Making Canada Relevant Again- The Economic Super-Thread

[a_majoor]

Here is an idea which will have far more traction than any amount of stimulous spending, and is as applicable here in Canada as anywhere else. We don't even need to insist of using tax dollars, simplifying the tax code could free up about 3-6 billion dollars in compliance costs and tax preparation fees:

http://pajamasmedia.com/edgelings/state-of-the-union/

State of the Union
Posted By edgelings On January 9, 2010 @ 1:56 am In Business, Venture | 29 Comments

STATE OF THE UNION By Michael S. Malone

Mr. President:

Got $2 billion to spare if it has a chance to turn around the economy?

You probably do, what with all of those hundreds of billions in repaid TARP funds you were talking about using for a ‘second’ Stimulus.  Given that the first one didn’t do much good, it seems like a dumb idea to try to same old Keynesian trick again.  When it comes to recessions, the rule is:  If first you don’t succeed, try, try a different economist.

The advantage of this new strategy is that it is not only cheap, but it also has the best chance of creating all of those new jobs America needs if we’re not going to have a ‘jobless recovery.’  And you know how important that is:  reportedly, job creation is going to be the theme of your State of the Union address in a few weeks.

But you’ve got a problem.  After a year in office spent trying to restructure the economy instead of actually fixing it first, we now find ourselves sputtering along as other nations in the world begin to recover.  We’ve taken on astronomic, historic debt.  Unemployment is not only at Great Depression levels in some regions, but isn’t likely to improve anytime soon.  And the nation’s economic heart, its millions of small businesses, are hunkered down, afraid to invest in themselves or hire new people, because they are rightly fearful of what bomb you are going to drop on them next:  higher taxes, carbon offsets, card check, etc.

The FDR/New Deal model isn’t going to work this time (actually, it didn’t work the first time either:  my family lost its Oklahoma farm in 1938, not 1933).  Colluding with Big Business and Big Labor (and Big Pharma lately, too) in some kind of Progressive fantasy from 1910 won’t work either, as you saw last year.  GM is still in trouble (with GMAC now added into the mix) and the unions you protected not only aren’t any stronger, they are more hated than any time in their history.

There’s no Hoover Dam/CCC/WPA solution available either.  If you were going to try that, it would have been last year, when Americans were so frightened that they would have accepted some sort of shovel-ready make-work emergency action.  But the panic has now passed, and, frankly, you don’t have the enough dough left to pull it off.  Besides, emergency measures like that require the citizenry to put enormous faith in the competence of the federal government – and right now your approval numbers are tumbling, and Congress’s are so low they aren’t even in the tank, but in the dirt under it.

The only way out now is down a path that I assume is anathema to both you and the Congressional leadership.  But you’ll take it because, no matter how much you dislike it, it was the only real solution anyway.  It’s your one chance of saving both your legacy and your party’s majorities on Hill:  You are going to have to unleash business.

I’m not talking Big Business here.  Those guys are very good and making money and consolidating markets.  But they stink at new job creation.  No, I’m talking the little guys, the ones with businesses valued under $20 million, the ones who create all the new jobs.  At best, you’ve ignored them and paid them lip service at a ‘summit’ for them in which they weren’t invited.  At worst, you’ve tried to use them as a piggy bank for your various social engineering boondoggles and as a whipping boy for all that you think is wrong with America.  And, understandably, they’ve responded by voting not with their feet, but with their wallets:  lay-offs, cutbacks in production and inventories, cancellations of new products and services, abandonment of expansion plans.  And who can blame them?  They have made a rational response to an irrational situation.  They have every right to be scared of you and the future you are trying to deliver.

This is your biggest challenge to recovery, and the more you try to grab it with the Big Hand of government, the more it is going to slip through your fingers.  There is no moral imperative for these entrepreneurs and small business owners to do what they do – the work itself is hard enough — and so, if the burden gets too heavy or the obstacles too great or the system too unfair, they’ll just stop, or at least slow down.  And there’s nothing you or the federal government can do to make them do more.

The only solution, the only way for you to get this nation humming again at the head of the world’s economies, and the only way to restore real prosperity, is not to stand behind and terrify and coerce these small companies.  It’s not even to stand in front of them and dangle a carrot.  Rather, it is to run along side them, offering encouragement, providing support – and when necessary, sprinting ahead and knocking away any obstacles (including those of your own creation) that loom ahead.  [And, by the way, given your Progressive tendency to believe that all businesspeople are potential felons, this role also helps you keep them on the right path . . .]

And that brings us to the $2 billion mentioned at the beginning of this column.  The core of the idea comes from Silicon Valley entrepreneur and blogger Sramana Mitra.  For her New Year’s resolution she announced a goal of helping 1 million entrepreneurs get their companies through the all-critical phase of making their first million dollars in revenues.  If this could be accomplished, Mitra argued, the result would be $1 trillion added to the GDP and 10 million new jobs.  I think she’s right – and though Mitra was talking about doing this around the world, there’s no reason we can’t do all of that right here in the United States.

Think about it:  We live today in a world defined in large part by the Internet.  Facebook, Twitter, Google, eBay, on-line retailing – much of how we spend our day (and our money) in some way involves the Web.  Not surprisingly, given its pervasive presence, the Internet has in turn led to the creation of thousands of new companies, millions of new jobs and billions of dollars in new wealth – none of which existed twenty years ago.  And it all arose from a few million bucks spent by a government agency, DARPA, forty years ago.

Obviously, not every initiative of this kind succeeds.  In fact, most fail – but that’s the risk.  It’s a game of ratios:  arm enough smart people with good ideas and the capital they need, and about half will succeed in some way, and 10-20 percent will change the world.

Two billion dollars, Mr. President.  Chump change compared to all of your other stimulus programs.  But it’s two thousand $1 million investments, enough for a major government venture capital test program.  Bring together a small group of proven, veteran Venture Capitalists – say, Don Valentine, Bill Davidow, Mike Moritz, Tim Draper, your buddy John Doerr, and a half-dozen other legends – and call on them to volunteer to serve their country by sitting on an investment board whose charter would be to invest that money in new ventures as a back-up to existing investors.  The only criteria would be high-risk, early stage start-ups with a high chance of success if they can get to the next round of investment.  That’s it;  no social engineering (like having to be headquartered in low-income areas), no political initiatives (like requiring all investments t be ‘greentech’).  No, the only goal is success: the building of great companies that create thousands of new jobs, establish huge new markets, and create great wealth.

That, of course, is only the beginning.  There’s still all of those artificial obstacles up ahead for these companies.  So, why not follow the lead of your chief of staff?  Rahm Emanuel reportedly leaned on the House Finance Committee to agree to a permanent stay of the financially onerous Sarbanes-Oxley regulations for companies valued less than $75 million.  The result?  We’re seeing the first spate of companies going public in years.  So, keep going, Mr. President:  suspend stock option expensing for new start-ups, put a temporary hold on capital gains taxes, promise to keep the Internet tax free, make the current hiatus from inheritance taxes permanent, promise to revamp the patent system to make it more affordable to individual applicants, and a whole bunch of other things that today make starting a successful company more difficult than it needs to be.

You thought an economic crisis would give you free reign to implement a social revolution in America.  You were wrong.  So why not try prosperity instead?  Put some of the above into your State of the Union Address and watch what happens, starting with the NYSE and Nasdaq the next morning.  You may just find that a happy and optimistic America is a lot more responsive to your dreams. . .


--------------------------------------------------------------------------------

Article printed from Edgelings.com: http://pajamasmedia.com/edgelings

URL to article: http://pajamasmedia.com/edgelings/state-of-the-union/

 

[a_majoor]

Comparing the United States to Europe is interesting, especialy since Canada follows the European models of socialism and State intervention:

http://meganmcardle.theatlantic.com/archives/2010/01/the_difference_between_the_us.php

The Difference Between the US and Europe
14 Jan 2010 05:48 pm

When Paul Krugman said "Europe's economic success should be obvious even without statistics. For those Americans who have visited Paris: did it look poor and backward? What about Frankfurt or London? You should always bear in mind that when the question is which to believe -- official economic statistics or your own lying eyes -- the eyes have it." I had roughly the same reaction that Matt Welch did:  having lived in London for intermittent (short) periods, I found it noticeably poorer than the United States.

It is not noticeable to tourists, mind you.  London, like any European city that wasn't actually flattened in the war, is rich in architectural assets that make it feel very posh--low rise buildings older than thirty or forty years are a luxury in most American cities.  Walking around a European city, the diversity and beauty of the architecture is dazzling.

But the standard of living in any given profession is much lower.  Preserving London's dazzling antique architecture has meant that most of the people I knew had much longer and more expensive commutes than their American counterparts would.  They lived in smaller quarters that were hotter in summer and colder in winter.  At any given professional level, you found British people doing things that only much poorer Americans would do, like bringing lunch, hanging their clothes to dry, or going without cable (though the Americans I knew said the cable wasn't worth it anyway).  People in Britain are not poor.  But they have a noticeably lower standard of living than Americans do.  If they were doing it in 1960's vintage apartment buildings and tract homes, it would be quite obvious.  When I lived there, I literally could not afford to eat meat regularly or take the tube to work, and as a consequence wore holes in my shoes.  (In fairness, I was being paid in dollars and the exchange rate was awful--but I wasn't the only one walking to save money.)

