I bought Google in its early days because I had figured out the business model. Google was a ubiquitous newspaper, with a gargantuan circulation, that would make billions by selling ads around its content.

Facebook’s hype never made sense.

At US$100-billion its price/earnings ratio was nearly 70 times’ compared with Google’s 19.44, Apple’s 12.74 or average big high-tech of 22 times.

But something else has always bothered me.

Facebook has boasted that one-seventh of humanity uses it, or 900 million active users. If true, that would be enough to lure every advertiser on the planet to put ads around its content.

My question has always been what’s “active” and are these figures audited?

Here’s what I found.

I opened a Facebook page under my name in 2005 as an experiment. I canceled it a couple of years later. I opened it again at the urging of a colleague. I never used it more than a handful of times a year.

Last year, I canceled my email at Google after it was hacked into. I didn’t want the hacker to have access to my contacts or information. Then I reopened it again a few weeks later with minimal information and no photograph attached.

Again, I rarely used it or even looked at it.

After the IPO this week I decided to make sure the hacker hadn’t gotten in. To do this, I looked up my name and saw hundreds of people from all over the world with the same name. But I also found 33 Francis listings, without a photo, that were mine with the same name and locale. So I clicked on the links and sent a message to my Facebook page to see if this was a duplication of my page. It was. My messages were sent to me by me.

My question is how did this happen and how commonplace is this? Are there other active users like me who are not active and counted 33 times more than they should be? How are the 900 million counted and curated?

So I contacted Facebook six days ago by email. No response, which is par for the course when it comes to these tech companies.

This may just be a one-off in my case, but it’s not the only question raised by this week’s events.

Morgan Stanley and Facebook priced this IPO at an unjustifiable p/e ratio, compared to other tech companies even after two red flags were raised.

There was an earnings warning during the road show. And a comment by one of the world’s biggest advertisers, General Motors, that they were not going to use Facebook because the price for ads was high and the results minimal.

Despite that, Morgan Stanley pushed the new issue from 337 million shares to 421 million shares and jumped the price range from US$28 or US$35 to US$38.

The fallout is disastrous and will hurt all the parties involved.

Critics have been blunt. Former General Electric honcho Jack Welch tweeted yesterday: “MS [Morgan Stanley] put out too much stock and pricing was piggish…they are to blame for the Facebook debacle.”

Others blame the company itself and NASDAQ for its 30-minute trading glitch on the first day of trading that drove many away from buying the stock or, theoretically, making it go higher.

But there’s plenty of blame to go around, including those brokers and investors who greedily ignored red flags and crazy p/e ratios or the fact that nobody really understands the business model’s durability in light of MySpace and other flameouts in the social space.

At least, I have been able to figure out Facebook, its business model and whether I’m going to invest in it.

I won’t be buying Facebook any year soon, if ever.

The backdrop to both situations, and likely more to come, is the Great Markdown, or the irreversible decline in living standards in developed countries due to mismanagement by democracies, debts, demographics and the success of emerging economies.

The second and third mortgages on the world’s “rich” nations means tax hikes and spending cuts in varying degrees. The protesting students and the Greeks are deadbeats, willing to go to any lengths to get out from under their share of the burden.

Obviously, the degree of discomfort is wildly variant. The Greeks are going to fall behind the Romanians in living standards in short order while the Quebec students are making a fuss over a pittance.

That makes the students, in a sense, even more irresponsible. They are protesting over inconsequential amounts that few will directly shoulder and that will, even after increases, remain the lowest fees in Canada. They are spoiled brats, fronted by kids who actually believe their “tuition crisis” is noble. Premier Charest is correct in shutting them down.

The Greeks are also spoiled brats. They have elected for years leaders who are all show and no substance, who believe in the free lunch from Germany or whoever else pays for their benefits and who are prepared to go to the wall for their “noble” causes.

But the party called Greece is over and the messy Greek election result has led credible Europeans, such as the editorial board of news magazine Der Spiegel and EU officials in Brussels, to discuss and quantify the cost of Greece’s exit from the eurozone. The consensus is this is inevitable and desirable.

The European Commission and the European Central Bank are working on scenarios in case Greece leaves the eurozone, EU trade commissioner Karel De Gucht told newspapers. “A year and a half ago there maybe was a risk of a domino effect. But today … a Greek exit does not mean the end of the euro, as some claim.”

In fact, an exit by Greece will enhance the future success of the eurozone by lifting the cloud, the Germans say. “It would also make the eurozone more attractive to new members, such as Poland, with its strong economy. Foreign Minister Radoslaw Sikorski has already signalled Warsaw’s desire to join the eurozone,” wrote Der Spiegel.

Another benefit is that the burden of helping the Greeks will shift to the 27 member European Union from the 17-member eurozone. An EU fund exists to help struggling nations, such as Latvia dipped into, and Greece will do the same if it leaves.

The election will be a referendum on the euro, but if Greeks continue the run on their banks there will be no choice but to exit. Greek banks have lost up to 30% of their deposits since the trouble began in 2010 and estimates are that wealthy Greeks have transferred hundreds of billions of euros to German banks.

As deposits are withdrawn, banks cannot borrow to compensate except from the European Central Bank.They have already received $127-billion this way in exchange for collateral but there’s no collateral left. The ECB cannot do much more because it is on the hook for Italy and Spain. So the total loss if it leaves is $127-billion to the other 16 Eurozone members.

If Greeks vote the same way in the new election next month, the new regime will have to shut its borders and banks to prevent euros or assets from leaving; print drachmas and establish an exchange rate from euros to drachmas. Anyone owing large sums in euros will be forced to declare bankruptcy and the country may need martial law.

The IMF estimates a decline in economic output of more than 10% for the first year after the return of the drachma. But after that, the IMF says, the Greek economy will grow faster than it would without the devaluation. “The turbulence could last one or two years,” it said.

Agriculture and tourism will lead the economy but imports from other European countries will crater, along with those from the U.S. or China, harming their economies too.

Patience has run out with the dysfunctional Greeks and the departure of Athens will help the long-term health of the euro and Europe. As one German politician pointed out: “Greece has already received more money than was paid out under the Marshall Plan. The Greeks must treat the measures as an opportunity, or else they don’t stand a chance.”

Q. In light of this week’s elections in Europe, what do you think will happen to the euro?
A. It’s very difficult to see how it’s going to be held together. [In the late 1990s] they were trying to replicate the U.S. economy, which worked and had a single currency. There was an understanding that cultural differences were important, but markets believed that when all the European countries came together, it would work.

If you looked at the lira 10-year note, two or three years before beginning the eurozone, it was selling at 5% above the deutschemark bund. And as time became ever closer to the initiation of Jan. 1, 1999, when the euro locked in, that 500 basis-point spread had fallen to 20 basis points. In short, the markets presumed the Italians would behave like Germans. In reality, they did not.

That problem is pulling apart Europe. When you can no longer devalue [to reflect true productivity or lack of it] then what tends to happen is a country has to get the funding for its non-competitive costs somewhere else. We find throughout this period Northern European eurozone countries [and markets] are funding southern European countries. Until [government] deficits come down, there is no way of solving this problem.

Q. So what is the possible outcome?
A. At the moment, northern Europe finances southern Europe. There is tax evasion and illegal commerce in Greece, Italy, Portugal, Spain. The European Central Bank is printing money to finance all the shortfalls in fiscal deficits of southern Europe. This has to stop at some point and when it stops, you are going to have a major confrontation of the euro and all countries will have to make a fundamental choice. The only resolution is political union of the eurozone countries.

Q. Germany is the big winner with the eurozone due to the lowered value of the euro. What will happen if it is dismantled?
A. That’s the reason why Angela Merkel has been pushing so hard for the euro to be sustained. There are two aspects with respect to Germany. Obviously, if there is a return to the deutschemark, there will be a significant capital gain and Germany will be able to pay off all its liabilities both public and private in deutschemarks, which would be value at a 10% to 15% premium over the euro. But the downside [to dismantling the eurozone] is Germany’s strength, relative to the rest of Europe, finds Germany with a currency which is undervalued and [this enabled it to] become one of the great exporters of the world.

Q. What’s your prognosis for the U.S.?
A. Today we see two economies: One set of assets we produced which has a life expectancy of less than 20 years and that part of the economy is not all that bad and consumption is doing reasonably well. All the loss is in long-term assets [real estate]. This is the problem and has caused the shortfall of construction, which is 8% of GDP. Cut that in half that’s [a loss of] 4% of GDP and [addition of] 4% in the unemployment rate.
[Business] is not investing in these long-term structures and corporate cash flow invested in long-term assets is at the lowest level since 1935. It’s an extraordinary suppression. The result is a build-up in cash balances, repaying of debt and seeking out investments. Until we can change that lack of confidence, I cannot see how the recovery will get back to normal.

