FP Comment

Peter Foster: The chiefs have no clothes

NP Editor — Fri, 03 Jul 2009 00:52:00 GMT

Disrobing the Aboriginal Industry is a great book on Canada’s flawed aboriginal politics, marred only by a flurry of anti-capitalist rhetoric

By Peter Foster

any Canada Day celebrations this year were marked by performances of traditional aboriginal drumming and dancing. Such displays — while an undeniable part of Canada’s heritage — increasingly invoke uneasiness. That’s because the state of aboriginal people in Canada is a national disgrace.

UNICEF recently “celebrated” the 20th anniversary of the Convention on the Rights of the Child with the release of a report on aboriginal children’s health. To nobody’s surprise, it was considerably worse than that of the average Canadian child. The report’s authors call for more “culturally appropriate health and social services.” But if you’re sick, do you want the latest medical science, or something “culturally appropriate?”

Anybody who seeks the “root causes” of aboriginal plight — and of the role of notions such as “cultural appropriateness” — should read Disrobing the Aboriginal Industry. The Deception Behind Indigenous Cultural Preservation, by Frances Widdowson and Albert Howard.

The “industry” in question consists of a large and ever-growing group of lawyers, bureaucrats, consultants and academics whose careers depend on the “Great Game” of land claims and self-government, which are sold as the cure for aboriginal poverty and dependency. But land claims, the authors point out, represent the ignis fatuus of a lottery win, while self-governance is synonymous with a system that entrenches status and kinship ties, and sacrifices victims of abuse.

The book slaughters a herd of sacred cows, including the validity of “traditional knowledge” and native “justice,” and the notion that aboriginals have some special “spiritual” ecological sensitivity.

Claims to sovereignty are bogus because pre-contact aboriginals had no written laws or specialized governments. The suggestion that the U.S. Constitution was inspired by the Iroquois Confederacy is a crock. Chief Seattle’s noble words were entirely manufactured. “Culturally appropriate” native medicine is dangerous quackery. “Holism” equals charlatanism. Ethnobotany is BS. The wisdom of elders is primitive ignorance. “Preserving” primitive languages means restricting the ability to think.

The authors note that criticism of lousy policies that support dysfunctional lifestyles is inevitably screamed down — as this book has been — as “racism” or “cultural genocide,” but suggest that this is primarily because their end would mean a stop to legal and consulting fees, and the huge network of sinecures run for, and by, a nepotistic system of chiefs and councils who have been thoroughly co-opted.

The book derides postmodernism, cultural relativism and Orwellian “Pomospeak,” noting that aboriginal policy is marked by obfuscation and denial. For example, the most comprehensive study of aboriginal health does not even mention Fetal Alcohol Syndrome, whose incidence is horrendously high among native children. (I searched the UNICEF site for FAS. I got no hits there either.)

Instead of acknowledging that traditional native culture is relatively primitive, since it is based on a stone age hunter-gatherer lifestyle, fictions are perpetrated that it is somehow “different but equal” to modern technological society, or even superior because it contains much that we have allegedly “lost.”

Romanticizing natives and increasing funding is felt to be a compensation for mistreatment, but in fact make things worse. “Aboriginal problems,” note the authors, “stem from the fact that they are poorly educated and culturally deprived, not because they lack money.”

The book — which I literally could not put down — contains an excellent historical background to current policy, good accounts of the origins of such notions as the “Noble Savage” and an explanation of how anthropology came to be corrupted by activism. But then come the weird bits: a bunch of ill-fitting Marxism, and references to the theories of Trotsky!

The authors are right that aboriginals cannot be brought into the 21st century merely by abandoning collectivism and tribalism and installing property rights. But their own “solution” is, if anything, as misguided as, and even more dangerous than, that of the aboriginal industry, since it recommends “socializing ownership so that goods and services are produced not to obtain profits but to satisfy human need.” All to the tune of “Imagine.” I’m not making this up.

The authors romanticize unions every bit as much as the “industry” romanticizes native tradition. Meanwhile they have the gall to suggest that government handouts to corrupt chieftains represent “neotribal capitalism,” even as they acknowledge that the aboriginal industry is chock-a-block with rent seekers, bureaucrats and leftist academics. Providing support for these shysters and frauds might indeed be an aspect of an “advanced capitalist system,” but it certainly is in no way its essence.

This otherwise excellent book concludes in a flurry of anti-capitalist and even anti-Zionist (!) rhetoric. Example: “While grain is stockpiled in industrial countries people in the Third World starve.” Huh? The world’s problems are allegedly due to “the conflict that exists between the few who own the means of production and those who are the producers of all value.”

Where are we? Manchester circa 1845?

Still, it is apparently “by eliminating this fundamental ‘difference’ that we can become a global tribe and the ‘world can live as one.’ ”

Pass the culturally appropriate emetic: I want to throw up!

Ignoring John, Yoko and Karl, however, the book’s valuable bottom line — sans Marxist jargon — is that claims of “cultural genocide” are misguided. Disrobing the Aboriginal Industry makes a powerful case that the aboriginal culture must die so that aboriginal people may live. Then ruins it by throwing in The Communist Manifesto.

Green concrete

NP Editor — Fri, 03 Jul 2009 00:48:00 GMT

A secret to low-carbon, sustainable construction lies in the more than 2,000-year-old roof of Rome’s Pantheon

By John A. Bickley

he Institution of Civil Engineers, founded in 1828, is the oldest such institution in the world. It defines civil engineering as “The Use of the Forces in Nature for the Benefit of Mankind.” I like that, and I am proud to be a civil engineer. My area of expertise is concrete, and I would like to address two main and seemingly incongruous themes: sustainability and green concrete.