I don't want to sound as if I'm saying Britain's a terrible place--it's lovely, and I miss it.  But the amount that people are able to consume is much less than the amount Americans are able to consume, and many of the things they forego make real difference in things like personal comfort.  (Based on my admittedly limited sample of British mattresses, they must be unimaginably hardy sleepers).  Consumption isn't everything.  But it is something, and that is what's being captured in the GDP differences.

The New York Times ought to get an economist on its oped page now and then to offer informed opinions on these matters.

 

[a_majoor]

Another international success story we can learn from:

http://www.theglobeandmail.com/report-on-business/commentary/free-market-reform-admits-chile-to-the-club/article1439934/

 
Free-market reform admits Chile to the club

A tip of the hat to the legendary Chicago boys, who overhauled Chile's statist economy
Neil Reynolds

Published on Friday, Jan. 22, 2010 12:00AM EST

Last updated on Friday, Jan. 22, 2010 6:09AM EST

The BBC has described the Organization for Economic Co-operation and Development as one of the most prestigious economic clubs in the world. Perhaps that's why it took note last week of Chile's ascension to OECD membership.

The ceremony in Santiago was indeed significant, marking as it did an astonishing triumph of free-market economics in a single, often-turbulent generation. Chile's popular socialist departing president, Michelle Bachelet, was on hand, along with Finance Minister Andres Velasco, who last month said OECD membership recognizes "the successful policies that Chile has put in place for the last two decades." It has taken a while but "the Chicago boys" can finally take a bow.

The Paris-based OECD, now with 31 members, is a research organization that identifies economic benchmarks and promotes "best practices" in economies with strong free-market convictions, whether these economies are governed from the left or the right. Twenty-one members are European countries; Japan and South Korea are the sole Asian members. Chile becomes only the second member, after Mexico, from South America and the Caribbean.

"The OECD is effectively the club of the world's ... developed nations," economist Ryan Streeter, senior fellow at the non-partisan Legatum Institute in London, said in an assessment of Chile's membership. "Chile has laid down an important milestone for anyone who cares about growth and freedom."

Why? Chile was an experiment, Mr. Streeter said, with lessons for the world. The legendary Chicago boys, the 25 Chilean economists who studied with Milton Friedman and his associates at the University of Chicago in the 1970s and 1980s, introduced radical free-market reforms in Chile's statist economy. Did these reforms work? The OECD's stamp of approval suggests they did.

For all practical purposes, it is irrelevant that the Chicago boys implemented them during the repugnant ascendancy of the Chilean dictator, General Augusto Pinochet. They survive on merit alone. In any event, Mr. Streeter notes that Chile returned quickly - post-Pinochet - to democratic observance of political freedom and civil liberty. In its 2009 Prosperity Index, which measures personal freedoms and quality of life, Legatum gives Chile the highest mark in South America for governance. Chile, it said, had successfully "depoliticized" its economy.

Mr. Streeter said Chile proves that developing countries do not need to adopt authoritarian policies to prosper in troubled times - do not need to copy China, Iran, Russia and Venezuela, that is. Chile, he said, "stands as a case study of liberalization." It was a nice finishing touch, he said, that Chile gained membership in the OECD at the same time President Hugo Chavez devalued Venezuela's currency by 50 per cent.

From 1914 through 1980, Chile's economy grew at an average annual rate of 0.7 per cent. Since 1981, it has grown at an average annual rate of 4.2 per cent. Before the reforms of the Chicago boys, it took Chile 70 years to double its living standard; after these reforms, it took only 17 years.

In 1988, Chile's stock market index stood at 100. In 2010, it stands at 2,300. With an almost completely privatized pension system, more than 90 per cent of Chileans rely on stock-market investments for their old age - and Chileans who chose government pensions now collect only half as much as those who opted for private plans.

Chile's most inspiring public-policy success, however, is its commitment to free trade, executed mostly by a succession of left-wing governments. Writing for the American Enterprise Institute, economist Mark J. Perry (professor of economics and finance at the University of Michigan) said that Chile has unilaterally made itself one of the world's greatest free-trade countries. It now has bilateral free-trade deals with more than 50 countries (including Canada). Most recently, Chile negotiated free-trade agreements with China, India and South Korea.

The marvel, Prof. Perry said, is that Chile is "a small and remote country," a significant handicap for any place that seeks to earn its living through international trade. Yet Chile has opened its door to competition, taking on the world. By Chilean law, foreign companies are accorded the same rights and privileges as domestic companies. Exports account for 45 per cent of GDP - the highest (per capita) in Latin America.

More importantly, only 14 per cent of Chileans now live below the poverty line, way down from 46 per cent in 25 years.

In its 2009 prosperity index, which rates 104 countries, Legatum put Chile in 36th place globally (and 1st place in Latin America). In contrast, it put Brazil in 41st place, Mexico in 43rd, Peru in 64th - and Venezuela in 74th. It put China in 75th.

Last Sunday, Chileans chose billionaire Sebastian Pinera, a Harvard-educated economist, as the country's first freely-elected conservative president in 52 years, who promises to preserve and extend one of the developing world's most remarkable watch-it-happen experiments in freedom and prosperity.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from the Globe and Mail web site (tomorrow’s print edition), is a useful story about healthcare spending:

(my emphasis added)
http://www.theglobeandmail.com/news/politics/surging-cost-of-health-care-poised-to-play-a-role-in-harpers-spring-budget/article1442449/

Surging cost of health care poised to play a role in Harper's spring budget
As the Conservatives look to bring down the deficit, Health-care costs – forecast to hit 11.9 per cent of GDP – are a prime target

Bill Curry

Ottawa

Sunday, Jan. 24, 2010 7:30PM EST

Health care ignited a debate for Barack Obama that risks derailing his ambitious policy agenda – if not his presidency. Prime Minister Stephen Harper, in contrast, has successfully hit the snooze button on the health file throughout his four years in power.
This is about to change.

On March 4, the Harper government is set to deliver a federal budget that aims to wrestle big deficits back to zero by about 2015 by scaling back spending. But along the way, there's a ticking bomb – the expiry of agreements governing three major transfers to the provinces that cover social programs, equalization and health care and cost Ottawa about $54-billion annually.

How Mr. Harper manages these arrangements – particularly on health, whose bite out of provincial budgets is huge and ever-growing – is shaping up as his greatest challenge.

“I think [health care]'s the No. 1 issue,” said Don Drummond, TD Bank's chief economist and a former senior official in the federal Finance Department. “It's the Pac-Man. It's eating everything else in people's budgets.”


Consider the numbers. In 1998, when governments starting increasing health spending again after a couple of years of restraint, the annual public health tab was $59.2-billion a year. It's now $128.6-billion.

Health-care costs are also growing as a percentage of the Canadian economy. They hovered around 7 per cent of gross domestic product in the 1970s, rose to 10.5 per cent in 2007 and are forecast to hit 11.9 per cent of GDP for 2009.

The fact that Mr. Harper has largely been able to sidestep the health-care policy quagmire is due to two large federal-provincial deals – one by the Liberals and one by the Conservatives.

In 2004, Paul Martin's Liberal government pledged $41-billion in new spending over 10 years for health care, billing it as a “fix for a generation.” Mr. Harper pledged his support for the deal during the 2006 campaign and largely succeeded in removing health care as an issue during the past two election campaigns.

The Harper government further enriched transfers to the provinces in the 2007 budget by the tune of $39-billion over seven years. As if to one-up Mr. Martin's rhetoric, Finance Minister Jim Flaherty declared that the new money erased the so-called fiscal imbalance between Ottawa and the provinces that had been a particular gripe in Quebec.

“It's the end of the discussion. C'est fini ,” Mr. Flaherty declared.

Not quite. Both deals expire in the fiscal year starting April 1, 2013 – right about when Ottawa promises to be on the verge of a balanced budget.

Mr. Flaherty has said he will not cut transfers to the provinces to balance the books, but what does that mean exactly? The 10-year health deal projects continued growth of about 6 per cent annually until 2013-2014. What rate of growth should the provinces expect after 2014?

John Abbott, CEO of the Health Council of Canada, says provinces need answers long before the deals expire. He predicts Ottawa will scale back the 6-per-cent yearly increases once the health accord ends and governments need to find ways to save money.

“Right now, provincial and territorial spending is growing beyond 6 per cent,” he said. “Is this sustainable? If you look at certain provinces, it is definitely not sustainable.”

Health-care spending eats up more than 40 per cent of government budgets in Ontario, Manitoba, Nova Scotia and B.C. The most manageable ratios are in Quebec and Nunavut, where health spending represents 33 per cent and 21 per cent respectively.

The Health Council, a creation of the 2004 Health Accord, is responsible for tracking health-care spending trends and reporting on the effectiveness of Canada's system. Mr. Abbott said the debate is not whether there should be more or less private health care. Rather, the council's research shows there are other sensitive debates with ethical dimensions that could potentially produce big savings.

