population is not yet able to afford computers and Internet connections.

The United States and Canada are major engines of globalization that impact the world economy through the size and technological sophistication of their economies. Together, they are almost as large as the economy of the entire European Union. North America’s advantageous position in the global economy is also a reflection of its geopolitical influence—its ability to mold the pro-globalization free trade policies that suit the major corporations and the governments of North America.

Free trade has not always been emphasized the way it is now. Before its rise to prosperity and global dominance, trade barriers were important aids to North American development. For example, when it became independent of Britain in 1776, the new U.S. government imposed tariffs and quotas on imports and gave subsidies to domestic producers. This protected fledgling domestic industries and commercial agriculture, allowing its economic core region to flourish.

Now, because both are wealthy and globally competitive exporters, Canada and the United States see tariffs and quotas in other countries as obstacles to North America’s economic expansion abroad. Thus, they usually advocate heavily for trade barriers to be reduced worldwide. Critics of these free trade policies point out a number of inconsistencies in the current North American position on free trade. First, North America once needed tariffs and quotas to protect its firms, much like many currently poorer countries still need to do. Furthermore, contrary to their own free trade precepts, both the United States and Canada still give significant subsidies to their farmers. These subsidies make it possible for North American farmers to sell their crops on the world market at such low prices that farmers elsewhere are hurt or even driven out of business (see the vignette below). For example, many Mexican farmers have lost their small farms because of competition from large U.S. corporate farms, which receive subsidies from the U.S. government. Corporate farms in the United States can now sell their produce in Mexico or even relocate there under NAFTA agreements. The critics add that beyond agriculture, in North America, the benefits of free trade go mostly to large manufacturers and businesses and their managers, while many workers end up losing their jobs to cheaper labor overseas, or see their incomes stagnate.

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NAFTA Trade between the United States and Canada has been relatively unrestricted for many years. The process of reducing trade barriers began formally with the Canada–U.S. Free Trade Agreement of 1989. Mexico was included with the creation of NAFTA in 1994. The major long-term goal of NAFTA is to increase the amount of trade between Canada, the United States, and Mexico. Today, it is the world’s largest trading bloc in terms of the GDP of its member states.

The extent of NAFTA’s impacts are hard to assess because it is difficult to tell whether the many observable changes have been caused by the agreement itself or by other changes in regional and global economies. However, a few things are clear. NAFTA has increased trade, and many companies are making higher profits because they now have larger markets. Since 1990, exports among the three countries have increased in value by more than 300 percent. By value, NAFTA’s exports to the world economy have increased by about 300 percent for the United States and Canada and by 600 percent for Mexico. Some U.S. companies, such as Walmart, expanded aggressively into Mexico after NAFTA was passed. Mexico now has more Walmarts (2400 retail stores) than any country except the United States, which has 4663 (Figure 2.12). Canada has 380 Walmarts.

NAFTA seems to have worsened the perennial tendency of the United States to spend more money on imports than it earns from exports. This imbalance is called a trade deficit. Before NAFTA, the United States had much smaller trade deficits with Mexico and Canada. After the agreement was signed, these deficits rose dramatically, especially with Mexico. For example, between 1994 and 2009, the value of U.S. exports to Mexico increased by about 153 percent, while the value of imports increased 265 percent.

NAFTA has also resulted in a net loss of about 1 million jobs in the United States. Increased imports from Mexico and Canada have displaced about 2 million U.S. jobs, while increased exports to these countries have created only about 1 million jobs. Some new NAFTA-related jobs do pay up to 18 percent more than the average North American wage. However, those jobs are usually in different locations than the ones that were lost and the people who take them tend to be younger and more highly skilled than those who lost jobs. Former factory workers often end up with short-term contract jobs or low-skill jobs that pay the minimum wage and carry no benefits.

As the drawbacks and benefits of NAFTA are being assessed, talk of extending it to the entire Western Hemisphere has stalled. Such an agreement, which would be called the Free Trade Area of the Americas (FTAA), would have its own drawbacks and benefits. A number of countries, including Brazil, Bolivia, Ecuador, and Venezuela, are wary of being overwhelmed by the U.S. economy. Even in the absence of such an agreement, trade between North America and Middle and South America is growing faster than trade with Asia and Europe. This emerging trade is discussed in Chapter 3.