The most famous poster child for both categories is the Pantheon in Rome. Insofar as sustainability is concerned, the concrete dome has lasted over 2,000 years and is, I understand, still the largest un-reinforced concrete dome in the world. Recently, for special infrastructure projects in Canada, service life criteria have, for instance, been revised upwards by structural engineers to 100 years for the concrete tunnel segments of the Shepherd subway line in Toronto, and 120 years for nuclear reactors. In both cases these criteria represent design lives significantly longer than normally specified.

The CN tower was designed to resist, among other things, the 1,000-year wind [a wind speed that is likely to occur just once in a millennium] and the impact of a Boeing 747. During inspections of the outside that I made from a swing stage some years ago I obtained and tested samples of the then 17-year-old concrete. Based on these tests I estimated that the time to the start of corrosion of the reinforcement will be about 1,000 years, so I guess we do make some very sustainable structures.

So what is the secret of the longevity of the concrete in the dome of the Pantheon compared to the comparatively short lives we expect from our buildings? Primarily the concrete was not exposed to the environmental hazards that afflict concrete in Canada. It also contained no metal reinforcement. But of interest to me is that it was made with materials similar in characteristics to some that we are now using to enhance the durability and reduce the carbon dioxide (CO2) emissions created in the manufacture of concrete.

One of the ingredients in the Pantheon concrete was volcanic ash. This was a waste material that we would classify as a pozzolanic material, a material that, when combined with Portland cement, enhances the cementitious properties of concrete. Today, fly ash and silica fume together with slag, which also has hydraulic properties, are the main waste materials used to replace cement in concrete. Doing so reduces the amount of CO2 produced per cubic yard of concrete. The other major benefit is that these materials also improve most of the durability characteristics of concrete. These materials are termed “supplementary cementing materials” (SCMs) in Canadian Standards.

Architects designing buildings for Leadership in Energy and Environmental Design certification (LEED) will sometimes use the thermal mass of concrete in a positive manner in their design of sustainable buildings. From a materials engineer’s perspective, the sustainability of concrete can be improved in two ways. First, a significant increase in the service life of a structure by the use of a more durable concrete reduces the carbon footprint in proportion to the increase in service life. In a current project in California designated as 2 X Green, producing concrete with twice the service life of that usually specified reduces the carbon footprint by 50%.

Secondly, the replacement of cement by SCMs reduces the quantity of CO2-per-unit-volume of concrete approximately in the percentage of those materials used. Since achieving a longer service life often involves the use of these SCMs, such concretes are sustainable for both reasons. One of the directions of current research at this university is to increase the durability and hence the life span of the concrete we use.

In a lecture I gave in California in 2008, I pointed out that from 2005 to 2025, cement production in California would produce 260 million tonnes of carbon dioxide. If only 10% of this cement was replaced by fly ash, 26 million tonnes of carbon dioxide would be saved. In many applications, much higher cement replacements are possible. Sometimes the use of these materials reduces the cost of concrete but the real benefits are CO2 reduction and a longer service life for our infrastructure.

Traditional concrete specifications have been prescriptive, limiting what materials and methods could be used. But today, a sea change in specification philosophy is taking place, away from prescriptive to performance specifications. Next generation specifications are based on the principal of specifying the performance required of the concrete, but not the means to achieve it.

Long experience in the field in many countries has convinced me of the great importance of competent construction specifications. Many problems arise from the use of inadequate specifications often reflecting the failure of some engineers to keep up-to-date with developing technology. In addition, engineering supervision is not always adequate in scope or determined in application. Ultimately the production of durable and economic concrete depends, to start with, on appropriate specifications.

With this new approach to specifications, engineers, contractors and concrete suppliers will be free to use their experience and expertise in making more durable concretes. They can go the Pantheon route, using concretes that will result in significant reductions in carbon footprints for new and longer-lasting structures.

Financial Post
John Bickley, former partner and manager of the consulting engineering company Trow Inc. in Toronto, was head of its Concrete Technology Services for 21 years. The CN Tower is one of the many large construction projects that he has contributed to. This is excerpted from his recent address on receiving an honourary degree at Faculty of Engineering, Architecture and Science Convocation, Ryerson University, Toronto.

Illustration: Still standing after all these years: a 17th-century painting of the Pantheon by Giovanni Paolo Panini.

U.S. climate bill threatens Canada

NP Editor — Fri, 03 Jul 2009 00:40:00 GMT

New U.S. carbon legislation poses serious risks for Canadian trade and investment

By Peter Clark

he American Clean Energy and Security Act (ACESA) staggered out of the U.S. House of Representatives last Friday in a tight 219-212 vote. ACESA has been denounced as nearly 1,200 pages of ill conceived, inadequately considered, misguided meddling and overreaching state intervention. Opponents have labelled it the “Economic Suicide Act” and suggested that it is a declaration of war on the U.S. economy.

ACESA’s goals may be sold as noble, but its scope is so broad, the rule-making so complex and extensive, all based on vague standards, that it needed careful consideration and analysis, not midnight deals and wholesale amendments to buy the necessary votes.

The Waxman-Markey Bill (H.R. 2454) — named after its Democrat co-sponsors, Rep. Henry Waxman of California and Rep. Ed Markey of Massachusetts — aims to reduce greenhouse-gas emissions by 17% from 2005 levels by 2020 and by 83% by 2050. The Obama administration claims ACESA will create millions of new “green” jobs and reduce the United States’ reliance on foreign oil, all at minimal cost to U.S. voters.

This legislation poses serious risks for Canadian trade and investment. Ottawa cannot afford to have a less stringent regulatory system than the United States; it could lead to sanctions which would chill trade and investment. But adopting ACESA standards would cause fuel and energy costs — critical to all agricultural industries including export-dependent Canadian farmers and ranchers — to increase substantially. U.S. gasoline prices are expected to increase by US77¢ a gallon and other energy prices will mount as well.

The Canadian government has adopted a wait-and-see attitude toward what Congress legislates — with few signals to provinces, industry or Canadians about ways to reflect our interests. But Canada cannot escape the implications of this sweeping initiative, a bizarre mix of George Orwell and Lewis Carroll.