For instance, the council's “value for money” analysis questions the large amounts spent on “futile attempts to treat conditions, beyond pain relief, when death is inevitable and near.” Other areas identified include encouraging doctors to prescribe less often and convincing provinces that buying the best and latest technology – whether it be in drugs or equipment – is not always worth the extra cost.

Despite the years of political silence on health care, there are signs that politicians are turning their minds to the issue. In a recent interview with The Globe and Mail, when asked how he'd handle future rates of growth in health transfers, Mr. Flaherty noted his government did put a cap on equalization transfers in November, 2008.

He said the provinces and Ottawa are in this together: “We all share the challenges of coming out of deficit in the medium term if we can and the ministers in the provinces have the added challenge of health care, and health care growing at a significant pace.”

Mr. Flaherty stressed that as a former Ontario cabinet minister in the 1990s, he will not cut transfers to the provinces to balance the books as the Liberal government did at the time.

“I lived through that as a provincial cabinet minister and I know the harm it caused to people. So we won't do that,” he said.

The Liberal opposition is also dusting off the issue. Leader Michael Ignatieff said health care will be among the topics his MPs will discuss in Ottawa while Parliament is prorogued.

Health care is traditionally a good issue for the Liberals, according to Harris Decima's Bruce Anderson, but the pollster says Mr. Ignatieff would be unwise to return to “stale” warnings about a two-tier system. Mr. Anderson said the President's troubles in Washington show the perils of creating fear, particularly among the well-off, that their health care could diminish as they enter old age.

“I think the Obama experience would probably say, ‘Don't try to change too much, too radically,' because lots of people can find reasons why they don't support that change,” he said.

Yet Mr. Anderson says there are political opportunities for either the Liberals or the Conservatives should they express an openness to small-scale “innovation” or experiments with increased private care – even at the risk of being labelled a supporter of “two-tier” health care.

Attitudes on health care are changing, he said, because older Canadian are increasingly going online to research waiting times and services available in the United States.

“People may at some point say: ‘Look. The profit motive being involved in health care isn't always a toxic idea,' ” he said. “We're heading into a period where more people are going to wonder which side of that tier that it's implied that they're on.”

A sound, effective and efficient (cost effective) universal heath care system makes a positive contribution to a nation’s productivity but Canada’s system is neither effective nor efficient. We pay a far higher percentage of GDP on health care than do many other advanced nations (e.g. France and Sweden) and we have worse outcomes than most of the countries that spend less than we do. Our system is, clearly, a drag on our already weak productivity.

Health care costs eat away at much more important spending such as education and R&D which are much, much more important to productivity and prosperity. A ‘better’ health care system needs much more money but, without major, unproductive tax increases our Canadian system can only get worse – see e.g. here where funding cuts, necessitated by increases in health care costs that are, simply, unaffordable, translate into the preventable deaths of our children. The necessary ‘more’ money cannot come from taxpayers; therefore it must come from the private sector – or Canadians will get poorer and sicker, at the same time, because too many are too stupid to cast aside the Liberal mythology that our system is any good at all.

But, never forget Solange Denis and the fear that she, and people like her, strike in the hearts of retail politicians – and that’s most of them including Harper and Iggy Iffy Icarus.

 

[a_majoor]

Some good news for a change:

http://modeledbehavior.com/2010/01/21/o-canada-the-true-north-strong-and-free/

O Canada: The True North Strong and Free
Thursday ~ January 21st, 2010 in Economics | by Adam Ozimek

The true north really is strong and free these days. According to the Heritage Foundation’s 2010 Index of Economic Freedom, Canada now enjoys a greater degree of economic freedom than the United States. They enjoy the most economic freedom in North America, as it were.  Those of us who watch Canada with a weary eye took note of this trend way back in April 2009, when the U.S. passed Canada in size of government relative to GDP. Remember this graph?

Where you getting all this economic freedom all the sudden Canada? Just happen to find it laying around in the snow somewhere? Well it turns out we’ve recently misplaced a good deal of it around here. A little suspicious if you ask me.

Back to the Heritage index…Adam Pasick, new blogger at the Atlantic, points us an unconvincing critique of the index from John Miller:

So it seems that the Index of Economic Freedom in practice tells us little about the cost of abandoning free market policies and offers little proof that government intervention into the economy would either retard economic growth or contract political freedom. In actuality, this rather objective-looking index is a slip-shod measure that would seem to have no other purpose than to sell the neoliberal policies that brought on the current crisis.

He argues as if his criticisms show that the index “cannot and should not be trusted” and that it has “fundamental flaws”, but then conflates that with the argument that studies show that economic freedom as measured by the index don’t lead to growth.

His two objections to the methodology are that it only uses nominal and not effective corporate taxes, and that the size of government can be a good thing. On the first point he might be right that effective corporate taxes would be a better measure of government interference in free markets. But nominal taxes that lead to a high degree of tax avoiding behavior is still government interference. So you can certainly argue that high nominal taxes negatively affect economic freedom even if corporations are good at avoiding them. Either way, this quibble hardly renders the index fundamentally flawed or unreliable.

His other criticism is that the “third measure of fiscal freedom, government tax revenues relative to GDP, bears little relationship to economic growth”. He’s already argued that their measure of economic freedom doesn’t relate to growth, which is a point to make, but really completely unrelated to the accuracy of the index. The problem is that this point supposed to be one of the two pieces of evidence that the methodology is flawed, not more evidence that the index doesn’t relate to growth. I’m not sure why he thinks this qualifies as former rather than the latter, since it clearly is not.

So really all he has is a quibble about effective corporate tax rates, which I find to be pretty weak ground from which to declare the index “fundamentally flawed” and “not to be trusted’.  He clearly believes that the index does not relate to economic growth, and that the Heritage people claim that it does. That’s fine, it’s a debate to have. But that doesn’t really have anything to do with whether or not the index is good at measuring what it purports to measure. Unless of course Pasick or Miller have such strong prior beliefs that economic freedom relates to growth that any index that contradicts that fact must be flawed. Somehow I doubt this is the case.

 

[Edward Campbell]

...
Two points, and I know I’m repeating myself:

1. There is only one taxpayer – you and me. Corporations can and do pay taxes but they do so only with the money they get (earn) from you and me. Corporate taxes are, indirectly, paid by us. It is the indirect nature of corporate taxes that makes them inefficient – more expensive to collect. ‘We,’ consumers mostly, would pay less, overall, if there were NO corporate taxes at all and other taxes were increased to provide the ‘lost’ revenue; and

2. Productivity does mean making workers do more for less. Workers are only a minor part of the productivity equation. What needs to happen is to allow each worker to do more in the same time – maybe for a higher wage – by giving him or her better tools, including better management practices, better training and better technology ...

This, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail probably gives you some insight into Prime Minister Harper’s long term plans:

http://www.theglobeandmail.com/news/opinions/canadas-productivity-trap/article1449944/

Globe Essay
Canada's productivity trap
The harder we work, the less rich we seem to be. We need to emphasize education, innovation and trade to break free

Kevin Lynch

Saturday, Jan. 30, 2010

There are few issues that evoke a blank stare more than productivity. Upon hearing the word, people either react with lack of interest or recoil in fear that what is coming is a lecture on working harder. The result is an absence of any serious public discourse in Canada about productivity.

It is time we faced some uncomfortable facts. Canadians have been collectively incarcerated in a beguiling productivity trap for almost a generation. We work harder and harder, use up our natural resources faster and faster, while the trap keeps us less rich, less able to provide public goods and less competitive. Canadians see more people working and goods being produced as proof that productivity is not a problem. Yet this is the beauty of the productivity trap: While the illness worsens, the patients believe they are feeling better.

For several decades, the Canadian medicine chest has been filled with a depreciating exchange rate, unsustainably strong U.S. demand, rising commodity prices and an increasing labour supply. These have kept the symptoms at bay. But with a Canadian dollar over 95 cents, weak U.S. and European demand, uncertainty about energy prices, and growing demographic pressures, a Canadian business-sector productivity level that has fallen to just 75 per cent of the United States means that the productivity trap may be painfully sprung.

The facts of Canada's poor productivity performance are well established, but not well known or understood. Unlike a fiscal deficit or unemployment or inflation, productivity cannot be measured directly. Unobservable it may be; unimportant it is not. A more productive economy grows faster, adapts better to changing circumstances, leads to lower prices, higher wages, and more jobs, improves living standards and affords more public goods.

There are two paths to the improvement of a country's standard of living. One is to have more people working, so that in total we produce more “stuff.” The second is to improve productivity, so that each worker produces more “stuff.” With demographics that ensure fewer future workers, the trap means that we won't be able to drive growth and raise living standards unless we increase productivity, something we have not done well recently.

Start with a statistical glimpse of productivity growth in our business sector. There was strong 4-per-cent average annual growth over the first postwar quarter-century (1947-1973), a much weaker 1.6-per-cent average pace over the next quarter-century (1973-2000) and a tepid 0.8-per-cent average growth rate recently (2000-2008). Comparing countries by output per hour worked per worker, Canada was an astounding 17th among OECD nations in 2007. Since Canadians work more hours than the OECD average, our total output per worker ranked 8th among OECD countries, but worse than the United States. Canada's business-sector productivity in 2007 was 75 per cent of that of the U.S, compared to 90 per cent in the early 1980s.