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The Asian Link to Globalization Another way in which the North American economy is becoming globalized is through the lowering of trade barriers with Asia. One huge category of trade with Asia is the seemingly endless variety of goods imported from China—everything from underwear to the chemicals used to make prescription drugs. China’s lower wages make its goods cheaper than similar products imported from Mexico, despite Mexico’s proximity and membership in NAFTA. Indeed, many factories that first relocated to Mexico from the southern United States have now moved to China to take advantage of its enormous supply of cheap labor. Despite adjustments in the Chinese economy that may raise prices, trade with China promises to remain quite robust for some time.

U.S. and Canadian companies also want to take advantage of China’s vast domestic markets. For example, the U.S. fast-food chain KFC now has more than 2100 locations in 450 cities in China, and its business is growing rapidly there. The U.S. government has a powerful incentive to encourage such overseas expansion by companies like KFC that are headquartered in the United States and whose profits are taxable by the federal government.

Asian investment in North America is also growing. For example, Japanese and Korean automotive companies have located plants in North America to be near their most important pool of car buyers—commuting North Americans. They often establish their plants in the rural mid-South of the United States or in southern Canada, close to arteries of the Interstate Highway System. Here the Asian companies have found a ready, inexpensive labor force. These workers can access high-quality housing in rural settings within a commute of 20 miles (32 kilometers) or so from secure automotive jobs that pay reasonably well and include health and retirement benefit packages.

Japanese and Korean carmakers succeeded in North America even as U.S. auto manufacturers such as General Motors were struggling. This was primarily because more advanced Japanese automated production systems—requiring fewer but better-educated workers—produce higher-quality cars, which sell better both in North America and around the world. Some analysts predict that foreign carmakers will eventually take over the entire North American market, while others predict that the old American car companies, several of which are in the process of restructuring, will maintain and even expand market share by turning out better-built and more fuel-efficient cars.

IT Jobs Face New Competition from Developing Countries By the early 2000s, globalization was resulting in the offshore outsourcing of information technology (IT) jobs. A range of jobs—from software programming to telephone-based, customer-support services—shifted to lower-cost areas outside North America. By the middle of 2003, an estimated 500,000 IT jobs had been outsourced, and another 3.3 million are forecasted to follow by 2020. During the recent recession, IT jobs were still being created at a faster rate than they were being eliminated by economic contraction, yet the overall trend pointed to fewer and fewer of the world’s total IT jobs staying in North America. New IT centers are now located in India, China, Southeast Asia, the Baltic states in North Europe, Central Europe, and Russia. In these areas, large pools of highly trained, English-speaking young people work for wages that are 20 to 40 percent of their American counterparts’ pay. Some argue that rather than depleting jobs, outsourcing will actually help create jobs in North America by saving corporations money, which will then be reinvested in new ventures. The viability of this pro-outsourcing argument remains unproven. 45. U.S. COMPETITIVENESS

The severe worldwide economic downturn that began in 2007 came on the heels of a long upward trajectory of global economic expansion. A booming housing industry and related growth in the banks that finance home mortgages fueled this growth in the United States. In 2007, the housing industry collapsed as it became clear that much of the growth in previous years had been based on banks allowing millions of buyers to purchase homes with mortgages that were well beyond their means. The growth in the construction industry, based on erroneous assumptions, came to a sudden halt. When too many homebuyers could no longer afford their mortgage payments, the banks that had lent them money and/or the institutions to which the banks had sold these mortgages started to fail. The bank failures produced worldwide ripple effects because so many foreign banks were involved in the U.S. housing market. Between September 2008 and March 2009, the U.S. stock market fell by nearly half, wiping out the savings and pensions of millions of Americans. Similar plunges followed in foreign stock markets, ultimately resulting in a worldwide economic downturn because businesses could no longer find money to fund expansion.

As the recession intensified, job losses in the United States caused a sharp drop in consumption, which further affected world markets, including those in Canada. Thanks to its strong regulatory controls, Canada did not have bank failures. However, because so much of the Canadian economy is linked to exports and imports from the United States (see Figure 2.13), Canada underwent a massive slowdown. During three quarters in 2009, its GNI declined by 3.3 percent and its exports fell by 16 percent. Canada also lost many jobs but its recovery was quicker than that of the United States, possibly because household consumption was buttressed by Canada’s stronger social safety net.