The bill that emerges from the Senate, where interests can differ from those of the House, may be modified. But President Barack Obama is already lobbying the Senate — no doubt to keep the majority in line with administration objectives. U.S. farmers, ranchers and manufacturers will have different views, while green technology giants like General Electric Co. and 3M Corp. will be pressing for the incentives to their interests in Waxman-Markey.

If Canada does not have a system at least as stringent as that in the United States, ACESA envisages tariffs on imports to equalize and offset differences. This was one of the middle-of-the-night changes made to secure enough votes to pass the bill. President Obama wants ACESA to be consistent with the United States’ international obligations. However, a recent World Trade Organization-United Nations Environment Programme (UNEP) report suggests that the WTO thinking is shifting, and such eco-tariffs may be WTO-consistent. Canadians should recall the President’s assurances on Buy American — that its application would be consistent with U.S. trade obligations — when we learned that U.S. states and municipalities had no international trade obligations.

The Canadian government has so far been content to monitor developments and willing, if not anxious, to harmonize. H.R. 2454 has serious implications for all Canadians. Everything from food production to energy production has a “carbon footprint.” ACESA includes 397 new regulations and 1,090 mandates, which will impose horrendous burdens on a still fragile economy, not to mention creating an army of inspectors and regulators.

Will Canada need to do the same to satisfy the United States that our regulatory and control systems are equally stringent? And will Canada have the leverage to impose matching border measures to prevent “leakage” of economic activity and investment to countries with less stringent regulation?

These wide-ranging regulations, standards and performance criteria, based on vague new green standards, will shape virtually every aspect of life in North America. Waxman-Markey even establishes standards for light bulbs, air conditioners and other appliances’ eligibility for “energy-efficient mortgages,” the size and shape of outdoor electrical plugs in nursing homes and non-carcinogenic standards for building materials.

ACESA appears to create advantages for Canada for producers of clean and renewable energy — and for exports of same. But there are lingering concerns about what the U.S. initiatives mean for the oil sands. And how will nuclear power (not a big favourite for the Democrats) fare against wind and solar?

Can Canada afford to adjust its regulatory systems to conform to this inadequately considered, horse-traded legislation, which has been railroaded through Congress? Do we really have a choice, or must we accept a made-in-Washington carbon-emission regulatory system? We must examine the ACESA in detail to better deal with its implications for Canada. Ottawa urgently needs to engage Canadian stakeholders in an open and active consultation process. The time for “wait and see and harmonize” has passed.

Financial Post
Peter Clark is an international trade consultant and president of Grey, Clark, Shih & Associates Ltd. in Ottawa.

Terence Corcoran: Harper’s Ridley terminators

NP Editor — Tue, 30 Jun 2009 02:20:00 GMT

By backing Big Coal, Ottawa reinforces the idea that there’s a free lunch for big business

By Terence Corcoran

core a victory for Big Coal interests in British Columbia and Alberta, but keep an eye out for the interests of taxpayers. After a year of backroom lobbying and some unseemly political power gambits, a handful of coal companies, mostly controlled by far-flung multinationals, succeeded last Friday in getting Minister of State for Transport Rob Merrifield and the federal Cabinet to fire Daniel Veniez as chairman of Ridley Terminals Inc. (RTI), a bulk commodity shipment facility in Prince Rupert, B.C.
It’s not a big deal in the grand scheme of corporate Canada, but it does look like Mr. Veniez is the victim of what is emerging as part of the corporate culture in Ottawa. If big business interests want a free lunch, burgers, fries and cash are being served up daily in Ottawa. The list keeps getting longer. Last week, the Canadian forest industry received $1-billion in subsidies to participate in a trade war with U.S. forest firms over the use of a certain kind of diesel fuel.
In Mr. Veniez’s case, he appears to have been “terminated immediately” for having the good sense to operate Ridley Terminals, a government-owned coal transfer station, on a commercial basis and not as a taxpayer-subsidized giveaway to the Canadian coal industry. Indeed, as Mr. Veniez tells it, he was hired by the Harper government to operate Ridley on commercial standards.
If Mr. Veniez failed to fulfill his commercial duties as chairman of Ridley, there’s not much in the public record to demonstrate that failure. What is emerging for all to see is a heavy-duty lobbying campaign by hired guns of the coal industry to discredit Mr. Veniez. Leading the campaign was Global Public Affairs (GPA), a lobby outfit based in Ottawa.
As we noted here earlier this month, GPA has been active on behalf of an outfit called Ridley Terminal Users Group, essentially a cabal of the Alberta-B.C. coal industry — Husky Energy, Suncor Energy, Tech Coal and Coal Valley Resources. But it turns out GPA has a lot of hot coal clients, including the Northern Coal Coalition, International Commodities Export Corporation and Peace River Coal Inc. Among other activities, GPA staff have been meeting with Mr. Merrifield and other cabinet ministers on the Ridley issue.
It proved to be a successful lobbying effort for GPA. Mr. Merrifield, in a letter last Friday, passed on the news to Mr. Veniez that he had been terminated “effective immediately” by Order in Council. How many Crown corporation chairmen have been terminated by Order in Council, for no public reason? Not many, and it does not bode well for taxpayers and public policy.
Mr. Merrifield, in addition to receiving GPA lobby staff, also happens to be MP for the Alberta riding where the province’s coal industry is located. Another Tory cabinet minister, House Leader Jay Hill, is MP for a B.C. riding that is home to coal interests.
An exchange of letters between Mr. Veniez and Mr. Merrifield, distributed by Mr. Veniez, shows a minister playing coy hardball with Mr. Veniez over issues and substance. Mr. Merrifield is all issues and no substance, preferring to stick to his conclusions and paying no attention to Mr. Veniez’s substance-filled responses.
There’s no room here to review all the background, but it seems clear that Ridley Terminals (annual revenue: $25-million) is a valuable asset for which the coal industry does not pay full freight on the coal it ships out of Canada. One of the companies, Peace River Coal, whose largest shareholder is global giant Anglo-American Coal, withheld payment on $2.5-million in fees. By not paying its fees, Peace River triggered a loss of operating funds at Ridley, which had to turn to Treasury Board for cash.
Mr. Veniez also says — in a letter to Mr. Merrifield shortly before he was canned — that he has received “unsolicited expressions of interest from world-class terminal operators who wish to invest in RTI’s potential.” He names The Jim Pattison Group and Kinder Morgan as having sent in “detailed written proposals.” One, from KRT Terminals, included an offer of $131-million conditional on due diligence and agreeable terms with the Prince Rupert Port Authority. “We believe that if a well-managed process were to occur, more interested and serious parties would emerge and the government would have an enhanced basket of alternatives from which to create value for the taxpayer and secure RTI’s future.”
The question becomes whether Ridley is to be a commercial operation or a subsidy — built in 1982 at a cost of $550-million — for coal shippers. To cover its expenses today, Ridley needs about $10-million a year in new money and faces deficits. “These deficits can be overcome by customers paying the reasonable and fair rates proposed by RTI,” Mr. Veniez told the Transport Minister. Ridley’s proposed prices “are in line with new port costs in Maputo, Gladstone and South Africa. If the government wishes to provide them with a direct subsidy, our Board would have, of course, complied with that directive. It was, as you know, never part of our mandate.”
Mr. Merrifield showed no interest in such discussions. Then he fired Mr. Veniez. We’ll see what happens next in the battle for control of Ridley Terminals.