Next, take a sectoral perspective. From this vantage point, U.S. productivity performance was particularly strong in the manufacturing sector, and concentrated in information and communications technologies. The U.S. service sector also sustained consistently higher productivity growth than Canada's for more than a decade.

One explanation that was advanced in the 1990s to explain the gap was the sorry state of Canada's macroeconomic fundamentals. Our national debt was the second-worst in the G7; our deficits never-ending; our national pension plan in trouble; our bonds and stocks bore high-risk premiums; and the corporate tax rate was significantly higher than our largest trading partner's. These were not conditions encouraging to investment in productivity, Canadian businesses argued, and they were correct.

Fast-forward a decade. Canada's debt is now the lowest in the G7, our national pension plan is actuarially sound, macroeconomic risk premiums have disappeared from our stocks and bonds, and Canadian corporate tax rates are 12.5 percentage points below those in the United States. Despite this, business-sector productivity growth was actually worse in the decade just ended.

THE DOLLAR'S IMPACT

Consider the possible impact of the long decline in the Canadian dollar. A lower dollar paradoxically improves competitiveness but reduces wealth. It encourages business to use more domestic inputs and fewer imported inputs, which the lower dollar makes more expensive. Since Canadian business imports much of its machinery and equipment, firms employed more labour and less capital than their competitors. This reduced short-term costs, but impaired medium-term productivity, as business used older capital and less innovative technologies. This orientation saw Canadian business invest relatively little in home-grown research and development, and spend relatively little to license leading-edge technologies developed elsewhere.

A key source of U.S. productivity growth has been the development and production of information- and communications-related goods, and subsequently the broad application of these throughout the U.S. economy, particularly in the service sector. Sustained increases in service-sector productivity have a profound effect on the economy; services account for 80 per cent of the U.S. economy and 70 per cent of ours. Unfortunately, the intensity of usage of information technologies by Canadian business is only half that of the U.S.

International comparisons again demonstrate the research gap between Canadian businesses and their competitors. In 2007, Canadian business ranked 14th among OECD countries in research and development expenditures as a percentage of GDP. Canadian business spending on R&D was only 1 per cent of GDP, well below the OECD average of 1.6 per cent, roughly half of what U.S. business spends as a percentage of GDP and about a third compared with Sweden, Finland and Korea. This suggests that Canadian business has less capacity to be receptive to innovation, and less of a focus on innovation as part of integrated business strategy in Canada.

DEMOGRAPHICS AND DEMAND

If Canada's business productivity were near parity with that of the U.S., a Canadian dollar near parity would not be as stressful as it is. Moreover, the demographic crunch of a declining working-age population is looming. So is the shifting of demand away from our traditional markets, as the global economy adjusts to the rise of Asia, the financial crisis and the worldwide recession. All these developments underscore the need for urgency in tackling our productivity underperformance.

What will not work are one-off approaches, small fiddles to address a systemic problem and the view that it is someone else's responsibility. In short, a continuation of the status quo will not work. What is needed is behavioural change by Canadian businesses in their long-term strategies, and a shared sense of purpose by business, governments and the research community. A concerted productivity strategy should encompass innovation, the labour force, markets and attitudes, bearing in mind that there is no single or simple or immediate fix to this structural problem.

Innovation is a driver of productivity growth, creating the new products and processes that will allow Canadian business and workers to move up the value-added chain and compete on quality, service and uniqueness, not merely on cost. Canadian business spending on research cannot remain below the middle of the OECD pack if we are to spur innovation on the scale needed. Our public research capacity has improved greatly, but we need to focus on building global centres of research excellence, better commercialization of our research efforts to create jobs and wealth, better models of business-university partnerships, and better market-based means of financing the application of innovation, particularly a stronger venture-capital market in Canada.

Innovation and a highly skilled work force go hand-in-hand in driving productivity in a knowledge-intensive, global economy. Our aging demographics mean that fewer people will be working in the future; it is simple arithmetic that everyone will have to be more productive just to stand still. In a knowledge-based economy, high school completion and rigorous minimum literacy standards should be givens, not aspirations. We have fewer Canadians with university degrees than many of our competitors, fewer still in scientific disciplines, and we have to design new incentives to encourage the education outcomes we need as a nation. Immigration can offset our demographic trends, but its labour-market effectiveness depends on attracting skilled immigrants.

ENLARGING OUR MARKETS

Canada's trade linkages are akin to those of a cautious portfolio manager who is overinvested in traditionally safe markets. With the rise of Asian behemoths such as China and India, Canada needs a market enlargement strategy that includes new economic partnerships with the “Asian triangle” of China, Japan and India, expansion of Canada's Americas strategy to Brazil and a new economic arrangement with Europe. Canada should pioneer new partnership agreements oriented more to the treatment of services, investment, R&D, intellectual property and dispute-settlement arrangements.

Canada is a market-based economy where productivity gains must come largely from business. Governments should place more emphasis on speed, agility and frameworks to support productivity, and less on process and entitlement. Markets need more competition to spur faster adoption of new technologies. Better interaction between university researchers and business is key; in this, Sweden offers useful lessons. More emphasis on trade is essential; we are a trading nation, but not a nation of traders. In short, attitudes matter, they influence behaviour, and we must be strategic.

The global context Canadians face is complex, uncertain and changing structurally. It places a premium on firms, sectors and countries that are flexible, have solid fundamentals and anticipate change. Innovative and productive economies will have a better chance of sustained growth, rising living standards and good jobs. These are the challenges and opportunities for Canada to break out of its productivity trap.
Kevin Lynch is the former clerk of the Privy Council and secretary to the cabinet.

To repeat a few key points:

• ”A more productive economy grows faster, adapts better to changing circumstances, leads to lower prices, higher wages, and more jobs, improves living standards and affords more public goods.” Public goods include health care, national defence, roads and highways, public safety, public pension plan and so on and so forth;

• Canadians work harder than do the people of most of the 30 OECD nations (8th out of 30) but our output per hour worked is only 17th of the 30. That’s what low productivity means: we work harder and produce less. That’s the problem;

• The symptoms, in the 1990s, that made us unproductive, included –

o a high national debt - the second-worst in the G7;

o never ending deficits;

o our national pension plan in trouble;

o our bonds and stocks bore high-risk premiums; and

o the corporate tax rate was significantly higher than our largest trading partner's;

• Solving those problems – as Chrétien/Martin and Harper/Flaherty have done – did not improve our productivity. They were some of the symptoms, not the disease;

• Competitiveness, which a weak dollar enhances by making our exports ‘cheaper’ ≠ Productivity, which a weak dollar retards by making e.g. new machinery more expensive;

• While there is no single, simple or immediate fix to Canada’s structural problem, ”a concerted productivity strategy should encompass innovation, the labour force, markets and attitudes.” Attitudes, conditioned, for 40 years, to a ‘culture of entitlement’ may be hardest to change;

• Education – in terms of quantity, quality and focus is a major driver of high productivity because innovation is one of the main keys to productivity and, as Mr. Lynch says, ”Innovation and a highly skilled work force go hand-in-hand in driving productivity in a knowledge-intensive, global economy;”

• ”Canada needs a market enlargement strategy that includes new economic partnerships with the “Asian triangle” of China, Japan and India,” while not ignoring our American markets or Europe;

• ”Governments should place more emphasis on speed, agility and frameworks to support productivity, and less on process and entitlement,” which means that business must be ‘free’ and, indeed, encouraged (through e.g. the tax system) to trade more and to trade at higher and higher value levels; and

• Governments need to get out of the way while encouraging (the tax system, again) ”better interaction between university researchers and business.”

 

[Jed]

This, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail probably gives you some insight into Prime Minister Harper’s long term plans:

http://www.theglobeandmail.com/news/opinions/canadas-productivity-trap/article1449944/

• ”Governments should place more emphasis on speed, agility and frameworks to support productivity, and less on process and entitlement,” which means that business must be ‘free’ and, indeed, encouraged (through e.g. the tax system) to trade more and to trade at higher and higher value levels; and

• Governments need to get out of the way while encouraging (the tax system, again) ”better interaction between university researchers and business.”

I especially agree with these points. From what I see of our current process driven government systems, and the natural tendency for people to maintain the status quo, and not to break any rice bowls, so to speak, our current Public Service is acting as a huge set of brakes to Canadian business production.

In the 30 years or so I have been in various government systems, I have seen an incredible loss of productive capability in our Public Service. I am not sure of the reasons for it or how to fix it though.

Some of it may be due to selecting programs and people for politically correct purposes rather that the right person to do the right job.

Some of it may be because our elected politicians broke faith with their employees, the rank and file, during past events like the sponsorship scandal etc.

Some of it may be dues to the baby boomer bump going through and a lot of good experienced people taking the 'freedom 55' option.

What we should do about it is get hard nosed on simplifying our existing processes and look hard at core tasks required rather than the decoration on the fringes.