Q. What happens if there’s another budget deficit and default crisis over raising the debt ceiling?
A. No we’re not going to see that. The fiscal cliff we call it. Politics in the U.S. won’t allow that to happen. But the difficulty is what will they do about it …We do not have a Plan B: What will we do if all of a sudden interest rates start to rise? That’s what happened in 1979 unexpectedly. They went up 4% and crushed the economy at the time. We are taking very significant risks here. The obvious solution is the Bowles Simpson bill, an extraordinarily clever deficit-reduction vehicle. Something like that will pass eventually because it is the only vehicle that can pass and actually do the job.

Q. Are we going to see a rise in protectionism?
A. I actually expected much more protectionism to occur four years ago than actually materialized, and I was delighted to see I was mistaken.

Q. What causes you to lose sleep at night?
A. What could go very wrong if the euro busts up.

Q. You mentioned in 2008 at a Congressional hearing that you had placed too much faith into self-correction on the part of markets, so do you think the new regulations will protect the public?
A. It’s doubtful. I was on the J.P. Morgan board where we were acutely aware of maintaining our credit rating and how important that was. I thought all banks thought that way and they would be the best protectors, but I was mistaken. A number of banks allowed significant contraction of capital and indeed, towards the end Bear Stearns had 3% capital, unheard of in a banking system. I’ve had to change my view and you cannot count on bankers to protect their own equity. This is why I’m strongly supportive of higher regulated capital requirements now.

Q. Are Dodd Frank and other new regulations going to work?
A. I don’t think they’re working. Dodd Frank is much too complex, a couple of thousand pages. It looks as though the SEC continues to fend off all efforts to put additional rules in place. This would be readily resolvable by a very short bill. You could put it in 10 pages. Outline capital requirements and how one handles collateral. We’ll go in that direction eventually, but will struggle to get there.

dfrancis@nationalpost.com

There are three times more condo high-rises being built in Toronto than in New York City and seven times’ more than in Chicago. This boom is not the market at work, but is manipulation by “hot money” from abroad.

“I have come across something that I find astonishing, and which amounts to systemic tax fraud by investors, mostly foreign, on a massive scale,” wrote an investor involved in the industry.

He explained how it works:

1. Foreigners sign an agreement of purchase for a condo unit, or for 50 at a time, and put down a 5% deposit. This buys a right to buy the unit in future at a fixed price. In financial markets, this is known as a derivative.

2. Many developers include in the agreement of purchase the right to “assign” this right to buy at a fixed price. In financial markets, this is called creating a futures market. This assignment of a right to buy at a fixed price turns buyers into speculators (unless they want to move in or rent out the unit) who are set up to flip the units for a profit as prices are pushed upwards.

3. Some developers, and intermediaries, are in the business of helping speculators flip their rights and pocket a fee for doing so. For instance, Mr. X from Asia pays $15,000 for the right to buy a $300,000 condo, then, when the price of similar units rise to $400,000, he can assign the right, get his deposit back and make the $100,000 difference. There is a frenzy of this speculation going on which makes prices escalate so rights can be bought and resold over and over again before a building is completed.

4. The paperwork for these agreements is kept in-house and my source said one intermediary told him that there are no T-5s issued to the speculator or to the Canada Revenue Agency, something that stock and futures market intermediaries must do so that taxes can be paid on the $100,000 trading profits. Instead, the profits vanish, possibly along with the paperwork, and taxes paid will be by the end user if they buy, rent out the unit and make a capital gain down the road.

“[Condo] brokers tell me I can flip my assignment and pay no tax and there is no paper trail. They say we do it all day long,” said the investor who asked to remain anonymous.

Under CRA rules, foreigners making Canadian-sourced income are fully taxable by the federal and provincial governments. In Ontario or BC, the total tax bill would be 46% or $46,000 in tax for $100,000 profit.

The unpaid taxes could be staggering, said a real estate agent. In Toronto, 20,000 condo units have been sold each year for the past five years. Let’s assume one-quarter were sold to foreign speculators who flipped the assignment and made $100,000 profit without paying taxes. Their Canadian-sourced income would total $500 million a year, and they would owe 46% of that in taxes or $230 million.

Most condo developers may not be involved in this game, but a few – notably developers with Asian and Middle East owners or backers and buildings located in downtown areas – certainly are.

So this is what must happen. As I argued last week, Ottawa must forbid the purchase by foreigners of any residences in Canada as Australia did in 2010 after foreign speculation and tax evasion damaged its housing market.

The Canada Revenue Agency should send in auditors to the lawyers and intermediaries and developers who have the lists of those who signed agreements of purchase. If they did not close on those deals, and the deals sold for more money than the agreements, then auditors must work backwards and assess income taxes.

The Ontario and other securities commissions should get involved because what is happening, if these reports hold true, is that an unregulated financial futures market is being created using and abusing Canadian residential properties as vehicles. Likewise, the federal and provincial government tax collectors should get involved.

If speculators who owe taxes are long gone – many of them are offshore funds that buy out entire buildings then sell units abroad – then the intermediaries and developers should pay the taxes.

This frenzy is forcing prices upwards. Meanwhile, condos in the suburbs often take months to sell because buyers want them as homes, not as convenient money machines to flip.

The investor who described the tax shenanigans took his information to several politicians and called the CRA hotline, but got nowhere. Tax officials said they needed specific names and addresses to investigate, but this is beyond a simple case. This requires a task force to look into this.

A realtor said ordinary foreigners are buying from “funds” that are bundling units in Toronto and promising huge returns.

“Foreigners have been lured into so-called investment products, property units, with promises of high yields,” wrote this real estate professional. “They are often small investors who go to property seminars overseas. Many of these buildings do not allow Canadians to buy these units, obviously because of the tax implications.”

The Australians were victims of the same shenanigans and shut it down and now Canada must too.

Canadians hand as much money toward education as any country, as a percentage of GDP, but we continue to have high youth unemployment and the need to import skilled workers.

This is about misallocation of education dollars. Ontario, for instance, allocates billions to providing full-day kindergarten and neglects to encourage and expand skills training or apprenticeships at the secondary level. Quebec’s educators are more concerned about what language students learn than about teaching skills needed across the country.

Canada’s universities race to recruit foreign students, but the public benefit is not served because these students occupy places and use tax dollars intended for Canadian students. Worse yet, they usually go home, or to the U.S., without contributing a dime in taxes to Canada. (Foreign students pay higher tuition than Canadian students do, which benefits the institution, but this doesn’t cover all costs and taxpayers subsidize the rest.)

There is also an over-emphasis on university degrees (including useless ones). Kids are stuck with huge student loans because they can take anything they wish including degrees that don’t lead to jobs. The result is that university graduates fill some community colleges, nearly 50% in Toronto, to learn employable skills.

Frankly, I believe that all kids should learn a skill first then go to university, not the other way around, unless they are going to pursue a sought-after degree.

Looking around the world, Germany has the best education system. Half of its secondary school students are streamed into trade or technology courses that prepare them to be hired right out of school. On the job, they are paid to learn more until they become full-fledged masters.

The result of this structured, disciplined educational system is that Germany exports as much as China, without paying slave-wages. This also avoids social problems. Among the world’s biggest economies, Germany has the lowest youth unemployment by far, at 7.7%. France’s is 25%, Spain’s 35%, the US 18%. Austria, Switzerland and Denmark also have low youth unemployment because of the same apprenticeship system.

In Canada, youth unemployment is officially 12.6%, or one out of eight. But in some parts of the country – notably Toronto, Vancouver and Montreal – it is 18%.

Meanwhile, Alberta and Saskatchewan and mining regions are begging for welders, laborers, engineer-technologists, machinery operators and many other skilled tradesmen.

The mismatch — inappropriately educated kids in big cities and jobs that only foreigners can fill — is not simply the fault of a lousy immigration system, but also of the educational system.

Provinces should copy the German dual education system. Apprentices spend up to 70% of their time on the job and the rest in formal education for five to seven years after leaving formal school. These schemes also apply to professionals, such as certain types of engineers.

Community colleges try to fill this niche in Canada, but more emphasis, and money should be given to their efforts. The federal government provides grants, not repayable loans, toward apprenticeship training, but this should be dramatically expanded. The government must continue to break down interprovincial barriers for workers so that credentials are recognized by all jurisdictions and workers can fill jobs. The need is great and hundreds of thousands of skilled workers will be needed in the next few years.

Here is how the money is allocated now:

In 2009, more than 270,000 apprentices were registered in the so-called Red Seal trades, mostly construction tradesmen. This number represented 81% of all apprentices registered in Canada so the total number of apprentices was 321,300 that year.

There are 900,000 students enrolled in community colleges in Canada learning more practical skills.