Forgotten passage

NP Editor — Tue, 30 Jun 2009 02:03:00 GMT

The St. Lawrence Seaway was one of the world’s greatest engineering feats. Why don’t Canadians care?

By Daniel Macfarlane

ast week marked the 50th anniversary of one of the greatest engineering achievements of the 20th century and one of the greatest engineering feats in Canadian history. Yet the achievement passed with scarcely a mention although it was, at the time, the world’s largest construction project. On June 26, 1959, the St. Lawrence Seaway was officially opened.

The Seaway story is remarkable in a number of respects. It took over a half-century for Canada and the United States to agree to the project. That the Seaway isn’t a celebrated part of Canada’s history is particularly strange when we consider the leading role the St. Lawrence has played in the historical development of Canada and in grand narratives of Canadian history — one need only think of Donald Creighton’s Laurentian thesis or Harold Innis’s classic “staples” exposition of Canadian history.

The Seaway proper is the 181.5 mile stretch of the St. Lawrence from Montreal to Lake Erie consisting of extensive navigation and hydro-power works. Prior to the 20th century, both Canada and the United States had made a number of improvements to the waterways of the Great Lakes-St. Lawrence basin. As early as 1895, but especially after 1918, the development of the navigation and hydroelectric power of the St. Lawrence water system was considered in both Canada and the United States.

In the post-First World War era, the two countries took turns playing the suitor in terms of proposing a St. Lawrence accord. Vested interests in both countries opposed to the Seaway prevented either nation from simultaneously committing to a waterway. After a number of failed attempts to reach an agreement a treaty was concluded in 1932. However, it failed to receive ratification in the U.S. Senate and a deep waterway remained only a grand vision.

Nevertheless, negotiations continued after the failed ratification of the 1932 treaty and an executive agreement on the Seaway was completed in 1941. But concerns that it would not be completed in time to make a tangible contribution to the war effort effectively prevented the St. Lawrence project from receiving Congressional approval in the United States.

The prospective waterway remained stalled in the immediate post-war years. In 1949, Canada began to consider unilaterally constructing navigation works exclusively on the northern shore of the St. Lawrence. By the early 1950s, the St. Laurent government had indicated its intention to go ahead with this “all-Canadian” waterway situated entirely in Canadian territory. They began to take the necessary legal steps. While Canada could legally build a water route on its side of the border, a bilateral agreement was necessary (due to the 1909 Boundary Waters Treaty) to raise the water level in order to circumvent the rapids in the international section of the river. The resulting water pool was also required not only for navigation, but for the development of hydroelectric power. The latter was an equally importance reason for completing the St. Lawrence project and the power works were to be shared by Ontario and New York.

It is widely believed that Canada was bluffing in order to prompt American participation. However, the archival record reveals that Ottawa did in fact embrace the concept of a solely Canadian Seaway. The public, seized by an environmental and economic nationalism that viewed the St. Lawrence as a Canadian birthright, enthusiastically embraced the notion of an “all Canadian” route. Riding this wave of popular support for the idea and buttressed by post-war confidence and nationalism, the St. Laurent Liberals sought to make the notion a reality.

But Washington viewed this development as a security and economic threat. The canalization of the St. Lawrence would allow the recently discovered iron ore deposits in Labrador and Quebec to reach the steel mills of the American heartland and exclusively Canadian control of waters of the St. Lawrence system had especially unpalatable repercussions from an American national-security perspective. Through various means, the United States delayed a power production license to the State of New York in order to prevent the Canadian government from proceeding. The stalling and machinations continued through 1952 and 1953 until, in early 1954, Seaway-enabling legislation finally passed Congress. The United States then successfully coerced — one might say forced — Canada to allow American participation.

This outcome was disappointing north of the 49th parallel, where public opinion strongly favored the exclusively Canadian route. The same was true of the federal government. The St. Laurent government’s dedication to an all-Canadian route is further revealed by the subsequent bilateral negotiations in 1954, which culminated with an exchange of notes setting out the method for building the Seaway. The Canadian delegation, led by Lester Pearson, forced concessions (such as putting a lock at Iroquois in Canadian territory) that would allow for a solely Canadian route to be created in the future, although that never happened.

