Nortel, and our techno-nationalist delusions -Andrew Coyne, Maclean’s Aug 31st

Andrew Coyne has changed my mind about Nortel’s sale to Ericsson. I suspected the Conservatives were reluctant to get involved since Nortel had most of its work force outside the country, and thus did not represent many voters. It turns out that Ericsson has in fact more workers domestically. Coyne also makes a good point about past government investment as sunk costs that won’t be recovered by handing Nortel to RIM. In our global economy, corporate ownership is fluid and ephemeral. Canada has lost many of its old corporate names to foreigners – Stelco and Falconbridge just two of several. Nortel has had several corporate name changes in its long history in Canada. It started out as part of Bell Telephone, incorporated as Northern Electric in 1895 and later became part of Western Electric and AT&T in the US. In the sixties, Bell Canada & Northern Electric was separated from US Bell and Western Electric by government decree, and in 1972 it became Northern Telecom getting involved in the electronic switching market as well as manufacturing telephones and combined research with Bell Canada.

Thus, Nortel‘s origin was what we used to call a “branch plant” of US industry, making the nationalist argument rather weak. It never was a “national treasure”, and in the recent past, their CEO’s have all been Americans.

There are always at least two sides to every story. Thank you, Andrew Coyne, for pointing out this side.

“We can’t talk about immigration” –Mark Steyn, Maclean’s Aug.17th



Yes, we can! But, it does little good, because like the weather, no one can do anything about it. Lately, it seems I agree with Steyn half the time. That’s not bad for an old contumacious curmudgeon like me.

Steyn need not go to Germany and Sweden to find examples of “reunification” abuses and welfare dependency among immigrants. We Canadians have also made it so, by making it too easy to claim refugee status, or to enter as a dependent under the reunification program. What you get, are older parents who come here to enjoy our free medical system and other entitlements (I know whereof I speak: I personally know “new Canadians” who put their mother in a government supported seniors home, even though they were rich).

As to the many professional, independent immigrants who are doing menial jobs here; part of the reason is that they have been “oversold” on Canadian opportunities, possibly by local immigration officials, and also by their own relatives or friends all ready here, who send them glowing accounts of their success here, with nice photos of their new houses, though devoid of furniture, they, like some people, look nice on the outside. Some more realistic picture should be presented to potential immigrants, and some basics in Canadian laws, mores and expectations should be inculcated before their landed certificate is issued. Another issue is that sometimes their educational standards are not always comparable to ours. This was perhaps more so in the past, but I know, for example, that China’s educational system was at least 10 years behind ours until fairly recently; and during Mao’s time, almost non-existent. You got accepted by the university based on how good a Communist your parents were, and if you came from the right proletarian background (for example, surgeons at the hospitals were required to read a chapter of Mao’s Little Red Book before commencing an operation!). I would want to know that before someone began surgery on me, they were truly skilled and qualified.

Then there is the issue of latent or subtle discrimination. Today’s “visible minority” immigrants are more “visible” than the earlier European immigrants, and their cultural and religious backgrounds are more “foreign” to the native population. They take longer to integrate –perhaps as much a two or three generations, and they cling to the “old country ways” longer than the immigrants of yore. This is, however, one area where Canada does better than Europe, because we are attuned to immigration –we are an immigrant country. Europe, in particular the two countries mentioned by Steyn; Germany and Sweden, have a much a more homogeneous society than do we. This causes them to, in spite of the “official” welcoming stance, be more wary of newcomers, especially if they persist in setting themselves apart and creating ethnic ghettoes.

Immigrants do not help themselves either by supporting such nuts as Mullah Krekar in Norway, where they have tried to deport him for some time; but he is still there. There is even a Facebook page dedicated to sending Krekar home! [http://www.facebook.com/group.php?gid=37022756828].

Canadians are concerned about our rather loose immigration policy, and even more so, the ability for wannabe immigrants to claim “refugee” status once they manage to get here by hook or by crook. It is unfair to the Canadian public and it is unfair to new Canadians who have come here the legal way. By all means, bring in qualified, skilled immigrants that we need, but to let in people willy-nilly is asking for trouble down the road –in fact, it’s all ready here. Being more critical in our immigration policy does not mean that we should revert to the discriminatory policies of old, where, in the case of Jews, “one is too many”, or like the Chinese Exclusion Act.