But there are 1.2 million students enrolled in universities in Canada.

Of this, 90,000 full-time and 13,000 part-time foreign students were enrolled in Canadian universities in 2010. This represents one in 12 students at the undergraduate level and one in five at the graduate level.

At the same time, Canada granted 150,000 visas to specialized workers last year despite high unemployment, and high immigration, in its major cities.

Frankly, it does not require a university degree to realize what’s wrong here and what should happen in Canada.

Governments must allocate money to institutions that provide the skilled workers and professionals the economy requires and less money to foreign students and to anyone earning any degree that is not in demand in the workplace.

Educators can no longer be allowed to run the system to meet their needs, and the nation’s schools should be run strictly for the benefit of the public and the economy.

As a critic of our immigration policy for two decades, author of a book about all the boondoggles and an immigrant myself, I know what’s gone wrong and how necessary reforms are.

All that’s required is a return to the joint Manpower and Immigration Department system.

The way it worked for decades was this: Manpower would monitor the labour market like a hawk, survey employers and provide immigration officials with a list of what type of people and skills were needed and where. Points were adjusted based on employability.

Every year, the flow of people fluctuated according to supply and demand. Some years, a total of 60,000 people were allowed in and some years 150,000. This guaranteed that immigrants found work because they were screened properly to insure their success.

Then in 1986 the Mulroney government opened up the floodgates.

Since then, Canada has allowed in 250,000 immigrants annually, mostly relatives who could not qualify to get in otherwise, irrespective of economic conditions. That’s a total of 6.25 million people in little more than one generation. Many have been a net cost to the nation because they lacked education, language or the skills to thrive in a sophisticated and specialized economy.

The biggest drain is family reunification on our healthcare. For many years, Ottawa allowed in as many as 60,000 parents and 20,000 grandparents annually, creating a huge financial burden on our health systems.

Reunification should be possible, but only if relatives support their family members and buy private-sector healthcare. This is the case in Australia and in the U.S.

The other catastrophe has been a “refugee” system that allowed in up to 30,000 economic queue-jumpers each year who mostly arrive by plane from developed nations. Once here they are showered with social services and take up slots that real refugees deserve.

By far the biggest scams involve the “entrepreneur” or “investor” immigration programs. My first brush with this was in the 1990s when a Toronto businessmen tipped me off that he was “selling” his business for $1-million to a foreigner, then buying it back simultaneously. This allowed the foreigner to put down on his immigration application that he had invested in a business with 20 employees in Canada. (Technically, the foreigner had, if only for a split second.) The Canadian was paid $50,000 per transaction and did dozens in a matter of weeks.

I wrote the story back then and some changes were made. But various incarnations of this trick have continued, including the “purchase” of some relative’s business or counting the purchase of a condo as though it was an act of entrepreneurship.

I’m pleased that Minister Jason Kenney is starting to travel down the right track. But here are the elements of a smart immigration policy:

1. An efficient Manpower Department should be created, in partnership with the private sector, to survey and receive employment requests then pass these along to Immigration officials in real time.

2. Proficiency in English or French must be established by test. Only people with jobs or skills in high demand should be interviewed and only healthy people with some capital to fall back on.

3. Successful applicants should get temporary work permits for two years after which time they can apply to become landed immigrants. They cannot stay if they break the law or have not kept a job and paid income taxes.

4. These entrants for two years must buy private-sector health care insurance, along with accompanying family members, until they are accepted as landed immigrants. They should also pay tuition for using the public education system if they bring children.

5. Canadian residents can sponsor relatives that do not qualify to get a work permit, but must support them and must buy them private-sector health care insurance.

6. Refugees should only be those persons recruited from camps through bona fide humanitarian assistance organizations.

7. Children born in Canada to visitors or temporary work permit holders should not be entitled to Canadian citizenship.

8. To eliminate job offer fraud by relatives or accomplices, workers allowed in on permits must regularly prove to authorities they are earning the income and paying the income taxes they were offered. If not, they must leave.

9. The “investor-immigrant” system should be scrapped. A smart points system is enough to find winners. As the “investor-immigrant” system currently exists, someone can come in with a wad of capital, do nothing with it except buy a condo or existing business and merrily bring in relatives to milk the country’s health, education and pension systems.

10. The notion of a “start up” immigration fast-track is ridiculous. No one, venture capitalists or least of all immigration officials, know whether someone is worth betting on and will succeed or become the next Stephen Jobs. Sensible immigration policy is not about venture capitalism but about matching newcomers, as well-capitalized as possible, to jobs so they can get a foothold and create wealth in Canada.

This development boom, and accompanying price increases, is not about housing to meet a sudden surge in population. It is not about an economic boom. If it was, Calgary and Edmonton would have 128 cranes, like Toronto does, building housing and pushing up all prices. Instead, this is taking place in Toronto and Vancouver where economies are moribund.

Conventional wisdom is that this is the market at work. This is not the market at work. This is manipulation of a government system of open-ended mortgage insurance that is poorly supervised. What is going on here is a deluge of hot money from abroad that is creating an artificial and potentially dangerous real estate bubble. This mania happened in several other countries — where it was shut down — and has spread to Canada. Officials here have been urging restraint but that is not the solution. A ban on foreign buying of residences is the only solution.

This is what is happening. For example, a modest bungalow in Toronto sold last month for $1,180,800, $400,000 more than the asking price of $759,000. Canadian bidders were furious and deserved to be. The winning bid was made by a university student whose parents have a business in the United States but who live in China. I don’t know if there was a mortgage involved, but student housing — even for foreign students — is now liberally insured by CMHC, in other words, by the Canadian taxpayer.

This artificially corrupts the housing sector, presents a great risk to taxpayers in future and inflates housing in the afflicted areas to unaffordable, unnecessary levels for Canadian buyers.

Such a transaction would be illegal in Australia or China, Thailand or Switzerland. Australia was a victim of a similar frenzy until 2010 when a ban was imposed. Here are the Aussie restrictions, itemized in a policy, issued by the Treasurer of Australia, that Canada should adopt immediately:

• Any temporary resident of Australia — a person with a work permit — can buy a new or used unit but cannot rent any of it to others and must sell when their residency ends. Temporary residents are banned from buying any investment properties;

• Non-resident foreigners are banned from buying homes or investment properties. The only exception is if a foreign entity doing business in Australia wants to buy housing for its Australian staff.

The hot money has also been kicked out of China, Hong Kong and Thailand where it swarmed around the condo market, pushing prices to unacceptable levels. Then it hit Vancouver and most recently Toronto with a vengeance, and is also beginning to nibble away in Calgary. Entire buildings are being marketed to foreigners from Asia, the Middle East and Latin America. Some groups are buying 50 to 100 units at a time.

But the latest loophole, offered by Canadian taxpayers without their permission, involves student housing that is being encouraged by CMHC. In 2010, the CMHC changed its rules to insure mortgages on residential properties that will be used for student housing, foreign or domestic. For only 15% down a unit bought near a university, or hundreds of them at a time, and rented to students will be insured by taxpayers.

The dangers signs are everywhere. Figures show that Canada’s vulnerability to mortgage defaults has soared beyond U.S. levels at the time of the sub-prime frenzy. In December, the International Monetary Fund warned Ottawa and urged it to review CMHC’s governance and oversight, and assess whether the agency needs to do more to protect itself against housing market risks.

Finance Minister Jim Flaherty, who has acted to try to cool the market three times since 2008, has cautioned families to be careful about taking on debts they won’t be able to afford when interest rates rise. But this is not about the market or about Canadians, but about unacceptable foreign buying pressure.

In China and Hong Kong, foreigners are banned and locals restricted to one mortgaged unit and a second one only if they pay cash for it. The Swiss have a quota for foreign purchases and allow one unit as a second residence for their exclusive use. European countries often charge foreigners twice the property taxes they charge locals. In Thailand, foreigners cannot buy land but can buy condos, but only up to 49% per building. The United States does not restrict foreign housing, but keeps track and mortgages are difficult to get.

Canada’s Office of the Superintendent of Financial Institutions (OSFI) itemized the dangers in a report obtained recently by Bloomberg News through an Access to Information request. The OSFI documents said foreign buyers were pushing up housing costs and lenders were becoming “increasingly liberal” with mortgages that don’t require borrowers to verify income.

This will result in a catastrophe. If Canada does not stop foreign buying, or temporary resident buying, Canadian taxpayers and homeowners will pay an enormous, and potentially disastrous, price.

Andrew Barr/National Post

It’s also an indication that the private sector does not get it. The pipeline will only be built if Albertans, British Columbians and B.C. First Nations make a deal.