The construction of the deep waterway had an enormous visual and sensory impact on the St. Lawrence basin. It required a massive manipulation of the river and its environs. Billions of tons of earth and rock were moved through extensive digging, cutting, blasting, and drilling. New channels needed to be built and others rerouted, and 10 bridges needed to be constructed or changed, while miles of cofferdams and dykes were required. The hydro-power development necessitated two control dams, the Long Sault and Iroquois, in addition to the powerhouse itself. As a result, the water level rose and formed Lake St. Lawrence, which inundated some 20,000 acres of land.

On the Canadian side, this flooding required land expropriations and the relocation of communities, farms, churches, cemeteries, highways and railroads. Some 6,500 people in Ontario were relocated to a number of newly established towns. It is unlikely that a project on this scale would be undertaken today due to environmental concerns. But at the time, there was relatively little resistance to the enterprise. It revealed a mindset that viewed nature as something to be controlled and dominated through technology and expertise with little to no environmental repercussions.

In its first decades, the Seaway fared relatively well. Cargo carried on its waters quickly jumped from 20.6-million tons in 1959 to 51-million tons in 1970. The best years were in the late 1970s when cargo volumes reached 70-million tons. Iron ore and grain immediately became the dominant commodities, combining for well over half of the total cargo shipped, a status they have maintained. Other important cargoes included coal, petroleum products and various manufactured goods. However, the economic downturn of the 1980s hit the Seaway hard, particularly the declining iron ore industry. The waterway has never fully recovered, today carrying about 60% of its capacity, and it never became self-amortizing.

Nevertheless, in the past half-century more than 2.5 billion tons of cargo have moved via the Seaway, even if this is well short of initial projections. The most significant aspect of the Seaway’s legacy may be that it served to further integrate the economies of the two North American countries.

But I would suggest that it is precisely this integration which lies at the root of a national reluctance to celebrate the Seaway, more so than economic or environmental disappointments. The prospect of an “all Canadian” St. Lawrence Seaway captivated a country eager to assert itself as separate from the United States. It is likely no coincidence that Canada’s attempt to obtain an exclusive deep waterway coincided with the Korean War and a growing Canadian dissatisfaction with American strategy and leadership in the early Cold War. Thus, I would suggest that American participation in the Seaway has been viewed as a defeat of Canadian autonomy and independence, a failure on Canada’s part to chart its own course in post-war years.

Financial Post
Daniel Macfarlane is a Ph.D. Candidate at the Department of History, University of Ottawa.

Photo: Queen Elizabeth II welcomes president Eisenhower to the Seaway’s official opening on June 26, 1959. (Canwest News Service files)

Solomon: Can't bear opposition

Lawrence Solomon — Tue, 30 Jun 2009 01:35:00 GMT

Lawrence Solomon

“Polar bear experts from all over the world have been invited by Greenland to meet at the Greenland Representation at the North Atlantic Bryggen in Copenhagen, Denmark, between 29 June and 3 July 2009,” announces the International Union for the Conservation of Nature. “Under the chairmanship of Professor Andrew Derocher from University of Edmonton, Canada, the Species Survival Commission Polar Bear Specialist Group of IUCN (The International Union for Conservation of Nature) will meet to evaluate the status of the different polar bear populations in the Arctic.”

The announcement does not mention that biologist Dr. Mitchell Taylor, one of the world’s foremost experts on polar bears who for 22 years was a member of the same IUCN Species Survival Commission and of the Polar Bear Specialists Group, was disinvited by an email from Professor Derocher because of “the position you’ve taken on global warming that brought opposition.”

Professor Derocher’s email also explained that Dr. Taylor’s views that climate change has natural causes “are extremely unhelpful” and that his public position to that effect is “inconsistent with the position taken by the PBSG [Polar Bear Specialists Group].”

Chairman Derocher, a former university pupil of Dr Taylor’s, looks forward to a meeting at which a consensus can be reached on a number of important issues, including “how polar bears are affected by the rapid decrease in sea ice due to global warming, the effect of high contents of pollutants in some polar bear populations, and how polar bears can be managed under rapid Arctic climate change.”

lawrencesolomon@nextcity.com
Lawrence Solomon is executive director of Energy Probe and Urban Renaissance Institute and author of The Deniers: The world-renowned scientists who stood up against global warming hysteria, political persecution, and fraud.

Peter Foster: Trojan CSR

NP Editor — Sat, 27 Jun 2009 00:05:00 GMT

Bill C-300 would subject Canadian mining companies to show trials

By Peter Foster

he movie 300 was a testosterone-packed comic book feature about a small group of Spartans holding back the Persian hordes at the battle of Thermopylae. Bill C-300 is a nail-biting private member’s horror scenario that threatens to overwhelm the Canadian mining industry with the prospect of permanent battle in Ottawa.

Yet another Greek connection came up this week when Jon Baird, president of the Prospectors and Developers Association of Canada (PDAC), quoted Plato in a speech about C-300 at the Economic Club of Canada: “Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws.”

Plato is a dodgy reference for any businessman, given that he despised commerce and favoured a communistic state (But then, portraying Spartans in 300 as fans of liberty was a bit of a stretch too). However, the key point — when it comes to business — is what acting “responsibly” means.

Bill C-300, introduced by Liberal MP John McKay, could — under the ever-spreading aegis of “corporate social responsibility” — considerably burden mining companies operating overseas.

Canada’s mining industry is a world leader. More than 10,000 projects around the globe are managed by companies listed on the TSX, and more than half of those projects are outside Canada. This has made them a prime target for anti-development NGOs.

Certainly there are ethical issues involved in operating in countries benighted by government corruption and the absence of property rights, particularly in Africa. But corporations do most good in the natural course of their business, and should not be seen as social agencies or instruments of political reform. Too often, however, they are seen simply as “the enemy.”