 

[a_majoor]

More please:

http://imrightasrain.blogspot.com/2010/01/thank-you-flaherty-gst-cut-saved.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+RightAsRain+%28Right+As+Rain%29

Thank you Flaherty - GST cut saved thousands of jobs

Now, I am sure you will never here this in most media sources, but today the National Post is running a story on how a senior Liberal wants to raise the GST, and subsequently kill thousands of jobs.

What is interesting is the last couple paragraphs, where the president of Infometrica discusses how his firms modeling data showed the GST cut created 162,000 new jobs!

Carl Sonnen, the president of Infometrica, said his firm's economic modelling shows a two-point cut in the GST translates roughly into about 162,000 new jobs. Conversely, reversing the Conservatives' cut would mean losing those jobs. "You can't argue that raising the GST rate won't hurt jobs. It will," said Mr. Sonnen, who said the Conservative GST cut likely softened the recession's blow. "In our analysis, we got some positives out of that [cut] for GDP in the second quarter of last year. Otherwise we might have been in recession much earlier."

I remember back when the GST was cut, and Minister Flaherty described it as stimulus, the media and opposition attacked him for it. Seems he was right after all. A little more vindication for the Conservatives.

It has been a good month for Conservative vindication. Winning two court cases against Elections Canada, a Liberal complaint to the Ethics Commissioner also dismissed, lots of faux scandals dismissed.

I wonder how long it will be unit the next faux scandal?

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from the National Post website are a column by Conrad Black, a response from Quebec historian Éric Bédard and a further counter by Lord Black:

Part 1 of 2

http://network.nationalpost.com/np/blogs/fullcomment/archive/2009/12/19/conrad-black-quot-quebec-is-a-bore-quot.aspx

Conrad Black: "Quebec is a bore"

Posted: December 19, 2009

Conrad Black, Canadian politics

In perhaps the greatest moment of his meteoric career, Claude Wagner — Quebec’s justice minister, twice a judge, federal MP, runner-up to Robert Bourassa as Quebec Liberal leader in 1970 and to Joe Clark as federal Progressive Conservative leader in 1976 — electrified the Quebec Liberal convention that was choosing a successor to Jean Lesage four decades ago: “We must look ourselves in the eye and say what must be said.” He did so, but the fix was in from Ottawa, and the Lesage liberals and Wagner came second, ahead of Pierre Laporte, who was murdered nine months later in the FLQ crisis.

It is surely time, 40 years on, that Quebec followed Wagner’s advice. The Quebec nationalists have had a long run, but the audience has gone from the theatre, the music has stopped, and the lights are out. Maurice Duplessis and his most assiduous disciple, Daniel Johnson Sr., were the only Quebec leaders who managed to get the province’s conservatives and nationalists to vote together, an artistic political achievement. Duplessis said the Quebec nationalists are a “10-pound fish on a five-pound line; you have to reel them in slowly and let them out slowly.” Johnson said: “We must give Ottawa every kick except the last one.”

Duplessis told his cabinet in 1958: “I shut the nationalists up for 10 years by giving Quebec a flag. I can shut them up for another 10 years by opening a Quebec office in Paris,” (which he was prepared to do when de Gaulle returned to power and dispensed with the Fourth Republic, which Duplessis, who served continuously as premier of Quebec from before that Republic was founded to after it collapsed some twenty governments later, regarded as a farce). “And I will shut them down for 10 years after that by giving them a world’s fair. Then you will be on your own. Someone will take my place but you will not replace me.”

This was pretty much what happened, except that Duplessis died a decade early, and his chosen successors, Paul Sauvé and Daniel Johnson, who had most of Duplessis’s strengths and few of his shortcomings, but lacked his stamina, died in their early 50s, in office, Johnson in 1968, less than a year after the close of the Montreal World’s Fair.

The nationalist torch in Quebec passed to René Lévesque and the left. But it was still a confidence trick. The 1980 and 1995 referendum questions were bogus requests for a mandate to negotiate “sovereignty” while maintaining “association”; eat the cake but still have it before you to contemplate in salivary self-irrigation.

And it was a farce. The great architect of the new nation, Claude Morin, proved to be a federal government double agent; the parliamentary leader was caught trying to flee on foot after shoplifting at Eaton’s. Lévesque himself ran down and killed a derelict in the middle of the night while apparently coming off a boozy evening, and the police conveniently took five hours or more before the thought of a breathalyzer popped into mind.

Now the pitiful detritus of the independentists are advocating revocation of the right of Quebec parents to chose the language of their children’s daycare centres, as if the English language were a primitive dialect of no legal standing and not the language of the great majority of Canadians and Americans and a billion other people, and as if the rights of English-speaking Quebecers, exercised for centuries, could be repealed in a trice by low, delusional, separatist demagogues.

Quebec should recognize that its history of cultural survival is a subject of pride, and that its self-emancipation in the Quiet Revolution has largely failed. Alone, abandoned by the French, it made its deal with the British in the Quebec Act of 1774, kept the French language, and sent Benjamin Franklin packing when he came to rally the French-Canadians against the British in the Revolutionary War.

These events were fraught with ironies, as the Americans, despite all the claptrap about “no taxation without representation” improvised by the Boston merchants and Virginia slaveholders, were really trying to leave Britain with the entire cost of removing the French as a threat to them in the Seven Years War. When Franklin failed to induce the former American bête noire of French Canada to throw in with the Americans, (who would have assimilated them in 10 years, no matter what guaranties they had given), he removed to Paris and, in the greatest diplomatic triumph of American history, persuaded France to go to war against Britain in favour of American democracy and anti-colonialism.

Without French intervention, the Americans could not have won, and France would probably not have had their own revolution. The Americans ditched the French as soon as Britain offered acceptable terms. In the whole swirling drama, the French Canadians were the only player that acted with wisdom (unlike the British and French), and integrity (unlike the Americans). These facts should be celebrated in Quebec.

The achievement of the Roman Catholic Church in building and retaining a high literacy rate, a competitive health care system, the French culture (albeit a rustic version of it), and a birth-rate that ensured French Quebec’s demographic survival for 200 years, was an astounding feat. That too should be celebrated.

On the 50th anniversary of his death, in September, Maurice Duplessis was largely remembered as a tenebrous and primitive retardant to Quebec’s progress. In fact, he was the saviour of Quebec’s jurisdiction and the physical modernizer of the province. He recouped Quebec’s forfeited right to collect income taxes, and reasserted the provinces’ constitutionally guaranteed concurrent right to direct taxation. His government built 3,000 schools, all the universities except McGill, the autoroutes, extended electricity to 97% of rural Quebec, made Quebec Canada’s leader in disability pensions and day-care access, attracted huge investments in the mining, manufacturing, and forest products industries, while reducing taxes and eliminating debt. Quebec’s per capita income gained on English Canada’s for the only time in the country’s history.

Duplessis did this by retaining clerical personnel in the schools and hospitals at a fraction of what secular personnel would have had to be paid, and without the disruptions of unionization and endless strikes in the public services, or the bane of schoolteachers’ unions insisting on a complete separation of scholastic performance from teachers’ pay-scales.

Duplessis’s Quebec was priest-ridden and his government was heavy-handed and cynical, though unsanctimonious, and enlivened by its leader’s lively sense of humour. He had the genius of maximizing the interests of French Quebec without oppressing its minorities or threatening the integrity of Canada. This too, should be celebrated.

The Quiet Revolution which followed has been the greatest orgy of self-serving myth-making in Canadian history. The teachers and nurses left their religious orders and performed the same tasks as before, less assiduously and at 10 times the cost to Quebec’s taxpayers. Almost all manufacturing and almost a million Quebecers have fled, and unknowable billions of investment dollars have avoided the province. The birth rate has collapsed. This should not be celebrated, but in the perversity of Quebec’s disorientation, it is.

It all went horribly wrong when English Canada responded to the sentiment expressed by Quebec’s nationalist leader in the Thirties, Dr. Philippe Hamel, (before Duplessis evicted him from public life and sent him back to the practice of dentistry): “Conquer us with goodwill, my English-Canadian friends. You will be astonished at the easy victory which awaits you.” The Laurendeau-Dunton Commission was established and its recommendations were followed. French and English were established on an equal footing throughout the country, at considerable inconvenience and expense to the majority.

The federal government poured money raised in the wealthy English provinces into Quebec, and the response of the heirs of Hamel and Duplessis and of the Quebec cultural and political elite generally, was to accuse Canada of attempting to assimilate French Quebec. All English-Canadian political leaders since Pearson and Stanfield have had nothing but goodwill for Quebec. But, as one of Canada’s greatest and most generous-minded modern political leaders, John P. Robarts, told me in 1977 about the then current Quebec leaders, “What spoiled child when offered chocolate ice cream, won’t ask for vanilla; and how do you reach agreement with people who don’t want to reach an agreement?” You don’t and we didn’t.

Haitians and North Africans, who haven’t the remotest interest in Quebec nationalism, are being imported to replace the unborn, in an effort to maintain francophone numbers. But Quebec is superannuated, both as bully and as cry-baby. No one wants to hear it anymore. There is no significant ill-will to Quebec in English-Canada, but the province’s ability to frighten or perplex the country, or even arouse its curiosity, is past. Quebec is a bore.