This must be an Alberta-B.C. negotiation. This is not about the federal government or regulators. And there’s no room for foreigners or those financed by them such as Greenpeace, the Sierra Club or groups that are fronts from rival oil producers in Venezuela, Saudi Arabia or Russia. It’s apparent to me that some opaque “environmental groups” don’t disclose their donors or real agendas and have targeted Canada’s oil sands. I have written about ending foreign intervention in the regulatory process and foreigners are being excluded. This is not about what companies and their foreign customers want to do. Here is the playbook for a deal:
1. A pipeline through B.C.’s pristine territory must be built and operated with a minimum of environmental impact. The pipeline should be buried, have sensors all along and lands post-construction should be returned to their original state. This pipeline should be leak proof. If such safeguards add $5 or more to the cost of a barrel, then so be it.

2. British Columbians must share in the profits from this Alberta oil in the form of a “transmission royalty.” In electricity transmission, these are called “wheeling” fees or money paid to jurisdictions for the inconvenience, disruption and potential dangers inherent in running powers lines through their territory.

3. The First Nations’ situation is a mess in B.C., thanks to the provincial and federal governments. This won’t be sorted out for decades, so generous First Nations’ royalties, equivalent to similar settlements, should be placed in trust for eventual distribution to valid claimants. In addition, First Nations should have the right of first refusal on all jobs and supplier contracts involving these schemes.

4. The Canadian coast guard must supervise all foreign ships picking up or delivering oil in Canadian waters or ports and foreign ships must meet strict safety and integrity standards. The spectre of crews from developing nations in rusty vessels taking huge amounts of oil along British Columbia’s coast and channel is frightening and unacceptable. The costs of supervision and inspection must be paid for by the sellers/ buyers of the oil. This would consist of full-time inspectors to make sure everything, and everyone, is ship-shape. This is simply a prudent requirement that will, hopefully, insure that there will never be a Valdez event.

5. The oil port operations must also be supervised, at customer expense not taxpayer expense, to prevent dockside or loading spills like the one in China two years ago that released huge amounts of oil in a large port.

6. Railway transport of oil sands to the coast must be optimized with the same constraints: Government onboard inspectors must be there at all times to eliminate risk-taking, incompetence or unsafe practices. Rail port and shipping must be Canadian owned, operated and strictly regulated by government officials at customer expense.

Making British Columbians partners with Albertans in the oil sands will prevent interest groups or political aspirants from holding projects hostage. It’s also the correct way to proceed. But there is no guarantee of success.

The oil sector may take a hard line and not share their profits. So may Alberta. The feds may try to force the project. This will simply help the New Democrats win the B.C. election and turn the issue into political theatre that will last for years.

Unless the two provinces get their acts together, the best bet is to push oil sands production by rail and through existing pipelines to the U.S. Then in the fall, the U.S. election will be held and either way, the Keystone XL pipeline will be approved along an altered route. President Barack Obama postponed it because of politics. Two years before, he approved a bigger oil sands line than Keystone to the U.S. Midwest.

But the pipeline through British Columbia won’t happen until there is a dramatic shift in attitude. Albertans must show respect and pay royalties to the people of British Columbia in return for the environmental risk and access they are being asked to give.

The days when decisions about building infrastructure of strategic importance could be left up to the private sector, or imposed by a government, are long gone in democracies like this one.

It was shocking that Enbridge Inc.’s Pat Daniel said his company was willing to allow a Chinese company to buy a stake in and to bid for the construction of the proposed Northern Gateway oil sands pipeline.

Not only should Chinese companies be banned from construction or bidding but Investment Canada should ban them from buying resource companies or related assets.

China’s strategy is to buy resources around the world, then low-ball to get construction contracts by using Chinese laborers and materials. This is not only damaging to the domestic economy, and unnecessary, but in some cases laws and obligations have been flouted.

Just for the record, my husband heads Canada’s largest infrastructure and construction public company in Canada.

In 2007, Sinopec Shanghai Engineering Company brought in 132 Chinese workers to an Alberta oil sands site to assemble their storage tanks and do other work. Two workers were killed and several injured. The remaining Chinese workforce was moved out of Alberta and work stopped.

The Alberta government charged Sinopec, its subsidiary and their oil sands client with 53 safety charges. Sinopec and its branch plant have refused to appear in court. They say they have not been served papers because they are in China where they cannot be served papers to appear in court. Instead of acceding to Canadian law, they have not appeared.

In November, an Alberta Court of Appeal ruled the company must stand trial on these serious charges. In February, Sinopec said it wants the Supreme Court of Canada to overturn this ruling because it should be exempt.

The 132 Chinese workers were not paid an estimated $3.17 million by their Chinese employer even though they worked four months before the accident. Alberta employment standards spokesman Barrie Harrison said that the prime contractor, the Canadian oil sands project client, put the $3.17 million in wages and benefits in trust even though it had no obligation to do so.

In an interview last year, Harrison said: “We are still trying to determine the best, most secure method of returning these funds to the workers, who are now either back in China or working at other sites around the world. We’ve had nothing new to report on this file for quite some time.”

The Canadian embassy in Beijing has been involved in trying to right this wrong, at taxpayer expense.

This outrageous behavior by China and its companies should be reason enough to ban Chinese companies from bidding on construction work or having workforces in Canada. After all, a major corporation has no respect for the rule of law here; has damaged Chinese workers; damaged its Canadian client; cost the taxpayers of Alberta a great deal of money to try and clean up the mess and prosecute wrongdoing and has cost the taxpayers of Canada, Canada’s immigration department and Canada’s justice system as well.

This behavior is not unique to Canada.

Shoddy work and broken promises have occurred elsewhere. In Angola, in July 2010, more than 150 patients had to be evacuated from a new Chinese-built hospital in Luanda, after its walls began cracking and bricks began disintegrating. China Overseas Engineering Group Co. (COVEC) built the hospital for $8 million. Reports began to come out in the local media that many roads, schools, hospitals and other infrastructure completed by the Chinese were sub-standard or unsafe and promises to employ Angolans were not kept.

Another example was reported in 2010. The Chinese were finally able to penetrate the European Union when COVEC won a bid to build a major highway in Poland by bidding less than half the price of domestic contractors. This caused consternation across the EU because of Chinese tactics around the world. The pattern is well worn: Chinese firms low ball to beat out local competition then bring in substandard materials and workers from China.

The Poles were committed to tender bidding for the contracts, and were stuck with accepting COVEC’s basement bid but were wise to the tactics. So they stipulated that the company could not import Chinese materials, supplies or labour.

But COVEC reportedly flouted this requirement and started to bring in Chinese workers anyway, claiming that Polish workers were not cooperative and would not take pay cuts.

Then they began sourcing supplies from China, claiming Polish suppliers refused to match Chinese prices.

In June 2011, COVEC stopped work. Poland sued COVEC for $271 million in damages for breach of contract. And the country has had to spend huge amounts to complete the highway in time for the 2012 European Football Championships in Poland this summer. COVEC told China Daily it was asking for compensation.

For these reasons and more, Canada must ban any bidding or work permits to Chinese workforces. They simply are not acceptable. They are also not the only buyers for oil sands production. A pipeline can deliver oil to the west coast and then to Asian and South American markets by sea.

That is because there are two distinct Americas and this year’s Presidential run-up and Republican primary underscores its “bi-cultural” political architecture. Regions matter and it’s surprising that the talk shows, pundits and news coverage rarely examine this. Once understood, the strategies are to comprehend, or dismiss, as the case may be.

Between 1992 and 2008, or five Presidential elections, the same 21 states, and the District of Columbia, have overwhelmingly voted Democrat and are “blue” states; and the same 22 states have voted Republican and are “red” states. So elections are won by wooing as many of the swing, or “purple” states as possible. This election cycle there are 12 “swings” identified or traditionally “purple” and others that are too close to call.

That’s what the President is focused on. The Republicans, by contrast, must campaign in primaries in every state including the 22 jurisdictions that are Democratic. This is why the pressure is on for straggling Republicans to drop out soon. The party wants to use its money and time to target the 12 states. But faced with having to continue, the Republicans posture as though their primary victories, even in Democratic states, are somehow steps closer to the White House.

A case in point this week when Mitt Romney made a victory speech in Illinois after he won the Republican primary there.

“Thanks, you guys,” he said. “So many great friends in this room and across Illinois. What a night. Thank you, Illinois. What a night. Wow… And this movement began on a small farm in New Hampshire on a sunny June day.”

He was talking to his Republican workers but in general election terms that’s silly. Illinois, for instance, has never voted for a Republican Presidential candidate since 1992 and neither has New Hampshire.

In 1992, Illinois voted 48.5% for the Democrat (Perot split the Republican vote); in 1996 54% Democrat; in 2000, 55%; in 2004, 55% and in 2008, 62%.