I wrote about this issue in this space recently and C-300’s promoter, Mr. McKay, responded that I had it all wrong. According to him, the fact that there has been so much Sturm und Drang over the issue confirmed that Canada has a “CSR problem.” Indeed it does. CSR is a huge problem. This subversive field is overrun by consultants, academics and NGOs that see it as a happy hunting ground for fee- and rent-seeking, noodling or simply stopping companies in their tracks.

Bill C-300 proposes that any mining company operating abroad be subject to show trial and prospectively punished by having Canadian government funding and investment withdrawn by organizations such as the Export Development Corporation and the Canada Pension Plan.

The main group pulling Mr. McKay’s strings is the Canadian Catholic Organization for Development and Peace, whose revealing motto is “life before profit.” Astonishingly, this radical religious group receives a whopping $7.5-million in annual funding from CIDA, the aid organization set up by global governance promoter Maurice Strong to pursue his lifelong crusade against capitalism (which has never stopped him from pursuing profits personally).

Development and Peace is great at organizing demonstrations on Parliament Hill and promoting e-postcards with bold declarations about solidarity with people of the “Global South,” but whether it is serves their best interests is moot.

There are numerous examples of NGOs spreading lies, promoting bogus opinion polls, condoning violence and even extolling the “happiness” of poverty in order to hold up mining operations.

Companies seem to think they can counter the NGOs by voluminous professions of good intention and promising to try ever harder. Typical is the PDAC’s recent “e3 Plus: A Framework for Responsible Exploration,” which Mr. Baird described as “the first comprehensive set of guidelines in the world designed to help mineral exploration companies excel at their environmental, social and health and safety responsibilities.”

But “excelling” at CSR is a Sisyphean task.

The PDAC is now even promoting the UN’s socialistic Universal Declaration of Human Rights, and has erected a set of eight “principles,” manufactured “tool kits” and created thousands of pages of reference for its members. It is developing “performance objectives,” “reporting criteria” and a “verification process,” which, we may be sure, will provide rich potential for NGO obstructionists.

Mr. Baird’s willingness to bend the knee before the politically correct demands of CSR even went so far as stressing how important “rare” minerals were for manufacturing wind turbines, electric vehicles and solar panels, as if these products were anything but taxpayer sinkholes. He was, however, gutsy enough to point out that NGO campaigns “in the worst cases escalated conflicts, spread misinformation and were used to raise finances for the NGOs’ operations.”

All with your tax dollars.

Nevertheless, NGOs are a fact of life, and certainly increase the importance of establishing good relationships with local communities from the beginning of any project. Or else.

On Bill C-300, Mr. Baird concluded that “If this bill were passed it would attempt to enforce the CSR practices of Canadian exploration and mining firms in their activities throughout the developing world. The bill invites complaints and then requires Ottawa to be the judge and jury on complex activities taking place in foreign lands.”

But then one can’t help thinking that if companies hadn’t fallen for CSR in the first place, then they wouldn’t have opened themselves to having others “enforce” its ever-multiplying standards upon them.

CSR has always been a Trojan horse.

Lawrence Solomon: DuPont’s new game

NP Editor — Fri, 26 Jun 2009 23:59:00 GMT

DuPont made a killing in the battle over CFC regulation. Now it’s poised to do it all over again with carbon dioxide. Fourth in a series.

By Lawrence Solomon

n the 1800s, DuPont’s first century as an industrial concern, it cashed in on the money to be made in explosives. In its second century, the 1900s, DuPont morphed into a money machine in chemistry and energy. In this, its third century, DuPont sees green in a new cash cow, one it projects will take it to unprecedented profitability — sustainable development.

This corporate strategy, explains chairman Chad Holliday, is both principled and fundamental: “DuPont’s sustainability commitments aren’t just good for business — they are our business.”

DuPont’s commitment to sustainability began in 1997 when it decided to abandon its membership in The Global Climate Coalition, a high-powered lobby created by the oil, gas, coal, automobile and chemical companies to counter fears of global warming. Although the coalition had been created in 1989, soon after the first meeting of the UN’s Intergovernmental Panel on Climate Change, the coalition was losing the PR battle. DuPont switched sides and began to lobby for government to stop global warming.

In doing so, DuPont took a page out of its own playbook. In 1980, DuPont had spearheaded the creation of the Alliance for Responsible CFC Policy, a lobby group that would successfully fight off regulation of CFCs, a chemical that many companies manufactured. Then in 1986, with patented alternatives to CFCs in hand, DuPont had a change of heart.

In a move its Alliance partners considered a betrayal, DuPont switched sides, called CFCs a danger to the planet, and lobbied the Reagan Administration to ban CFCs. So successful was DuPont that Ronald Reagan became the world’s first head of state to personally push his government to ban CFCs. DuPont’s efforts culminated in the Montreal Protocol, a treaty Reagan described as “a monumental achievement.”

Others were ambivalent about what had transpired. As put by Mostafa Tolba, the Executive Director of the UN Environment Programme, “The difficulties in negotiating the Montreal Protocol had nothing whatever to do with whether the environment was damaged or not. It was all who was going to gain an edge over who; whether DuPont would have an advantage over the European companies or not.”

The advantage went to DuPont, which soon controlled the rich replacement market for CFCs. Du Pont’s Freon Division Director, Joseph Glass, laid out DuPont’s coup succinctly: “When you have $3-billion of CFCs sold worldwide and 70% of that is about to be regulated out of existence, there is a tremendous market potential.”

DuPont is now keen to duplicate its “monumental achievement” with other regulatory coups in the richest regulatory environment of all — that of global warming. To this end, it helped found the United States Climate Action Partnership (USCAP), a coalition of blue-chip business and environmental groups, to lobby the U.S. government for legislation that will suit their agenda. From DuPont’s point of view, USCAP has been another monumental achievement. Yesterday, the U.S. House of Representatives passed a global warming bill — largely a USCAP product — that represents the largest transfer of wealth from U.S. consumers to corporate interests in history. As DuPont’s Holliday told the committee with evident satisfaction, “we are pleased to see that many of the ideas we have developed are reflected in this bill.”