Efforts to deal with the difficulties that caused the recession, as well as the long-term problems made worse by it, have yet to meet with much success. The financial industry has used well-funded lobbying to counter attempts to better regulate the banks that, through their reckless lending practices, caused the recession.

The recession worsened the trend toward larger wealth disparities that has been underway since the 1970s. Disparities are most extreme in the United States, where in 2014 the wealthiest 1 percent of households owned 40 percent of the country’s total wealth, and the next wealthiest 19 percent owned roughly another 53 percent, leaving the remaining 80 percent of the population with only 7 percent of the wealth. Most North Americans are not in favor of this kind of wealth distribution, but there are many political barriers that make it difficult to reduce such inequality.

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Canada and the United States are perhaps most intimately connected by their long-standing economic relationship. The two countries engage in mutual tourism, direct investment, migration, and most of all, trade. The equivalent of nearly U.S.$1.5 billion is traded daily between the two countries. Canada is a larger market for U.S. goods than are all 27 countries in the European Union. By 2005, that trade relationship had evolved into a two-way flow of U.S.$1 trillion annually (Figure 2.13). Each country is the other’s largest trading partner. In 2010, fifty percent of Canada’s imports came from the United States and 75 percent of its exports went to the United States. The United States, in turn, sells 19 percent of its exports to Canada and buys 14 percent of its imports from Canada.

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Notice, however, that there is asymmetry even in the realm of interdependencies: Canada’s smaller economy is much more dependent on the United States than the reverse. Nonetheless, as many as 1 million U.S. jobs are dependent on the relationship with Canada.

While women have made steady gains in achieving equal pay and overall participation in the labor force, there are still important ways in which they lag behind their male counterparts. On average, U.S. and Canadian female workers earn about 80 cents for every dollar that male workers earn for doing the same job (Figure 2.14). For example, a female architect earns approximately 80 percent of what a male architect earns for performing comparable work. This situation is actually an improvement over previous decades. During World War II, when large numbers of women first started working in male-dominated jobs, North American female workers earned, on average, only 57 percent of what male workers earned. The advances made by this older generation of women and the ones that followed have transformed North American workplaces. For the first time in history, women now represent more than half of the North American labor force, though most still work for male managers.

Agriculture remains the spatially dominant feature of North American landscapes, yet less than 1 percent of North Americans are engaged directly in agriculture. North America benefits from an abundant supply of food; the region produces food for foreign as well as domestic consumers (Figure 2.15). At one time, exports of agricultural products were the backbone of the North American economy. However, because of growth in other sectors, agriculture now accounts for less than 1.2 percent of the United States’ GDP and less than 2 percent of Canada’s. Moreover, because both countries are so involved in the global economy, an increasing amount of food in both countries is imported.

43. FOOD GLOBALIZATION

The shift to mechanized agriculture in North America brought about sweeping changes in employment and farm management. In 1790, agriculture employed 90 percent of the American workforce; in 1890, it employed 50 percent. Until 1910, thousands of very productive family-owned farms, located over much of the United States and southern Canada, provided for most domestic consumption and the majority of all exports. Today, the vast majority of these family farms have been replaced by farms owned by corporations.

Family Farms Give Way to Agribusiness Family farms began to mechanize and use chemical fertilizers in the late nineteenth century. Mechanical corn-seed planters and steam-powered threshing machines, along with methods of supplying farmers with large amounts of plant nutrients such as nitrogen, phosphate, and potassium, reduced the need for labor on farms. Because of the cost of this machinery, farmers needed to make ever-larger investments in land in order for their farms to remain profitable. By the 1940s, the use of pesticides (chemicals that kill insects and other pests) and herbicides (chemicals that kill weeds) also became widespread, adding further to both the productivity and cost of farming. By the mid-twentieth century, the number of farms began to decline rapidly, as only wealthier farmers could invest in these green revolution methods (see Chapter 1). Some farmers prospered (see the vignette), while many with fewer resources sold their land, hoping to make a profit sufficient for retirement. Indebtedness and bankruptcies have become increasingly common for both large and small farmers.