I do think that there is a valid economic argument for immigration, in addition to the skills we need for the economy; we are also a nation with a low birth rate, below the level of replacement. Thus, if we want to grow economically and also to have enough young people who can pay our old age pension, we need immigrants. But, not just any immigrant –we don’t need people who become a burden on our society –we need productive, intelligent people who can build on what we have achieved so far, and even make it better –regardless of colour, creed or nationality.

“Unnecessary at any speed”…Andrew Coyne, Maclean’s July 20th issue.

Aside from a clever paraphrasing of Ralph Nader’s 1965 book Unsafe at Any Speed, Andrew Coyne has made me reassess some of my cherished assumptions about high-speed rail travel.

The Calgary-Edmonton link does not make sense – at 300 km through a relatively thinly populated area, it will never garner the passengers needed to break even. People will use their cars, especially since they will need them to get around Calgary and Edmonton, with its limited public transport. Renting a car at either end will negate the advantage both economically and environmentally. For those who cannot drive, there is the bus; just a three hour ride.

I do still think, however, that the Toronto-Montreal (not Windsor-Quebec) corridor does make sense for the following reasons:
1. Both Toronto and Montreal have good public transit and a large population. There are a few fair size cities en route (Oshawa, Belleville, Kingston and Cornwall), and a secondary Cornwall – Ottawa spur could also be viable.
2. A modern, electrified, dedicated train is fast, efficient, high-capacity, low environmental impact and more comfortable (and faster) than a bus.
3. While needing some subsidy, so does our highways –the 401 is in need of upgrading. Another alternative is air travel, with the concomitant drawbacks of crowded airports, high cost of getting downtown from the airports, and of course, higher negative environmental impact. Airports are also, to a degree, subsidised.

Running high-speed passenger trains over the present freight lines do not make sense. Substantial upgrading at crossings will be needed, as well as fencing along the line. Even so, the potential speed of the train on the present rails is quite low, thus limiting the advantage and attraction of train travel. A dedicated, limited access rail is required for a proper high-speed train, even if not a super-train like a maglev. An efficient inter-city passenger train will attract both business travellers who fly, and the general public who now drive or take the bus.

The degree of diversion from air, car and bus will depend on the cost of the ticket compared to other modes of transport. That, of course, will depend upon the subsidies available, and is in that way a bit of a catch-22.

The real punch line here is Mr. Coyne’s last paragraph: … “take the subsidy out of driving –charge a toll….” Right on, Andrew!

There is another argument made in favour of efficient, high-speed ground transportation, including good highways, and it is an economic one: The trans-Canada railways and highways all contributed to more and better interchange of people and goods, thus benefiting the overall economy. There was, of course, a political imperative to this transportation nexus –had we not the transcontinental railway we might be even more economically dependent on our southern neighbour.

However, there is a counter argument also for this –one is put forward by Fared Zakaria in his book The Post-American World (Norton 2008). He points out that France has the fastest and most efficient rail network in Europe –one “that gleam compared to America’s creaky system –yet it is the US economy that has edged ahead of France for the last three decades. A vibrant private sector can deliver extraordinary growth even when traveling on bad roads.”

Wouldn’t it be nice –if we could have both a vibrant private sector and efficient transportation? At this point, we are trailing in both.

ITEM:

Is this the end of the free market, as we know it? In testimony before Congress this morning, Treasury Secretary Tim Geithner will propose a sweeping expansion of government regulation over the financial system, ending the Bush era of decontrol. The Washington Post reports the Obama administration's plan would "extend federal regulation for the first time to all trading in financial derivatives and to companies including large hedge funds and major insurers such as American International Group." It also would impose uniform standards on all financial firms, including banks, to curb their risk-taking. Obama won't seek to reshape the government's structure at first, but instead will focus on setting standards, many of which will require legislation.

First, let me state that I am an Obama-fan; the man has an incredible intellect, self-control and poise. He plays the audiences like a fine violin.