As well he should be. The mammoth bill’s cap-and-trade system not only gives DuPont and other major emitters a windfall in free emission allowances, but also boosts a host of the technologies that DuPont specializes in. As a cherry on top, DuPont will not only receive subsidies for upgrades and other investments it would have made regardless, it could even receive subsidies for such investments made before the bill was passed.

The bill, though endorsed by environmental groups happy with the grand bargain being made, is not without controversy. Greenpeace opposes the bill on numerous grounds, not least because of its corporate giveaways and because it would spur a new generation of coal and nuclear power plants. Other environmentalists deplore its boost to biofuels, and the effect that carbon offsets can have on the Third World’s environment. But though the bill’s environmental benefits are in doubt, there are no doubts as to its effect on DuPont’s bottom line.

After it helped found USCAP two years ago, DuPont predicted that by 2015 it would be able to grow its annual greenhouse-gas related revenues by at least $2-billion a year, and that its sales of renewable materials that displace fossil fuels would double to $8-billion. If the bill does indeed become law, DuPont’s estimates will look awfully sustainable. As will those of the legions of other corporations whose lobbying has made climate change the world’s largest industry with the world’s largest payoffs for those skilled at gaming the system.

Financial Post
lawrencesolomon@nextcity.com
Lawrence Solomon is executive director of Energy Probe and Urban Renaissance Institute and author of The Deniers: The world-renowned scientists who stood up against global warming hysteria, political persecution, and fraud.

Terence Corcoran: Transit needs ideas, not money

NP Editor — Thu, 25 Jun 2009 23:55:00 GMT

A good reason to tell Toronto to get lost

By Terence Corcoran

e don’t know why Ottawa told Toronto to drop dead on the city’s plan to spend $1.2-billion on 204 new street cars. But if the Harper Tories and Transport Minister John Baird need some help defending their decision, there are lots of good reasons around — including a brand new report yesterday showing that public transit across Canada is something of a failing industry.

Even before that report — from the Conference Board of Canada, documenting how public transit is the home of rising prices and falling output — Ottawa should have had no trouble explaining why it may not want to be shipping small fortunes to Toronto or any other city clamouring for transit funding.

Above all, in Toronto’s case the money — $400-million of which was to come from the federal government — was going to end up promoting the expansion of the Toronto Transit Commission, Canada’s largest union-shackled, cash-draining, deficit-creating monopoly public transit operator. The union that routinely plunges Toronto and other cities into garbage strikes and service shutdowns also plays a role (along with the Amalgamated Transit Union) extracting fat wages, benefits and featherbedding work rules from the TTC.

Then there’s Toronto City Council and Mayor David Miller. In a dodge to get around Ottawa’s decision to turn the city down on streetcars, city Council will meet today to debate a plan to go ahead with the $1.2-billion purchase by, essentially, stealing money from other parts of the TTC budget, including future rebuilding, maintenance and renewal programs. Those 1950s mechanical turnstiles are certainly good for another 40 years.

The TTC, which is chaired by a city Councillor and controlled directly by politicians, suffers from chronic megaprojectism, runs perpetual billion-dollar deficits and is in constant need of federal and provincial bailouts. The latest adventure, known as Transit City, is a typical multi-billion dollar fantasy of streetcars, LRTs, automobile-suppression gimmicks and evasive references to any real financial plan.

There’s nothing special to Toronto about all this. It’s a national thing. Public transit, the goddess of the greens, the left and union leaders, is the last bastion of transportation still locked in total government control. No competition, no privatization, no markets and no pricing systems, no attempt to break out of a structural model that, wherever it exists, prevents productivity gains, drains efficiency, raises costs and generally treats taxpayers and commuters like fiscal cattle.

And now Mr. Baird and his Cabinet colleagues have new justification for future caution in dispensing megabucks to city-run public-transit monopolies. The Conference Board report yesterday produced two stunning streams of numbers (See graphs). Over the last 20 years or more, depending on data availability, productivity in rail transport increased 3.6% per year, while rail prices dropped 2%. Air transport productivity jumped 2.2% per year while prices fell 0.9%. Trucking productivity gained 1.8% while prices fell 1.4%.

The common themes in air, rail and trucking over the last three decades were deregulation, privatization and competition. Public transit enjoyed none of the above. As a result, over roughly the same period, public transit productivity dropped 1.2% each year and end-user prices increased 1.75% a year. Canadians, in other words, paid more and got less from their public transit operations.

The report, titled "The Productivity Performance of Canada’s Transportation Sector: Market Forces and Governance Matter," paints a dismal picture of public transit nationally and especially in Toronto. Public transit’s share of total trips in Toronto declined five percentage points in the 15 years prior to 2001. While it has picked up since, the recovery is modest.

The report speculates what might have happened if public transit were subject to some of the competitive pressures that drove improvements in rail and air travel. If productivity in public transit had remained stagnant between 1986 and 2006 — instead of declining 1.2% — then “this would have meant that transit fares in real terms would have risen by 15% rather than the 60% that they actually rose over the 20-year period.”

Transit unions and city officials have long resisted opening their public transit systems to competition. While there are a few exceptions, the systems are still operated as locked-down monopolies, with legislation that prevents any one from operating even a competitive mini-bus service within city limits. Also missing is competitive tendering for services.

Outright privatization of public-transit operations would also be an opportunity to increase productivity and service. The main benefit would be to convert bloated politician-run organizations into more commercial business forms. In Toronto’s case, the transit commission is literally run out of the offices of politicians.

Some people don’t seem to mind if public transit is a fiscal and productivity disaster. After all, they say, public transit delivers what the Conference Board report calls “positive social-economic externalities.” These include the usual claims to less congestion and a cleaner environment. Even if these benefits exist, that is no reason to run a financially destructive system. Rail transport also produces similar external benefits, but still managed to improve productivity and cut prices.