In New Hampshire in 1992 the Democrats won with 38.9% (Perot split the vote); in 1996, 49%; in 2000, 47%; in 2004, 50% and in 2008, 54%.

Likewise, Romney has also “won” meaningless primaries in other Democratic strongholds such as Michigan, Washington, Massachusetts, Vermont and Hawaii. These wins may rack up delegate votes in the Republican convention, but won’t translate into election votes in November. The Democrats could run a donkey in these states for President and still win.

Similarly, it’s meaningless for Gingrich to point to his victories in South Carolina or Georgia as indications of his electability. This is because the Republicans always win there.

So while the Republicans labor away at a pretend march to Washington, President Barack Obama concentrates on key states, or issues, to win re-election. This week’s energy tour underscored his strategy. It began in Nevada (“purple” and Democratic last time) where the country’s biggest solar farm is operating. Next was New Mexico (“purple” and Democratic last time) where he appeared at an oil field where new drilling activity has created jobs on federally owned land. Then on to Oklahoma (a bedrock “red” or Republican state) in order to undermine Republican criticism of him for postponing the oil sands pipeline by announcing approval of one leg of that line. It was a hint that it will be built and that is good news for Canada’s oil sands and shale oil in Saskatchewan.

Finally, he went to Ohio (“purple” and Democratic last time) to visit one of the country’s advanced energy research centers at Ohio State.

So political junkies in the U.S. and Canada should concentrate only on activities and polling in these 12 states. This week, a pollster called Purple Strategies, polled in 12 states where the vote could go either way. These are Colorado, Nevada, Ohio, Florida, New Mexico, Iowa, Minnesota, Wisconsin, New Hampshire, Pennsylvania, North Carolina and Virginia.

Results showed the President with enormous leads against Romney and Santorum in these 12 states. Obama has 48% versus Romney’s 40% and Obama has 50% versus Santorum’s 39%.

This poll is significant because this was also a week when high gasoline prices were a hot button issue and are often blamed on the incumbent. But counteracting that, was a contraceptive controversy that gave Democrats a 10% gender gap benefit nationally with females.

So once it gets really rolling, the two protagonists and their vice presidential sidekicks will be whistle stopping in 12 battlegrounds where the next President will be elected. The rest of us, including Americans in the other 37 jurisdictions, will simply be spectators.

The question of national interest is what Investment Canada must evaluate if foreigners win the bid for Viterra or any Canadian company.

But the question is easily answered. Losing any sizeable head office to a foreigner is never in the national interest.

And legislation to that effect should be passed immediately.

To use a military metaphor, Canada is at war with the world for living standards. Its head offices are its beachheads, and strategic institutes. Its CEOs are its generals and are answerable, and often helpful policy-wise, to governments. They are responsible for making their operations profitable but they must also uphold Canada’s laws.

But if head offices are moved to another jurisdiction, the loyalty, and respect for laws, moves with them. Foreign CEOs, or generals, can move Canadian operations, patents, research, employees and tax expenditures around the world to suit their purpose and to suit the purpose of the jurisdiction in which they operate.

They have no allegiance. They usually offer only low or middle-management jobs. They support no ballet companies, clinics for kids, theatre troupes, work support programs for disabled Canadians, hospital wings for the cities in which they operate. They do not confer at think tanks or with politicians to improve their knowledge of the world of business.

Put another way, allowing a large head office to be acquired allows foreigners to acquire pieces of the country’s upside, its living standards, reputation, opportunity, tax base, intellectual property and networks. This is like selling the family jewels.

Those who would defend unfettered buyouts argue that restrictions are contrary to market rules and efficiencies. Others may argue that restrictions are unfair considering that Canadian corporations go all over the place snapping up other countries’ head offices.

But markets are not an entity with a vote or a soul. They do not operate in a vacuum and operate in a context at the pleasure of the jurisdiction they occupy. The context in this case is Canada where too many head offices have been allowed to disappear and no branch plants have ever grown into a world-beating head office.

The logical extension of the efficiency is the race to the bottom with no controls over labor standards, taxation, environmental practice and so on.

As for the argument that Canada cannot prohibit head office buyouts when its corporations are doing the same, I would counter that this is totally irrelevant. Countries do what they must do. Besides, good luck to those Canadian companies who can snap up valuable head offices in countries too foolish to realize what they are allowing. Believe me, many countries have restrictions and more will as time goes on.

I opposed the foreign buyout of Potash Corporation and the Toronto Stock Exchange because both were strategic assets that were irreplaceable. The Potash situation was even more unacceptable because the company was licensee to some of the world’s greatest underlying resources in Saskatchewan.

Fortunately, the stock exchange deal was withdrawn, due to criticism, and Potash’s takeover was nixed because Saskatchewan’s Premier Brad Wall opposed it. He is not opposing the buyout of Viterra, formerly the Saskatchewan Wheat Pool, because it does not involve strategic resources.

I think he’s great, but I beg to differ.

Faced with another big beachhead that may disappear into foreign hands, Ottawa should stop playing Boy Scout to the world’s corporate predators. No resource company in this country, over $330 million in assets or value, should be sold to foreigners. And a moratorium should be imposed on all buyouts, in any industry, until this government and the people of Canada fully understand the implications of losing big head offices.

I have also argued that Investment Canada, in light of the U.S. Steel and Vale fiascos where promises made were flouted, should have sufficient power to require foreigners to post enormous performance bonds. This is so that if they reneg, the Canadian taxpayers do not suffer.

If you want to see how “branch plants” behave one need only look at the case of worker deaths in Alberta and charges laid against a subsidiary of Chinese giant Sinopec Shanghai Engineering Company Ltd. named SSEC Canada Ltd. That company has refused to appear in court concerning dozens of workplace safety charges. Even so, Sinopec Engineering was allowed a couple of years later to buy a huge stake in Syncrude and part of the oil sands pipeline project to the Pacific Coast.

In spite of such goings on, the federal government has left in place an ad hoc approach to this “national interest” issue.

Thus we have Viterra and a vacuum. What will Ottawa do when Chinese companies make a bid for Suncor, Teck, Canadian National, Air Canada, Research in Motion or any one of Canada’s great corporations.

What has to be understood is that other countries don’t allow this and too many have gone already. The hollowed-out operations of the former Alcan in Montreal and others are reminders of this country’s irreversible policy mistakes.

Their grassroots movement overturned the rigged election of Viktor Yanukovych. Yushchenko became President and appointed Tymoshenko to be Prime Minister. Hopes lifted throughout the country, and elsewhere that Ukraine would overthrow their Soviet-style autocrats.

But today the country lurches toward bankruptcy and toward becoming a Russian vassal again. Six million have fled and the IMF has cut off credit.

Tymoshenko occupies a jail cell in a penal colony, 300 miles east of Kiev, after being sentenced for seven years on trumped up charges. Polling shows that she is Ukraine’s most popular politician.

Yushchenko, booed wherever he appears these days, occupies a Presidential palace he designed for himself, paid for by taxpayers, even though he was thrown out as President in 2010.

And Yanukovych, whose 2004 election was overturned, won in 2010 after the Orange Revolution’s heroes destroyed one another politically. He and his insiders live like Playboys in a country riven by poverty and corruption.

Those of us who followed events there wonder what happened to Eastern Europe’s Arab Spring and to the magical couple who risked everything and inspired a nation of 45 million people and the world.

These and other questions were debated and discussed at a conference this week in Ottawa, sponsored by the Ukrainian Canadian Congress. Experts appeared before a Parliamentary committee and before a series of influential plenary sessions to discuss issues around the theme “Ukraine at the Crossroads”.

Ukraine and Canada are enmeshed. The largest Ukrainian diaspora lives here, an estimated 1.5 million, and Canada was the first western nation to recognize Ukraine’s independence in 1991.

“Canada’s soft power is important in Ukraine and the country must work with the Poles and Americans and target the middle class,” said Danylo Bilak, a Canadian-Ukrainian lawyer who has lived in Kiev for 20 years.

That is what Oleh Rybachuk is doing. He worked for both the Orange Revolution’s leaders as Yushchenko’s campaign chair, Chief of Staff and Tymoshenko’s assistant. He is disgusted with them for their actions and devotes his time to developing grassroots organizations, NGOs, throughout the country to restart the Orange movement. He explained what happened.

“In August 2005, one year after the Orange Revolution, the two were fighting and I tried to broker a deal between them. Each agreed to fire three antagonistic people from their teams, hold a press conference the next day and promise not to oppose one other. It was a truce,” he said.

Tymoshenko reneged on the agreement and that night tried to muster support to remove Yushchenko. He found out and it has been war ever since between the two.