If anything, he has been underestimated. I have this strange feeling that what we see is only the tip of the iceberg, and risking ridicule, I posit the following:

The Obama administration has long-term plans for a major overhaul, nay revolution, of the American society. Obama is an idealist, but he is also a realist. The recession has given him the opening and opportunity to make radical systemic changes in the economy, and to introduce difficult but overdue programs such as public medical insurance. The American private health insurance system is broken. In addition to being discriminatory and unfair to the many who cannot afford insurance; it is also major impediment to labour mobility, something even more important in a major recession like now.

The laissez faire approach to the economy and corporations is ending, especially as concerns the banking and investment community. Government involvement and control will become a permanent fixture.

To this end, I suspect that Obama’s anger and ire over the AIG bonus payments were carefully orchestrated to stoke the public ire; and gather support and to lay the grounds for greater government intrusion in the markets, and public welfare in general.

It takes great tribulations to shock public lethargy enough produce major structural changes in a society. War, of course, is some such trauma producing lasting effects and upheavals; severe economic distress, such as the Great Depression are others; and arguably, the present tribulations, can force major changes in the social fabric. Samuel Johnson once said “Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.” Obama is all ready into his “fortnight”, and believe me, his mind is wonderfully concentrated.

The future of printed news

The future of “paper news”.

The recent news about our various newspapers is rather sombre: Even The Toronto Star is losing money; CanWest/National Post is tethering on bankruptcy; and the Toronto Sun is bleeding red ink. Canadian book publishers have had a rough time the last several years; as Roy McSkimming delineated in his book The Perilous Trade. Newspapers –and to a lesser degree, mews magazines –are facing a dual struggle: the recession that affects all business, and more seriously, the technological and social change that the internet has wrought. The younger, multitasking, instant gratification generation is not inclined to read news in dept; they would rather receive it on their IPods and Blackberrys. The older generation, like me, that prefers newspapers to the computer for reading, usually wants in-dept analysis in the comfort of their easy chair. But, newscasts are everywhere; on the radio, TV, internet – instant and superficial – just the way our harried, instantaneous society wants it. The “news” part of newspapers has lost its raison d’être.

However, there is still a valid and useful role for the traditional news media, including magazines. One example of how a publication can rejuvenate itself is Maclean’s, which has succeeded so well that the Time Magazine has now withdrawn from the Canadian market, after many more than fifty years of publishing a Canadian edition.

The possible demise of the National Post and the Toronto Sun will not be mourned by many. The Post was a testimony and an expression of Conrad Black’s megalomania, and I could not understand the rationale for Izzy Asper’s purchase of the stinker from Black, other than the political clout and “status” it might have conferred on him at the time. In his book IZZY, Peter Newman put it most succinctly: “The first 50 percent (of The Post) cost Izzy $ 100 million; the second 50 percent went for$ 1.00. He paid too much both times”(p.302,).

Whether a display by the Aspers of miscast loyalty or just plain folly, it is ironic that Mr Black still writes a column in the Post, even offering an “interview” with himself in his prison home!

These times will test the mettle of all publications, and in this Darwinian economic struggle, only the fittest will survive. Toronto cannot support four newspapers any longer, and the country does not need two national dailies. I will wager that when the dust settles on this imbroglio, only two papers will still be standing: The Globe and Mail and The Toronto Star.

STIMULUS: AN ECONOMIC IMPERATIVE

Both Americans and Canadians have been spending too much and saving too little. Consumption has become the economic & social imperative, as witnessed after September 11th, when the New York City’s mayor encouraged people to “go shopping”.

The example of mortgage deductibility and its inducement to take on debt is valid, and here Canada has a better tax policy. Even so, before we get too busy patting our own backs, we should remember that we had our own real estate assets-price inflation mess in the late eighties, and it came crashing down in the early nineties, bottoming out at about a forty percent decline. It took well-night ten years before house prices recovered to the eighties price levels. A major reason for this hyper-activity was the $ 500,000.00 capital gains deductibility (later reduced to $ 100,000.00 by the Liberal government; eventually cancelled all together) introduced by the then Conservative government. Many individuals became house-speculators and real estate “investors”. One fellow I knew, an ordinary hourly worker, had seven homes that he rented out. Some real estate agents did little else but buy and sell homes on their own behalf, and ordinary people bought homes and “flipped” them after a suitable capital gain. Many speculated in this way with their own homes, buying a new house with a long closing date, and then selling their own house after it had gained suitably in value. Builders were behind; there was a shortage of skilled workers, and six months or more was normal for a closing date. Buying first and selling your own home became the norm, and house buyers could pocket a substantial tax-free capital gain in between transactions. I knew of people doing so more than once a year –the family living like gypsies with the objective of eventually become mortgage free or living in a palatial home.