The description of French Canadians in Hemon’s Maria Chapdelaine as ‘a race that knows not how to die’  was accurate in the era described, 100 years ago. Now, that is almost all Québécois do know.   

Quebec’s political acuity enabled it to exercise an influence in Canada beyond its numerical strength for the first 135 years of Confederation, reaping the reward of the 10 generations of survivalist forbearance of its ancestors. It should now do homage to its honourable past, stop pretending that the lights went on only in 1960, forsake infantilism (like sending 50 separatist MP’s to Ottawa to mock federalism and vest their pensions) and enjoy Quebec’s earned and potential status in what — despite the purblind malice of the separatists, who habitually claim English Canada to be a pathetic excrescence of the anglo-Americans — has become one of the most successful countries in the world.

National Post
cbletters@gmail.com

This was followed by a letter from Quebec historian Éric Bédard:

http://www.nationalpost.com/story.html?id=2430481

In defence of Quebec nationalists

National Post Published: Tuesday, January 12, 2010

As far as Conrad Black is concerned ( "Quebec is a bore," Dec. 19), Quebec nationalists are spoiled children and crybabies who are never satisfied with the generosity shown to them by their older English Canadian brothers. The source of this problem, according to Lord Black, is the Quiet Revolution, which resulted in "the greatest orgy of self-serving myth-making in Canadian history."

Lord Black needs to be reminded of two things: 1) The myth of the "Great Darkness" was invented, for the most part, by federalists, not by Quebec nationalists. 2) The Quiet Revolution cannot be reduced to a left-wing ideology.

Pierre Elliott Trudeau, Gerard Pelletier and the authors of the Cite libre political journal were responsible for the most radical criticisms of Quebec's Union Nationale government and the French-Canadian Church in their time. As George Grant said in Lament for a Nation, their idea of Canada was thus eminently "progressive" and their vision of federalism profoundly utopian.

In many respects, the extreme left-wing independentistes of the '60s and '70s were simply commandeering the progressive federalist arguments against Quebec society from before the Quiet Revolution. FLQ members like Pierre Valliere, author of White Niggers of America (1969), wrote his first articles in Cite libre.

If a not-insignificant fringe of the new sovereigntist elite adhered to the myth of the "Great Darkness," it was not so for Rene Levesque. He rallied the last remaining Union Nationale conservatives to his cause and unveiled the statue of Maurice Duplessis on the grounds of the National Assembly in 1977, a highly symbolic move that progressive federalists hastened to criticize.

If the "Great Darkness" is not a nationalist myth, then the Quiet Revolution cannot be depicted as a banal victory for the left. This political revolution was initiated by the Liberal Party of Quebec and pursued by a re-elected Union Nationale government in 1966. It was the work of Jean Lesage and Rene Levesque, but also Daniel Johnson Sr.

The great goal of the Quiet Revolution was to put an end to the economic inferiority of French Canadians. It was because they no longer wanted to depend on this arrogant and paternalistic "Anglostrocracy" (as Lord Black called it in his 1993 book A Life in Progress) that francophone Quebeckers gave themselves tools such as the Societe generale de financement, the Caisse de depots et de placements and nationalized hydroelectricity. Lord Black should be delighted since all of this has been accomplished within Canada.

Did the Quiet Revolution solve every problem? Definitely not. Did it create new ones? Maybe. Still, we must not confuse the Quiet Revolution with cultural revolution and the "radical Sixties" that ravaged the West. The Quiet Revolutionaries were reformers, even conservatives at times, who sought to meet the national aspirations of their people. Their ambition was certainly not to transform schools and families in the counterculture laboratory.

By creating a centralist state, by encroaching upon provincial jurisdictions, by institutionalizing the doctrine of multiculturalism, by making religious difference sacred by forcing our schools to take in Sikh children with daggers (kirpan), Pierre Elliott Trudeau and his Cite libre friends founded a radically different Canada that was a complete break with its past.

Every so often I think that if many Quebec nationalists were converted to the sovereigntist cause, it's precisely because the Canada of 1982 radically broke from this great conservative tradition, one that respected provincial autonomy and the historical and institutional legacy left by the British and the French.

End of Part 1 of 2

 

[Edward Campbell]

Part 2 of 2

And now Back replies to his correspondent:

http://network.nationalpost.com/np/blogs/fullcomment/archive/2010/01/30/conrad-black-myths-of-the-quiet-revolution.aspx

Conrad Black: Myths of the Quiet Revolution

Posted: January 30, 2010

Conrad Black, Canadian politics

Last month, I wrote a column about the state of Quebec, in which I urged nationalists to stop griping about the past and learn to appreciate their province’s earned status in one of the most successful countries in the world. A few weeks later, there appeared in these pages a rebuttal from Quebec historian Éric Bédard, who scolded me for arguing that (in his words) “Quebec nationalists are spoiled children and crybabies who are never satisfied with the generosity shown to them by their older English Canadian brothers.”

In fact, I argued no such thing. As I’ve written elsewhere, I believe that English Canada, in Quebec and out, conceded as little as it could to the French-Canadians, and for an inexcusably long time thought them fit for little more than rolling their tennis courts at such Anglo enclaves as Knowlton and Murray Bay.

Rather, I emphasized that acute strains appeared when the French-Canadian leadership, having assured Anglo Canada that a bona fide attempt to accommodate the French would be successful, instead greeted gestures of rapprochement with accusations of attempted assimilation into English Canada.

In the 1970s, while millions of English Canadian school students, in communities where there were few French speakers, were studying French, Robert Bourassa’s Liberals revoked the right of Quebec parents to choose the language of instruction of their children, as between French and English. He also set up the infamous language police, who became one of Quebec’s greatest tourist attractions. René Lévesque’s separatists took this farther with Bill 101 in 1977, and the Quebec government invoked the Notwithstanding Clause to protect it. (The Trudeau government, meanwhile, did not lift a finger to assist or encourage the non-French in Quebec.)

Nor did I claim, as Mr. Bédard suggests, that the “myth of the Great Darkness” (regarding the pre-Quiet Revolution era, presided over by Maurice Duplessis and previous regimes) was fabricated exclusively by Quebec nationalists. Most of the nationalists of the time were in fact supporters of Duplessis and his pre-revolutionary policies. (There were virtually no separatists while Duplessis lived, because he co-opted the nationalists into a more sensible pursuit of the province’s interests.) The Quebec Liberals under Jean Lesage, the ones who proclaimed and enacted the Quiet Revolution, were an uneasy alliance of modernizers, federalist, nationalist and separatist.

I agree with Mr. Bédard that the federal Liberals were part of the problem during all of these events. Theirs was the party that would make Confederation work for Quebec — but elsewhere in Canada, they would keep Quebec in its place. To the bonne ententistes, this meant the conciliation of Quebec; and to the rednecks, it meant the imposition of whatever was necessary to suppress separatist impudences. When Duplessis forced the St. Laurent government to recognize the concurrent provincial jurisdiction in direct taxation in 1955, by threatening to hold an election on the issue of double taxation, it was represented by federal Liberals as a menace to Canada. When Lester Pearson made even greater concessions to Lesage, the Liberals touted both as saviours of Confederation.

As Mr. Bédard notes, Pierre Trudeau and the other leading members of Quebec’s Cité Libre federalists not only confected the myth of Duplessis’ “Great Darkness” — which was, in fact, the era of the greatest economic and social progress in the history, prior or subsequent, of French Canada. They, along with Lesage’s Quebec Liberals, sold the theory that education and medical care could be de-clericalized and the public service unionized, without reducing its quality or scaling back the resources available for infrastructure improvements by the Quebec government, and without increasing debt or taxes, nor seriously undermining the Roman Catholic Church in Quebec, to which Trudeau, Lesage and Levesque all professed to be strenuous adherents. This was the beginning of the political sale of colossal Quebec fairy tales, which reached its climax with the confidence trick of “sovereignty association,” Lévesque’s constitutional fantasy of how to suck and blow at the same time.

Eventually, the political uncertainty and steady redefinition of English-language rights into revocable privileges drove a million people out of Quebec, but opened up finer homes, offices and titles for the nationalist Quebec elite to occupy after frightening off their former occupants. The federal Liberal reply was to pour money from Ontario, Alberta and British Columbia into Quebec — a wealth transfer that was justified as part of Ottawa’s larger campaign to demonstrate we are more “caring and sharing” than the United States (while refusing to disclose the real cost of these transfers of money to Quebec).

The main point where Mr. Bédard and I still part company is over the benignity of the Quiet Revolution.

Of course, the authoritarian, priest-ridden and often cynical regime of, hugely successful though it was, had to change, and Duplessis’ two chosen successors, Paul Sauvé and Daniel Johnson, started to do that. The Quiet Revolution occurred, and was resumed in 1970, because of the untimely death in office of all three of these talented premiers. It started off earnestly and progressively, but chased out 15% of the population, shrank the economy, indebted and over-taxed the province, and put all Canada under a cloud for decades. This need not have happened. But once the conservative-nationalist alliance of the Union Nationale fragmented, the nationalists were running free and bound to win an election, and test Confederation eventually. The benefits of the Quiet Revolution were going to happen anyway, but not the terrible strains and dislocations.