“I blame them both,” he said. “Politics is cold blooded, not a marriage. If you are seen together like they were they had no right to do this,” he said. “I resigned because the President and Prime Minister were behaving like teenagers. It was embarrassing to the country and they embarrassed Ukraine in front of NATO and the European Union which wanted to accept Ukraine in as members but needed to hear from one voice.”

In Ukraine, political terms last four years, with Presidential elections alternating every two years with Parliamentary runoffs. The next one is in October and the Ottawa conference attendees intend to muster international support and recruit thousands of observers to insure that the elections are fair. After the Orange Revolution, the Canadian government and Canadian-Ukrainian community sent more observers than any other nation.

But even fair elections won’t save the day. The concern is that the country’s opposition parties are so preoccupied fending off the government’s assault on human rights, activism and press freedoms that they have been unable to organize.

“In 20 years, how little has changed. Ukraine has had various shades of democrats as leaders and now we have crooks,” said Bilak. “We have the institutionalization of a kleptocratic government.”

The only hope, and one backed by U.S. Secretary of State Hillary Clinton, is to partner with civil society, young people and international organizations.

“It’s frustrating,” said Tom Melia, deputy assistant Secretary of State in Washington. “We talk to them [the Ukrainian government] all the time, but they’re not hearing us.”

What’s important is that Rybachuk, the Orange Revolution insider, and his colleagues are “optimistic”.

“People are not afraid. We now have 150 NGOs in all the major cities in our ‘clean up Parliament campaign’ to elect and find better parliamentarians,” he said. “People don’t watch the propaganda in the media. Facebook had 300,000 members a year ago and now has two million. The Orange Revolution was a miracle, a massive peaceful protest that worked. We want to do that again and we think we will.”

He upstaged Egypt’s Hosni Mubarak, currently starring in a courtroom drama; Iran’s Mahmoud Ahmadinejad in Iran’s nuclear thriller or Russia’s Vladimir Putin as Edward G. Robinson’s “Little Caesar.”

But President Barack Obama stole the spotlight with his debut as director of Osama bin Laden’s execution. His sequel, to air this fall, will be: “Osama’s dead, Detroit’s alive, vote Obama.”

This should attract big audiences, as opposed to the Republican primary contest, with its cast of middle-aged white guys who savage the President and each other. By November, all will be voted off the island due to their animus unless some miracle happens.

Besides, they are still scrapping for crumbs. These primaries are aimed at the 29% of Americans who are registered Republicans. To win the whole country, the winner must woo the 29%, then another 22% out of the pool of 38% who call themselves independents.

Canadians, who cannot vote, remain a captive audience, with much to gain or lose depending upon who wins the Presidency and Congress. Right now, the conventional wisdom is that Republicans are better for Canada than Democrats because of their pro-business stance. That assumption is flawed.

After all, the best movie with a business plot, was Detroit’s turnaround, thanks to supporting roles by Obama, Ottawa and Ontario.

But Republican hopeful Mitt Romney publicly opposed that bailout in 2009 and, by so doing, has revealed poor business judgment. He has tried to finesse his stand by saying that a “managed bankruptcy,” with private sector billions would have been a preferred way to go rather than one with government backing.

This is delusional. There were no players left standing or big enough. Banks were bust. The Auto Task Force found none willing to help.

Romney may camouflage this misstep by getting a victory among the small number of Republicans in Michigan. But he will never win the state in a general election nor will he do well in Auto Alley – six states with lots of auto jobs.

Romney’s auto stance even brought former Republican President George W. Bush into the fray this week when he thumped Romney in a speech. “I’d do it [support the Detroit bailout] again. Sometimes circumstances get in the way of philosophy,” he said.

Of greater importance to Canada than the auto industry, is access to U.S. markets for oil sands production. To some, Romney is the preferred winner. But it’s not that simple.

In November, Obama postponed the Keystone Pipeline XL. This was a major disappointment and setback for Canada, but the timing was horrible politically speaking. It must be remembered that in 2009, Obama approved the Alberta Clipper, a pipeline that can carry up to 800,000 barrels daily, more volume than Keystone.

The Clipper was a smarter project because the environmental footprint of the route was shorter and, to boot, it was destined for refineries in a Democratic stronghold, Chicago. Keystone traversed the Lower 48 and farmland to get to Texas refineries.

There’s little doubt that the Keystone project, or the equivalent amount of production, will be get into the U.S. no matter who wins the Presidency.

Oil will flow by rail over shorter distances, via existing pipelines and, eventually, by converting under-utilized natural gas lines to oil lines.

The United States knows it needs oil sands production to become self-sufficient. This compelling requirement is reinforced daily as the world’s volatile oil regions explode. The mass murder of Syrians and killing of two Western journalists this week have led to plans for another military intervention there by dozens of nations.

This is depressing news, but since no Oscar week would be complete without a Hollywood ending Greece happened to save the day and provide one. Its government promised to collect taxes, cut entitlements and submit to Euro oversight.

Markets liked it. Banks took their lumps then wrote down billions. The IMF and European Union were confident, and so was skeptical Germany that will pay most of the tab.

But Greece’s collapsing GDP and unrest signaled a different outcome may occur. At present, however, Eurozone members deserve to get the nod for the best screenplay adaptation, and Greek street protesters for best visual effects that helped frighten Europe into signing this deal.

But will they? Will Greece? Will Congress?

The reality is that politicians overspend because of the flaw in our political system. The flaw is not democracy, as some would argue. The flaw is representative democracy or a version of democracy based on the principle of electing individuals to represent the group. The alternative is direct democracy where the group votes on important issues and has the elected on a very short leash.

Direct democracy has surfaced occasionally in Canada and the United States in the form of referendums or voter recalls.

This is the only exit from the vicious cycle that has plagued public finances everywhere: Politicians buy our votes through over-spending and, most costly, garner support from a huge chunk of the electorate who belong to public sector unions. Once in power they can manufacture support by over hiring union workers.

Canada’s unionization of its public sector represents the country’s single biggest competitive disadvantage. Always has. And always will unless direct democracy is invoked.

Voters in every jurisdiction should vote every year on one simple, multiple-choice question: How much of a budget increase, if any, should the city/province/federal government be permitted next year? The choice should range from negative to positive. For example, the ballot choice would go as low as minus 5% but only as high as the rate of inflation. Emergency spending would also have to be approved.

This would impose discipline and actually make politicians’ lives easier, believe it or not.

A relative of mine, mayor of a small municipality in the U.S., was grateful for the zero-increase budget edict passed by his electorate, for two reasons. It forced his city’s managers to work backwards and justify every expenditure item. This is known as zero-based budgeting. And it enabled city council to respond to the endless demands for more services, public sector wages increases, business subsidies or tax cuts by saying “that’s a good idea but we can only give you what you want if you tell us what we can cut to do so.”

The onus was reversed and costs controlled.

This is one way to curb profligacy. Another way is to elect fiscally responsible politicians. But they are eventually replaced by a spendthrift regime eager to use up the improved credit rating they inherited. This is precisely what happened in Ontario after the Liberals replaced the Conservatives.

Representative democracy doesn’t work and budget limits are the only fix. So are tax and spending limits. Unfortunately, both measures require approval by the same spendthrifts who made them necessary.

So in the absence of introducing direct democracy into the budget process, little will change. The Drummond report stirred readers of the country’s business pages but elsewhere got scant attention. The usual cycle of punditry ensued ranging from the applause and shaming by conservatives to the usual Liberal, union and NDP claptrap.

Warren “Smokey” Thomas, president of the Ontario Public Service Employees Union, dismissed and demonized Drummond, a former bank economist who had been a high-ranking federal civil servant.

“Being a banker he has a natural hatred for unions,” Thomas sneered.

This was typical from public sector union leads who have been like kids in the fiscal candy store, helping themselves for years, especially when their politicians have been elected to sit behind the counter next to the cash register.

Here’s the extent of their spree, according to Drummond:

– Spending has outpaced economic and revenue growth dramatically since the Liberals were elected.

– Half the Ontario budget goes to one million public sector employees whose pension benefits, featherbedding and wages must be decreased.

– By 2018, Ontario’s debt will be higher than Ottawa’s or $411-billion.

I applaud Drummond and his commission for exposing the degree of mismanagement. But it also points out that any political party that panders to unions has a conflict of interest and cannot stop overspending.

This means, the only remedy will come from capital markets, as Greece has learned. Eventually, Ontario and Quebec (in even worse shape) will be downgraded until neither can borrow money at all. The party will end and the unemployed union workers will fill the streets.

The optics, notably concerning the oil sands, was the main aim of the high-level visit. And it worked.

The threat that Canada would divert energy to China, instead of to the United States led Mitt Romney to hoist approval of the Keystone XL pipeline to the top of his political agenda.