However, the chickens came home to roost and the bees returned to the hives in early nineteen-nineties, and many people got severely stung. I recall one older couple who had bought a smaller home in which to retire and were planning to pay off their mortgage. The builder gave them a six month completion date, and they held on to their old, large home waiting for it to appreciate. Well, the housing market collapsed in 1990-91, and they eventually had to sell their old home at a much lower price. The wife told me, with some irony, that they now had a smaller house with a larger mortgage! The difference in the US situation now, is that, in addition tax deductibility, the homebuyers were encouraged to buy more than they could afford, with little or no equity, and an artificially low mortgage payment for the first few years. This was initially a well meaning policy initiated by the Clinton administration, but it got out of hand with the laissez- faire regulations policy of the Bush administration, and there you are.

The old saying “buyer beware” is still valid –the government cannot protect everyone from their own greed and stupidity. A re-alignment between want and need is in order, and one would hope that one result of this economic mess is that people will come to their senses and realize that shopping and getting is not all this life is about.

Unfortunately, monetary policy is not a “sufficient remedy”, when there is huge demand destruction like we now are experiencing. Printing money is like pushing up a rope, and will only lead to massive inflation at a later stage. Lower interest rates are also useless when they are all ready close to zero; lenders won’t lend and potential buyers have no business growth and very little equity. Liquefy the banks, and lean on them to lend is, unfortunately, a necessity, though lending to unqualified buyers is what got them into trouble in the first place. It’s a veritable Hobson’s choice, and the banks are caught between a rock and a hard place. Ultimately, more stringent regulations and overview, especially of derivatives and other fancy investment vehicles to be dreamt up in the future, is a minimum. Meanwhile, fiscal actions such as infrastructure repairs and transportation development is the best options, and offers the most “bang for the buck”, since the working people will benefit from the wages earned on such projects, and spend most on it Such expenditures on capital projects will, hopefully, last longer than the deficit incurred by such activity. The much studied Windsor-Quebec corridor high-speed train service is one that comes readily to mind. It would kill two birds with one stone: economic stimulant and pollution retardant.

Spending our way out of recession

Money, lots of it, will have to be spent in order to kick-start the economy back to life. Monetary policy - manipulating the money supply through interest rate policy -is of little use when the rate apporches zero, and the demand is weak or non-existant. The Keneysian methods of direct intervention in the economy by job-creation schemes will work better, though it is not instantanious, and will take time to percolate thorugh the economy.

Whatever method is used to generate jobs and economic activity, the extraordinary monetary expenditures required to make a difference is going to create inflationary pressures down the road. Yet, not every job-creation scheme is equally efficacious and beneficial. In the fifties – in both Canada and the US – huge sums were expended on road building and other infrastructure projects (such as the US Interstate and the Trans Canada Highway system; the Welland Canal and ports as well as expressways and subways in the cities). Capital projects such as these provided long term benefits to the domestic economy and national and international trade. However, the upkeep of our roads, highways and bridges has fallen behind, and our whole road network has suffered.

Concomitantly, we need innovations and development of more ecology-friendly transportation methods, including train travel in the more densely populated areas. A high-speed, dedicated track, train in the Windsor - Quebec corridor would be a good start. Job creation money spent in such way is effective, because of the multiplier effect: the jobs created are precisely those in the area of the most vulnerable –amongst the unskilled and semi-skilled workers. They also spend a higher percentage of their wages, and what they do save is also subject to the multiplier effect through the banking system, where a dollar saved is about twelve dollars loaned by the bank for other economic activity. It’s a win-win situation, since infrastructure (capital) investment, in contrast to current consumption, has long lasting benefits of smoother and more efficient communications in all areas of the economy. When the inevitable inflation returns, at least we can see what our money bought.