Future Former economist Jeff Rubin says the 'new economy' will have a wide variety of goods produced regionally with less environmental impact

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John Pollack
Telegraph-Journal

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Regional demand is the key to reviving New Brunswick businesses that have gone under due to the pressures of competing in a global economy.

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COLIN MCCONNELL/TORONTO STAR

Jeff Rubin is a former CIBC chief economist who left the bank to promote a new book that argues peak oil is here and that globalization is threatened by high energy prices.

This is what former CIBC chief economist Jeff Rubin says New Brunswick will need in a world after cheap oil.

"Your neighbours become a lot more important to you than export markets on the other side of the world that you'll soon lose access to because of the soaring shipping costs," Rubin says on the phone from Edmonton this week.

He is on a North American tour promoting his book Why Your World Is About To Get a Whole Lot Smaller: Oil and the End of Globalization.

In the book he argues rising fuel costs will make international trade less profitable than domestic production, forcing local consumption.

"It's not going to be economically possible for us to import our food, or steel or flat-screen TVs from halfway around the world, no matter how cheap their labour costs are," he says in an interview. "What we save on wages we'll more than blow on bunker fuel."

In fall 2007, Rubin first predicted we would see US$100-per-barrel oil. Then in January 2008 he called oil at $150 within five years before raising the prediction to $200 by 2012.

Then the economic downturn caused the price of oil to drop below $40, but only before it reached $147.

As oil prices climbed this week closing above $70 Friday, Rubin continues to predict soaring barrel prices, though he's now less specific.

"Within 12 months of an economic recovery I think we will see triple-digit oil prices," he says. "Very early into the next business cycle we will see oil prices take out the current high-water mark of $147 a barrel.

This will mean inflation on most goods, which will then have to be produced closto home, Rubin says. And local goods also cost more because of tighter labour and environmental restrictions.

"And we're not going to have the same almost infinite variety of consumer choice of cheap goods," he says.

But Rubin says the "new economy" will have a wide variety of goods produced regionally with less environmental impact.

"It will be a more diverse economy with more diverse job opportunities," he says. "All of those things that we now import from somewhere halfway around the world - well most of those things we're going to now have to learn to make for ourselves."

But not everything will come from close to home, he admits.

"We've always got our tea and coffee from China," Rubin says. "And it's going to take a whole lot more global warming before we can start growing coffee in Canada."

And some continental exports and imports will remain, he says.

"We're still going to trade with the United States and probably with Mexico, but that trade's going to become much more regional," he says. "Maybe even our trade with the U.S. and Mexico will even increase."

But Rubin says this drastic change doesn't have to mean economies shrink if they can establish enough trade with there neighbors. But many companies will have to change their business models, he says.

"Instead of finding this specialized niche in a global market, what's really going to be important is to know your customers and be in close proximity to your customers," he says. "That's where your real comparative advantage lies."

He says long distance travel will become a luxury again, and any cheaper innovation in travel and transportation won't come quick enough to prevent regional restrictions. Rubin says electric cars aren't a viable option in the next few years because the extra electricity demand would put out the lights, which still rely on crude oil for power.

"I think what's ultimately going to happen is there's going to be a lot less cars on the road," he says. "I think that triple-digit oil prices in the next five years will basically take 20 per cent of the vehicles right of the road."

Therefore governments should be investing in public transit, he says.

"Instead of investing billions in our past, by investing in an auto industry that's doomed to obsolescence by triple digit oil prices, we should be investing in our future, which is public transit," he says.