There is little doubt that a new version of the Keystone, with a different route or by train, will be approved even if President Obama wins a second term. The Keystone project was ill-conceived from beginning. The route was foolish; moreover, oil sands production should be upgraded in Canada or shipped by looping existing pipelines from north to south.

The timing made it impossible for any sitting president to approve, especially when to do so would alienate a large chunk of the base of his support. Any mega project should be broken down into bite-sized pieces, avoid election cycles and operate under all radars.

For instance, the equally gigantic Alberta Clipper pipeline now under construction – was approved in 2009 by President Obama to carry oil sands production through Wisconsin to Chicago refineries without a murmur.

This is the lesson of the oil sands controversies. Canadian corporations and governments must stop being naïve. Politics and geopolitics trumps everything including good will, free trade agreements, contracts, handshakes and trust.
Which brings me to China.

Canada cannot be naïve when it comes to Beijing either.

There is no way that Canada should embark on a special relationship with China and, fortunately, the Canadian delegation did not bite when Beijing indicated that China would welcome a “free trade deal” between the two countries.

A special bilateral arrangement with China would be exponentially more dangerous than relying on the U.S. Congress or U.S. politicians to do what makes economic and energy sense.

China will eat Canada, or any other country, for lunch.

The Prime Minister’s trip to China should be followed up with equally prominent visits to the other major Asia-Pacific nations where Canada is on the short end of lop-sided trade relationships. The most asymmetrical relationships involve Singapore, South Korea, Japan, Taiwan and Thailand as well as China.

Canada has a great deal of work to do in Asia: In the first nine months of 2011 Canadians exported $33.8-billion worth of goods to 16 Asia-Pacific nations and imported $64.8-billion in goods. A reversal of these figures must be a trade priority.

Here’s the playbook for the PM in that region:

• The Prime Minister should undertake similar high-level trade missions even in countries with long-established relationships but that import dramatically less from Canada than they could like Japan or South Korea.

• Canada must seek trade deals and arrangements that will facilitate the purchase of Canadian-made manufactured or value-added products instead of signing deals to buy more commodities that are already available to any buyer globally. This means deals for lumber, paper, furniture or building modules, not logs and pulp; building materials not raw materials and for cars, trucks, planes, trains, financial services and machinery.

• Canada must make it clear to Japan, South Korea, China and the rest that reciprocity is a priority: No investment or market access in their countries and none will be granted in Canada.

• Canada should firmly state that it seeks bilateral relationships that are fair: Those wherever value-added products to Canadians are equally offset by similar exports from Canada. For instance, Japan and South Korea tax and restrict car imports from North America through devious means that are unfair trade and contrary to the World Trade Organization rules. They should be put on notice, in concert with Americans, this must stop.

Finally, just as the China visit got America’s attention, so visits to all the Asia-Pacific countries would get Chinese attention. These countries must be played off against one another just as America must be played off against Asia.

Fortunately, the Prime Minister, who has blasted China for its human rights violations, gets it.

So do others. Canadians must be reminded about the scandal involving China’s Sinopec Shanghai Engineering. The company now wants the Supreme court of Canada to exclude it from appearing in a Canadian court to defend 53 charges of workplace violations against it, outstanding for three years, linked to the death of its own Chinese guests workers at an Alberta oil sands plant.

This illustrates that these countries, and their corporations, can be ruthless when it comes to their own interests. And Canada must be, too. This is about business, not friendship. This country must realize that it can and should leverage its resources to get value-added and manufacturing export business.

Pandas are one thing. Pandering is another.

Q Why is corruption, always around, become such a big issue?

A “Corruption kills. The World Bank estimates that the cost is $1.3 trillion a year, but who knows. This is in the form of bribes, tax evasion, money laundering. It’s lethal economically to nations and harms people such as diluting antibiotics or vaccines aimed at poor people so that the distributors can make more money on the side. There’s also shoddy construction as a result of bribes by contractors to building inspectors or the use of bad materials or supervision that has caused gigantic buildings, schools, hospitals and other structures to collapse, killing many.”

“What happens with corruption is that people know it exists. They live with it and look at the opulence of a minority in their country. They have no jobs, cannot get ahead and cannot get their governments to listen or help them. The issue simmers then it comes to a boil and the spark is information technology that delivers news in seconds facilitating the creation of a massive movement. These movements also happen when people have nothing to lose anymore.”

Q Why would things change?

A “Governments who ignore the pain and desperation lose the trust of their people and are left with anarchy. It’s better to prevent this by doing the right things. Governments, elected or not, are there to manage the peoples’ resources and money for the common good. Many of them want change but need help to do so.”

Q What’s bribery and what’s not?

A “Sometimes it’s obvious: A company or government employee asks or accepts a payment or favor that his employer does not know about or would not allow. This can be in the form of cash, travel, goods, services or a request to pay for a child’s education in return for a contract. That happens a fair amount and that’s a bribe.”

Q Transparency International helps in what way?

A “We do four things. First we do a number of surveys to keep the issue of corruption and transparency at the national and international levels. Second, we work very hard to create conventions – the OECD which covers bribery and the UN Conventional against Corruption that 159 countries have signed. These include a list of requirements that they must meet and they are peer reviewed to insure they meet the requirements. The OECD and UN publish these criteria and reviews. We also conduct peer reviews among businesses and civil society.” “Countries that are not corrupt are more sustainable in the long run and we provide them with instruments and systems. If peer reviews are negative, they try and change because otherwise they will become a pariah and be avoided by legitimate businesses.”

Q What are your other tools?

A “We have developed ways to collaborate with the private sector and the public sector which is what I call the solutions part. For instance, we worked with business leaders on integrity and formulated a definition that many organizations have adopted. We’ve also created the Water Network for Integrity. Water is where a lot of corruption takes place because people are often forced to pay bribes to get access to clean water. They cannot. “We also work with humanitarian organizations such as Care or Red Cross who deliver aid which is often stolen or resold by criminals or government officials. We have developed a source book and materials to train them how to avoid becoming complicit in such fraud. “We also have developed self assessment tools for the private sector to evaluate their vulnerabilities and train frontline people to deal with extortion and bribery issues.”

“Finally, we also get directly involved with citizens to get people to realize they don’t have to put up with corruption, what they can do about complaining and what they should demand. There is massive corruption at the local level and transparency and peer reviews are very useful. In Brazil, for instance, the national government publishes where every penny goes, what individuals, companies and other suppliers. This is very important.”

Q What measures can governments take?

A “Countries need to add to their economic crime capacity. If a nation’s judges, attorneys and police are not sophisticated a country won’t get to where it should be. Canada has started to do this with the RCMP. In Norway, they spent a great deal of money boosting their economic crime expertise and make a profit doing so. The apprehension and conviction of economic criminals leads to the seizure of assets and proceeds which can be sizable.”

Q Should companies avoid dirty countries?

A “If a company’s leadership wants to be clean they can operate in any country. They must simply go ahead, and not ask permission, to publish everyone they pay. They must be fully transparent and publish all their expenditures and to whom, their royalties and revenues and owners. This can help change the situation in a country. We are also doing a pilot project in South Africa shortly to help the mining industry which must operate all over the world, often in difficult political circumstances. This sector is unique and we have developed tools to help them operate ethically.”

Last year, Arab Spring was just getting into full swing so the despots and dictators from the Middle East who usually attend either stayed at home or stayed quiet.

This year, Davos copes with capitalism’s critics and concerns. To underscore this, CEOs recently polled on the biggest global risks did not cite terrorism or soaring commodity prices but responded that income inequality posed the most severe threat to economic stability.

“Occupy” movements are everywhere, and a U.S. poll showed only 50% react positively to the word “capitalism” while 40% of Americans react negatively.

The rich-poor divide is why a Barack Obama White House has boycotted this conference for its entire term, unlike Bill Clinton or George W. Bush, who sent their vicepresidents or came themselves. U.S. Treasury Secretary Timothy Geithner will attend but mostly to meet his financial and institutional counterparts such as IMF boss Christine Lagarde or the head of the European Central Bank.

Also missing will be the usual parade of high-profile leaders, eager to promote their economies and nation-states as great capitalist destinations.

The “headliner” will be German Chancellor Angela Merkel, and plans are that her speech will lead directly into a debate on stage on whether capitalism is failing society. Germany, like Canada, has sailed through the mess of the past few years mostly unscathed, as have Australia, Singapore, Switzerland, Turkey and the Asian economic miracles.

Other no-shows will be politicians who have been voted off their respective islands or who are about to be. Russia’s Vladimir Putin was touted to be the big headliner this year. But Russian voters, protesters and rivals have put a damper on that. If he comes, he will likely park his swagger at Zurich Airport.

The tone, therefore, will be stern, not triumphant. Few speeches about doing business in Bora Bora, or wherever, and more leaders coming up with ways the 1% can fix or replace free enterprise to spread the wealth to more of the 99%.