As for Mr. Bédard’s theory that Lévesque showed his respect for Duplessis by unveiling his statue in 1977 (which had been in mothballs for 16 years), Lévesque was still fishing for nationalist votes but told me himself that he took that decision when future premier Bernard Landry read to their first cabinet meeting from my book about Duplessis, that “Successive premiers made themselves seem ridiculous by appearing to be afraid of Duplessis’ statue.”

They did, and they were.

National Post
cbletters@gmail.com

We owe Black a debt for putting Duplessis and the Great Darkness into some sensible perspective.  Duplessis was, to be sure, a home grown fascist and, even, a bit of a theocrat; in that he was not unique ; so was a young Pierre Trudeau. But, it was Duplessis, as much as Lesage and all the others who, despite his innate rural conservatism, dragged Québec, kicking and screaming, into the 20th century.

But Duplessis bashing became a fashionable, jejune cottage industry in the 1960s, led by none other than Trudeau and the Cité libre gang. Now, my Great Aunt Florence’s house cat could have made a useful case against Duplessis regarding e.g. his anti-Sematism (a Québecois rather than just a Duplessis failing in the first half of the 20th century) and his treatment of e.g. selected religious (Christian) minorities; one did not need to attend Harvard, l’Institut d'Études Politiques de Paris and the London School of Economics to do that.

As to Black’s thesis: Québec is more than a “bore.” It is a social, economic and political anchor that retards Canada, holding us, firmly, in the mid 20th century even as all our competitors adapt to the 21st.

It is tempting, especially by Québec nationalists, to ‘see’ Québec as our version of the race/civil rights turmoil in America in the ‘60s. (See: Pierre Vallières’ Nègres blancs d'Amérique, autobiographie précoce d'un « terroriste » québécois.) The goal was to equate Québec’s problems, which were, largely but not exclusively, self inflicted wounds with the problems of social class and political power that afflicted American blacks. The analogy is false but it has been applied, with considerable enthusiasm and skill, throughout Canada and, indeed, in France. Propaganda works.

The solutions to Canada’s many and varied problems must include solutions to the least productive elements of Canadian society: aboriginals, some minority communities and, above all, Québec.

 

[Dennis Ruhl]

Part 2 of 2


The solutions to Canada’s many and varied problems must include solutions to the least productive elements of Canadian society: aboriginals, some minority communities and, above all, Québec.

As an Albertan, I think the only financial support given east of the Ottawa River should be bus tickets to west of the Ottawa River.  The productivity of regions that do develop industry is taxed dearly to subsidize other regions and actually discourage development.  The New South arose  from the corpse of the rust belt without subsidies.  All it took was a climate to encourage business.

At one time a business opening a plant in Cape Breton would receive major grants plus a 60% investment tax credit.  There were few takers because the business climate was wrong.  Many of the plants that opened later folded.  Paying a person, people, or province for their inefficiency never solves their economic problems.

 

[Edward Campbell]

As an Albertan, I think the only financial support given east of the Ottawa River should be bus tickets to west of the Ottawa River.  The productivity of regions that do develop industry is taxed dearly to subsidize other regions and actually discourage development.  The New South arose  from the corpse of the rust belt without subsidies.  All it took was a climate to encourage business.

At one time a business opening a plant in Cape Breton would receive major grants plus a 60% investment tax credit.  There were few takers because the business climate was wrong.  Many of the plants that opened later folded.  Paying a person, people, or province for their inefficiency never solves their economic problems.

No quite true. The development of the sun belt was heavily subsidized by governments, mainly during the '60s and '70s and especially by the US defence budget - the biggest pork-barreling/subsidizing programme in human history.

 

[a_majoor]

No quite true. The development of the sun belt was heavily subsidized by governments, mainly during the '60s and '70s and especially by the US defence budget - the biggest pork-barreling/subsidizing programme in human history.

The catalyst was even earlier, when Lyndon Johnson used the US space program and the moon race as a means to industrialize the South in the early 1960's. The Cape Canaveral launch site was chosen for geographic reasons, but the rest of the swath of NASA facilities across the Southern US is mostly the legacy of Johnson's use of the pork barrel to get votes and funding for the space program.

All that money and engineering horsepower paid off the way Johnson hoped it would, and the political climate (such as "right to work" legislation in opposition to Wagner unionization) ensured the gains were kept.

 

[a_majoor]

More alternative models to consider:

http://jr2020.blogspot.com/2010/02/never-mind-prorogation-lets-do-it-texas.html

Never mind prorogation, let’s do it Texas style

Texas has a part-time legislature of 181 citizen legislators who meet for 140 days every second year. Texans consider government a threat to liberty and prosperity:

    Texans figure the $7,200 a year they pay their state lawmakers is plenty. "They've got more government in Texas than they want at $600 per month," [said] Texas Gov. Rick Perry ...

    ... "When you have a full-time legislature, they just feel pretty inclined to be doing something. So they are going to dream up new laws, new regulations and new statutes -- and generally all of those cost money," Perry said.

Texas has been hit by the recession too but it’s unemployment rate at around 8% is two points lower than the national average. And perhaps more important, it has one of the lowest debts ($50B compared with the nearly bankrupt California’s debt of around $640B).

Compare:

    Texas - population 22 million, GDP $1.2 trillion, income taxes $0
    Canada - population 32 million, GDP $1.3 trillion, income taxes $big

While there’s more to running a country than a state, the Texas model would be worth aiming for. And the provinces should certainly take a close look.

 

[a_majoor]

Ottawa is worried Canadians are taking on too much debt? Pay off that 1/2 trillion you owe and cover the other 1/2 trillion of unfunded liabilities before you start lecturing us, Kemo Sabe:

http://www.nationalpost.com/news/story.html?id=2570414

Ottawa to toughen mortgage rules

Paul Vieira, Financial Post  Published: Tuesday, February 16, 2010

OTTAWA - Amid warnings about Canadian household debt levels and a possible housing bubble, Finance Minister Jim Flaherty said Tuesday the federal government would make it tougher for people to get a mortgage.

He said at an early Tuesday morning media conference that Ottawa would require all borrowers meet standards for a five-year fixed-rate mortgage, even if the buyer wants a variable rate mortgage. That is the key move announced Tuesday. Other rule changes unveiled would affect people looking to refinance their mortgages - lowering the maximum amount that can be withdrawn to 90 per cent from 95 per cent - and place a 20 per cent minimum down payment for government-backed mortgage insurance on non-owner-occupied properties.

But the Minister said the changes were not meant to stop a possible housing bubble, as some warned was upon us.

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one," Flaherty said. "Our government is acting to help prevent Canadian households from getting overextended."

The decision to adopt new mortgage rules emerged after nearly a week of dire warnings from prominent Canadians - such as money manager Stephen Jarislowsky and former Bank of Canada governor David Dodge - that the housing market was on the verge of possible trouble, as price increases were not sustainable and present mortgage rules were too lax.

The Department of Finance in 2008 said Canada Mortgage and Housing Corp. would limit amortizations to 35 years and offer loan insurance on only 95 per cent of the loan value. The government's housing agency had offered mortgage insurance on loans worth as much as 100 per cent of the home value and amortization periods of as many as 40 years since 2006.

Canadian home prices and resales will grow to records this year, boosted by low interest rates, the Canadian Real Estate Association said in a report last week. Canadian new-home prices rose 0.4 per cent in December from November, the sixth straight gain, according to government figures.

As recently as two weeks ago Flaherty said there was "no substantial concern" about the emergence of a housing bubble after meeting with private-sector economists. And in an interview with the Financial Post in late December, he said there was "no evidence" of asset bubble in real estate.

Read more: http://www.nationalpost.com/news/story.html?id=2570414#ixzz0g0FGuKip
The National Post is now on Facebook. Join our fan community today.

And here is what is really dragging us down. You you have $15 + K to contribute right now you end your liability?

 

[a_majoor]

If New Zeland can do this, so can we:

http://chasingapplepie.blogspot.com/2010/02/getting-our-fiscal-house-back-in-order.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ChasingApplePie+%28Chasing+Apple+Pie%29

Getting Our Fiscal House Back in Order

We have just gone through the worst recession since WWII. Our unemployment rate is over 8%. We racked up a deficit of over $56bill. Now how to get our fiscal house back in order. How do we get rid of the deficit, pay down the debt, balance the budget and get back to surplus?

Minister Flaherty will bring down the budget on March 4. What should he do? Should he raise taxes, cut spending? Maybe we should take a look at New Zealand and learn a lesson from what they did.

New Zealand about 20 yrs. ago was in an economic conundrum. In desperation, they made big reforms.

    "Prior to comprehensive reforms 20 years ago, New Zealand was an economic mess, suffering from debt, continual deficits, and a stagnating economy. Out of desperation, New Zealand’s political leaders reduced government spending and enacted fundamental, wide-ranging reform. Since then, New Zealand’s national government has seen a single deficit; it was this year and due to the worldwide recession." Goldwater Institute

Maurice P. McTigue, member of the New Zealand Parliament and New Zealand’s ambassador to Canada was instrumental in the reforms that turned that country around. Here is just some of what they did.