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A major part of the transformation of North American agriculture has been the growth of large agribusiness corporations that sell machinery, seeds, and chemicals. These corporations may also produce and process crops themselves on land they own, or they may contract to purchase crops from independent farms. The financial resources of agribusiness corporations has facilitated the transition to green revolution methods, enabling large investments in the research and development of new products. The corporations can also provide loans and cash to individual farmers, often as a part of contracts that leave farmers with little actual control over which crops are grown and what methods are used.

While green revolution agriculture provides a wide variety of food at low prices for North Americans, the shift to these production methods has depressed local economies and created social problems in many rural areas. Communities in places such as the Great Plains of both Canada and the United States were once made up of farming families with similar middle-class incomes, social standing, and commitment to the region. Today, farm communities are increasingly composed of a few wealthy farmer-managers amid a majority of poor, often migrant Latino or Asian laborers who work on large farms and in food-processing plants for wages that are too low to provide a decent standard of living. These workers also struggle to be accepted into the communities where they live.

Food Production and Sustainability Can green revolution agriculture like that practiced by successful North American corn farmers persist over time? Many modern strategies to increase yields, including the use of chemical fertilizers, pesticides, and herbicides, can have negative impacts. These methods can threaten the health of farm workers and nearby residents, pollute nearby streams and lakes, and even affect distant coastal areas. Some irrigation methods can deplete scarce water resources and reduce soil fertility over time. In addition, many North American farming areas have lost as much as one-third of their topsoil because of deep plowing and other farming methods that create soil erosion. A major emerging health issue is that many crops are designed to be processed into high-sugar, high-carbohydrate foods that contribute to obesity and diabetes.

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Recently, researchers have been studying the long-term impacts of genetically modified (GMO) crops on human health and the environment. While most scientific studies suggest that GMO plants have little impact on human health, many of these studies have been funded or even conducted by the agribusiness corporations that create GMO crops, making it possible that the studies might be biased. The biggest documented impact that GMO plants have had on the environment is in the way they have influenced the use of herbicides and pesticides. While some varieties of GMO crops have been developed to be more resistant to insects and other pests, and so require fewer pesticides, others can tolerate and may even require more intensive use of herbicides.

There is growing concern about the raising of animals in “factory farms” in which cows, pigs, or poultry are raised in crowded conditions and fed chemicals to make them gain weight. As with other forms of chemically intensive agriculture, the most well-documented threats to human health are to farmworkers and nearby residents who are exposed daily to many hazardous chemicals. The vast quantities of animal waste these farms produce can also severely pollute the air and nearby streams.

Critics of these food production systems often argue that the government subsidies currently being given to farmers should be used as a tool for reform. They advocate directing subsidies away from factory farms and large-scale, chemically intensive crop production and toward small farmers who are willing to use methods that have fewer impacts.

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An extensive network of road and air transportation that enables the high-speed delivery of people and goods is central to the productivity of North America’s economy. The development of the road system began with the first European settlement in the 1500s in Florida, but until the development of the first railways in the 1820s, most goods moved on rivers, canals, and coastal seas. By the 1870s, the railroads had formed a nationwide network that dominated transportation until inexpensive, mass-produced automobiles were developed in the 1920s. Beginning in the 1950s, the growth of automobile- and truck-based transportation was helped by the Interstate Highway System—a 45,000-mile (72,000-kilometer) network of high-speed, multilane roads that still dominates transportation today. Because this network is connected to the vast system of local roads, it can be used to deliver manufactured products faster and with more flexibility than can be done using the rail system. The highways have thus made it possible to disperse industry and related services into suburban and rural locales across the country, where labor, land, and living costs are lower.

After World War II, air transportation also enabled economic growth in North America. The primary niche of air transportation is business travel, because face-to-face contact remains essential to American business culture despite the growth of telecommunications and the Internet. Because many industries are widely distributed in numerous medium-size cities, air service is organized as a hub-and-spoke network. Hubs are strategically located airports, such as those in Atlanta, Chicago, Dallas, and Los Angeles. These airports serve as collection and transfer points for passengers and cargo continuing on to smaller cities and towns. Most airports are also located near major highways, which provide an essential link for high-speed travel and cargo shipping.