Of course, this is simply another fad. Until Wall Street and London brought the world to its knees, socalled “Anglo Saxon” capitalism was the favoured economic religion. Then 2008 happened.

The next year, the Europeans pilloried Wall Street and the City of London. They proffered that their gentler, kinder, traditional, glacial form of Euro capitalism provided a better alternative.

Then 2010 happened. They were exposed when the world found out they couldn’t run a pop stand either and were hoodwinked by some of their own members.

Now in 2012, China, and others with “planned or controlled economies,” will be strutting their stuff and tut-tutting the rich for being spendthrifts, too laissez faire economically and lazy.

Of course, they will slowly get their come-uppance because their system doesn’t work better in all respects. Remember 1989 and all those social, financial and environmental benefits that the communist command economies delivered.

This time it’s different, says China. Its new economic religion has been gussied up as a mixture of both: Capitalism with “Chinese characteristics.” Of course, the jury’s out on that one too, and labour unrest combined with corruption are sure to bring that system down around the heads of leaders again. In some ways, China is still a communist military dictatorship, but with rich politicians and their rich friends.

What’s fixed this anti-capitalist mood is the reality that free-enterprise cheerleaders – U.S. Republicans – have joined its critics. They have been pummelling their presidential candidate, front-runner Mitt Romney, for the “crimes” of being tax-efficient, risk-taking and wealthy.

He’s done nothing wrong legally, but morality is shifting and a growing consensus is that a guy worth US$200-million paying 15% income tax is unacceptable, even in the United States.

Hand-wringing is underway in The Wall Street Journal, on Fox TV, in the venerable Financial Times of London and other media outlets read and watched by the privileged 1%. These capitalistic apologists are becoming introspective and running criticism about capitalism’s failure to address income disparity and corporate skulduggery or CEO greed.

All of this will be 2012′s Davos milieu. Its panellists and speakers will be preoccupied with tweaking capitalism, resurrecting socialism or inventing some “responsible capitalism” hybrid.

Frankly, any system run by humans is doomed. As Winston Churchill put it: “The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery.”

In effect, there is already two currencies: the “Lutheran Euro,” characterized by Germany, the Netherlands and Finland. The label has nothing to do with religion but with countries that are based on Protestant work ethic, discipline and thrift.

Then there is the “Latin Euro,” characterized by France, Italy, Spain and Portugal where style is often more important than substance and hard work can be a curiosity.

The euro crisis is this: The “Lutherans” are balking at bailing out the “Latins” led by France who argue that this is the only option to avoid Currency Armageddon.

Frankly, that is not true. There are four choices:
1. Bailing out Southern Europe by issuing eurobonds, and having the European Central Bank buy all the crummy bonds. This is unacceptable to Germany, and markets, and is simply the sovereign version of sub-prime mortgage bundling with Triple A credits and relabeling toxic debts as good credit risks.

2. The creation of a fiscal union as well as a monetary union. This is the only solution to keep the Eurozone intact, but it means the Latins will have to take orders from the Lutherans. This can only happen if there is a complete meltdown.

3. Expelling members who default. This might shoot the Lutherans in the foot by leaving them responsible for the Euro-denominated debts of the countries who left. German officials examined this option despite the negative consequences.

4. The best solution, to cut loses, would for the Lutherans to secede from the eurozone. The Germans, Dutch and Finns would form a new currency zone. But to keep down the value of their currency for export purposes, they would likely allow other current or future eurozone members to join, who they could dictate terms to and trust, such as the Czechs, Poles, Slovakians, Slovenians, Estonians, Austrians and Luxembourgers. Eventually, the Swedes and British might join.

This would benefit remaining eurozone members by triggering a massive euro depreciation. This would make them more competitive, more viable and less indebted through a reduction in the real value of their sovereign debts.
For Americans, Canadians and the rest of the world, the best option would be for the euro to stay but only if Germany takes control and dictates new rules to eurozone membership.

The lack of central management was why Britain opted out, and Margaret Thatcher famously warned that without fiscal/political union, a monetary union was doomed.

At the time, the euro proponents balked. But one response back then, by European Commission Chief Romano Prodi, revealed the cynical intent of the exercise and forewarned about the inevitability of the current clash: “The euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible now. But some day there will be a crisis and new instruments will be created.”

In other words, brinkmanship was baked into the European Project Model. And maybe Prodi will be proven right. However, the new “economic policy instruments” are in dispute and time is running out for the dominant culture to subsume the less successful one or the Latins.

This week’s failed German bund sale began the nail biting in earnest and perhaps it was orchestrated to accelerate the endgame. Some German financial newspapers pointed out that the issue was simply underpriced given uncertainties. Perhaps that was intentional.

Whatever the explanation, the continent is quickly marching toward meltdown: The removal of three leaders; the Bund flop and downgrades of Belgium, Hungary and soon France. Bank credit is seizing up and markets are in disarray.

(By the way, it must be noted that the current structure of the eurozone was a win-win for a number of years: The membership and fiscal profligacy of the Latins dragged down the value of the Euro, which greatly enhanced German exports; while the membership of the Lutherans helped the Latins pay dramatically lower interest rates than they otherwise would have.)

So the euro will survive only if Germany and its allies get their way by imposing central control over the Latins. If not, there will eventually be two euros in order to honestly reflect the effort and value of these two disparate regions.

This decision, in essence, strands the oil sands indefinitely and shuts it out of the U.S. market for years, if not forever.

It’s being billed as a temporary setback, but it’s a major and devastating development.

The excuse is that a new route is going to be sought to avoid putting pipelines across the aquifer that straddles mid-America. The reality is that the environmental movement, not an aquifer, straddles the United States and cannot be circumvented. The Keystone, and Canada’s oil sands, has become the environmental movement’s line in the sand in a battle to shut down fossil fuel usage even though there are no alternative fuels for 20 or 30 more years.

These Keystone Cops have scored a victory that likely marks the beginning of a de facto pipeline moratorium south of the border. And this could cripple America’s economy and energy industries.

Keystone has received approvals over a number of years from dozens of environmental and other government agencies, been scrutinized more than other project and yet, in the end, has had its permit postponed on environmental grounds.

This postponement — a rejection by any other name — whets the appetite of a movement that not only opposes “dirty” oil from Canada, but also fiercely opposes the exploitation of shale gas, or deep natural gas, deposits. They are attacking shale gas even though it generates dramatically lower emissions equivalent to roughly one-quarter that generated by oil.

Already, a week ago the CEO of a major U.S. power utility issued a warning that the massive amounts of shale gas may remain shut because of the difficulty of getting permission to build pipelines linking the deposits to power plants or consumers. Now, post-Keystone, his warning represents a more frightening specter because a gas pipeline is even more unacceptable to environmentalists than an oil one.

The Interstate Natural Gas Association of America Foundation estimates companies will need to build 35,600 miles of big, high-pressure natural gas pipelines between 2011 and 2035 to meet market demands at a cost of $178 billion.

Good luck.

Of course, there are those who would argue that this is just a postponement and not a de facto moratorium on all pipelines. They argue that a Republican President will permit the pipeline.

That’s questionable. The biggest obstacle at the end was the legal challenge mounted by the Republican Governor of Nebraska who vowed to fight the pipeline to prevent it from traversing his state.

Others argue that once an acceptable route is found around the aquifer the pipeline will be built.

That’s also questionable. There’s not a governor anywhere that will want this high-profile pipeline routed through his or her state or will want to take on the trans-national, non-state players that power the environmental movement.

Frankly, Canada and Alberta have badly handled the public relations when it comes to Keystone and remediation could help the situation because the White House has opted in favor of its environmental wing at the expense of the organized labor one. Canada should guarantee that all the jobs that flow from the oil sands, inside and outside Canada, will be offered to Americans first if Canadians are unable to do the work. And last year, 150,000 visas were extended for that reason.

That, and only that, will up the political ante in Washington and should have been done from the outset. This is more important considering that Obama is likely to win another term due to the mediocre Republican field of candidates.

The other priority is to fast-track the proposed pipeline through British Columbia to the West coast to ship oil to Asian markets. The aboriginal claims must be settled financially and generously as quickly as possible before the trans-national non-state players in the environmental movement organize them and stop the pipeline.

That claims are still lingering represents another failure on the part of governments in Canada.

At the same time, the oil sands production must be refined in Canada in order to back out of the importation of crude oil in Eastern Canada. This involves resurrection of the flow rates to Montreal and beyond in order to get bitumen or partially refined oil sands production across the country.

Clearly, shipping oil to the U.S. from the West and importing in the East was an efficient, market-driven energy policy, but the greens and the President of the United States have made that unacceptable for Canada.