    "Spending and Taxes

    When a reform government was elected in 1984, it identified three problems: too much spending, too much taxing and too much government. The question was how to cut spending and taxes and diminish government’s role in the economy. Well, the first thing you have to do in this situation is to figure out what you’re getting for dollars spent. Towards this end, we implemented a new policy whereby money wouldn’t simply be allocated to government agencies; instead, there would be a purchase contract with the senior executives of those agencies that clearly delineated what was expected in return for the money. Those who headed up government agencies were now chosen on the basis of a worldwide search and received term contracts five years with a possible extension of another three years. The only ground for their removal was non-performance, so a newly elected government couldn’t simply throw them out as had happened with civil servants under the old system. And of course, with those kinds of incentives, agency heads "like CEOs in the private sector" made certain that the next tier of people had very clear objectives that they were expected to achieve as well.

    The first purchase that we made from every agency was policy advice. That policy advice was meant to produce a vigorous debate between the government and the agency heads about how to achieve goals like reducing hunger and homelessness. This didn’t mean, by the way, how government could feed or house more people, that’s not important. What’s important is the extent to which hunger and homelessness are actually reduced. In other words, we made it clear that what’s important is not how many people are on welfare, but how many people get off welfare and into independent living.

    As we started to work through this process, we also asked some fundamental questions of the agencies. The first question was, "What are you doing"? The second question was, "What should you be doing"? Based on the answers, we then said, "Eliminate what you shouldn’t be doing", that is, if you are doing something that clearly is not a responsibility of the government, stop doing it. Then we asked the final question: "Who should be paying?, the taxpayer, the user, the consumer, or the industry?" We asked this because, in many instances, the taxpayers were subsidizing things that did not benefit them. And if you take the cost of services away from actual consumers and users, you promote overuse and devalue whatever it is that you’re doing.

    When we started this process with the Department of Transportation, it had 5,600 employees. When we finished, it had 53. When we started with the Forest Service, it had17,000 employees. When we finished, it had 17. When we applied it to the Ministry of Works, it had 28,000 employees. I used to be Minister of Works, and ended up being the only employee. In the latter case, most of what the department did was construction and engineering, and there are plenty of people who can do that without government involvement. And if you say to me, "But you killed all those jobs!", well, that’s just not true. The government stopped employing people in those jobs, but the need for the jobs didn’t disappear. I visited some of the forestry workers some months after they’d lost their government jobs, and they were quite happy. They told me that they were now earning about three times what they used to earn, on top of which, they were surprised to learn that they could do about 60 percent more than they used to! The same lesson applies to the other jobs I mentioned.

    Some of the things that government was doing simply didn’t belong in the government. So we sold off telecommunications, airlines, irrigation schemes, computing services, government printing offices, insurance companies, banks, securities, mortgages, railways, bus services, hotels, shipping lines, agricultural advisory services, etc. In the main, when we sold those things off, their productivity went up and the cost of their services went down, translating into major gains for the economy. Furthermore, we decided that other agencies should be run as profit-making and tax-paying enterprises by government. For instance, the air traffic control system was made into a stand-alone company, given instructions that it had to make an acceptable rate of return and pay taxes, and told that it couldn’t get any investment capital from its owner (the government). We did that with about 35 agencies. Together, these used to cost us about one billion dollars per year; now they produced about one billion dollars per year in revenues and taxes.

    We achieved an overall reduction of 66 percent in the size of government, measured by the number of employees. The government’s share of GDP dropped from 44 to 27 percent. We were now running surpluses, and we established a policy never to leave dollars on the table: We knew that if we didn’t get rid of this money, some clown would spend it. So we used most of the surplus to pay off debt, and debt went from 63 percent down to 17 percent of GDP. We used the remainder of the surplus each year for tax relief. We reduced income tax rates by half and eliminated incidental taxes. As a result of these policies, revenue increased by 20 percent. Yes, Ronald Reagan was right: lower tax rates do produce more revenue.

    What about regulations? The regulatory power is customarily delegated to non-elected officials who then constrain the people’s liberties with little or no accountability. These regulations are extremely difficult to eliminate once they are in place. But we found a way: We simply rewrote the statutes on which they were based. For instance, we rewrote the environmental laws, transforming them into the Resource Management Act, reducing a law that was 25 inches thick to 348 pages. We rewrote the tax code, all of the farm acts, and the occupational safety and health acts. To do this, we brought our brightest brains together and told them to pretend that there was no pre-existing law and that they should create for us the best possible environment for industry to thrive. We then marketed it in terms of what it would save in taxes. These new laws, in effect, repealed the old, which meant that all existing regulations died , the whole lot, every single one."[/co;or]

I think we should take bold steps and make major reforms like they did. I can hear the howls from the opposition and their cheerleader MSM now if we took such steps. "The mean spirited, Harper Conservatives" and other such statements. Yada, yada, yada!
The fact is we have to take bold measures that will be short term pain for long term gain.

 

[a_majoor]

While cast for the United States, these principles apply equally to Canada:

http://www.cato-at-liberty.org/2010/03/03/six-reasons-to-downsize-the-federal-government/

Six Reasons to Downsize the Federal Government

Posted by Chris Edwards

1. Additional federal spending transfers resources from the more productive private sector to the less productive public sector of the economy. The bulk of federal spending goes toward subsidies and benefit payments, which generally do not enhance economic productivity. With lower productivity, average American incomes will fall.

2. As federal spending rises, it creates pressure to raise taxes now and in the future. Higher taxes reduce incentives for productive activities such as working, saving, investing, and starting businesses. Higher taxes also increase incentives to engage in unproductive activities such as tax avoidance.

3. Much federal spending is wasteful and many federal programs are mismanaged. Cost overruns, fraud and abuse, and other bureaucratic failures are endemic in many agencies. It’s true that failures also occur in the private sector, but they are weeded out by competition, bankruptcy, and other market forces. We need to similarly weed out government failures.

4. Federal programs often benefit special interest groups while harming the broader interests of the general public. How is that possible in a democracy? The answer is that logrolling or horse-trading in Congress allows programs to be enacted even though they are only favored by minorities of legislators and voters. One solution is to impose a legal or constitutional cap on the overall federal budget to force politicians to make spending trade-offs.

5. Many federal programs cause active damage to society, in addition to the damage caused by the higher taxes needed to fund them. Programs usually distort markets and they sometimes cause social and environmental damage. Some examples are housing subsidies that helped to cause the financial crises, welfare programs that have created dependency, and farm subsidies that have harmed the environment.

6. The expansion of the federal government in recent decades runs counter to the American tradition of federalism. Federal functions should be “few and defined” in James Madison’s words, with most government activities left to the states. The explosion in federal aid to the states since the 1960s has strangled diversity and innovation in state governments because aid has been accompanied by a mass of one-size-fits-all regulations.

For more, see DownsizingGovernment.org.

 

[Jed]

If New Zeland can do this, so can we:

http://chasingapplepie.blogspot.com/2010/02/getting-our-fiscal-house-back-in-order.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ChasingApplePie+%28Chasing+Apple+Pie%29

In taking this approach New Zealand must have broken a lot of 'Rice Bowls' in their Federal Public Service. I do not think the elected parliamentarians of Canada with its current highly partisan political party makeup have the courage to take on various governmental service organizations mainly based in Ottawa. The city of Ottawa would resist this approach to the last man standing.

I believe this would be true for any of our provincial civil service organizations and the corresponding provincial capital city as well.
To make this happen, government would require the power and authority of a Dictatorship.


A great theory but how do you implement it?

 

[a_majoor]

If New Zeland can do this, so can we:

http://chasingapplepie.blogspot.com/2010/02/getting-our-fiscal-house-back-in-order.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ChasingApplePie+%28Chasing+Apple+Pie%29

In taking this approach New Zealand must have broken a lot of 'Rice Bowls' in their Federal Public Service. I do not think the elected parliamentarians of Canada with its current highly partisan political party makeup have the courage to take on various governmental service organizations mainly based in Ottawa. The city of Ottawa would resist this approach to the last man standing.

I believe this would be true for any of our provincial civil service organizations and the corresponding provincial capital city as well.
To make this happen, government would require the power and authority of a Dictatorship.


A great theory but how do you implement it?

There is no doubt at all that civil servants will fight to the last taxpayer, and it will take a very committed government to implement such a plan.

A few factoids might help the government make it's case though. The average civil servant makes 17% more than the equivalent taxpayer in the private sector, and 80% of civil servants have pensions, compared to 23% of taxpayers working in the private sector.

Once enough voters have grasped the implications of that, the government might find the voting public will be much more supportive of such ideas.

 

[Rifleman62]

And the civil servants will point to the MP's salary and pension which is very rich.

http://www.benefitscanada.com/content/legacy/Content/2000/10-00/sweetdeal.html

Jean Chretien brought forward legislation, revising how MP's were compensated. Their tax free living benefits where rolled into salary, with a corresponding amount to represent income tax etc. Salary's went up considerably (40% ??). Best five years went up, up, up.