If nothing else, the Conference Board report should serve as a reason for higher-level governments to pause before they continue shipping billions of dollars into operations and structures that are obviously dysfunctional. Continuous declines in productivity and rising fares is no formula for future success.

Financial Post

Cap and tax

NP Editor — Thu, 25 Jun 2009 23:49:00 GMT

The proposed Waxman-Markey cap-and-trade legislation is more tax grab than carbon-dioxide reducer

By Martin Feldstein

he cap-and-trade legislation supported by the Obama administration is a stealth strategy for a massive long-term tax increase. It is a large tax on all American households, and the tax burden rises in future years without any need for further legislation. It will evolve into an enormous new source of tax revenue for the government.

A cap-and-trade system is supposed to reduce carbon-dioxide (CO2) emissions by raising the price of CO2-intensive goods and services like gasoline, electricity and a wide range of industrial products. This, in theory, will induce consumers to shift their spending to services and products that involve lower levels of CO2 emissions. It achieves these price increases by requiring firms that create CO2 in their production process, or sell goods like gasoline that create CO2 when used, to have a permit per ton of CO2 emission.

The Congressional Budget Office estimates that reducing the level of CO2 to 15% less than the total level of U.S. emissions in 2005 would require permit prices that would increase the cost of living of a typical household by $1,600 a year. To put that $1,600 carbon tax in perspective, a typical family of four with earnings of $50,000 now pays an income tax of about $3,000. The tax imposed by the cap-and-trade system is therefore equivalent to raising the family’s income tax by about 50%.

The Waxman-Markey bill that the House of Representatives votes on today would cause an even greater initial rise in the cost of living by its requirement to cut CO2 emissions to 17% less than the 2005 level of emissions rather than the 15% reduction assumed in the CBO estimates. (European officials are, moreover, calling for the United States to agree to a much bigger initial cut — 20% less than the U.S. emission level in 1990.)

As the legislated CO2 reduction increases automatically after 2020, the price of the permits would rise to further limit consumers’ demand for CO2-intensive goods and services. The Waxman-Markey legislation requires the CO2 level in 2050 to be an amazing 83% less than it was in 2005, and a study by the EPA estimates that the price of the permit would rise from about $20 a ton in 2020 to more than $75 a ton in 2050. The higher permit costs would be reflected in the prices that households would pay for CO2-intensive goods and services.

Increases in the cost of living would be greater for households that use more energy and CO2-intensive goods and services. The implied rate of the cap-and-trade carbon tax would therefore rise with income. In that way, it would act like an income tax — reducing the reward for additional effort by putting a tax wedge between the individuals’ additional work effort and the resulting increase in their standard of living. But while it would collect more tax from higher-income households, the cap-and-trade tax would be a relatively heavier burden on lower-income and middle-income households. The Congressional Budget Office estimates that spending on “carbon-based energy” is 21.4% of income among households in the lowest income quintile but only 4.1% of income in the highest income quintile.

Although the cap-and-trade plan that President Barack Obama proposed during the campaign called for auctioning all of the CO2 permits, members of Congress in heavily industrialized states and in states that use coal to generate electricity refused to support the plan unless the auction process was eliminated.

To get their support, Waxman and Markey agreed to a fundamental change. Instead of auctioning the permits, about 85% of them would initially be given away to a variety of firms. The proposed cap-and trade-plan also provides an escape hatch for firms that emit CO2. Instead of reducing their own emissions or buying permits at auction or from other firms, they could pay others to take actions that reduce global CO2 emission. They could, for example, pay for the planting of trees to absorb CO2 emissions from the atmosphere or pay firms in other countries that are not covered by CO2 caps to reduce their CO2 emissions. The Financial Times estimates that the regulated European market for such carbon offset credits will increase to more than $60-billion next year. Such offset activities are obviously difficult to monitor. It is even more difficult to judge the extent to which these extra CO2 reductions would have occurred without the financial inducements.

The Waxman-Markey legislation provides that the annual giveaway of permits would eventually phase down so that more than half of all permits would be auctioned after 2050. This would create a massive rise in tax revenue that could finance new government spending without the need for any new tax legislation. The Hamilton Project at the Brookings Institution estimates that just stabilizing CO2 emissions at the current level could produce revenue of more than $470-billion a year (in today’s prices) by 2050. The CO2-related revenues would be equivalent to $200-billion, which is an amount equal to 9% of federal tax revenues (with carbon revenues excluded from the federal tax revenues).

The rise in the prices of U.S. goods would make them less competitive. American firms would suffer in export markets and domestically in competition with goods imported from countries that do not impose such a high implicit tax on CO2 emissions. There would no doubt be pressure to impose tariffs on imports from other countries that have lower carbon costs. This might be welcomed by the unions that now seek to use foreign labour practices as an excuse for tariffs on imports, but countervailing tariffs based on carbon content would hurt American consumers and threaten our global trading system.

And, despite the high cost to American households and the economy, the proposed cap-and-trade plan would do little to deal with concerns about global warming. Although there is a broad scientific consensus that the increasing level of total global CO2 emissions is raising temperatures, which could have significant adverse long-term effects, the potential U.S. reduction of CO2 would not be enough to prevent those adverse effects unless China, India and other rapidly industrializing countries also agreed to major reductions in their CO2 emissions.

The proponents of enacting a U.S. cap-and-trade program at the present time “to show U.S. leadership” so that other countries will follow are naive to think that China and India will agree to major CO2 reductions without financial inducements. The Chinese and Indians have stressed their opposition to any major reduction in their CO2 emissions and have given no indication that their position would change if we enacted limits on our CO2 emissions. It would be a big mistake to enact legislation before the international meeting in Copenhagen in December where these issues can be discussed and a negotiation could begin.

The initial shift from an auction process to giving away permits is just one of many departures the Waxman-Markey bill makes from the type of pure cap-and-trade system that appeals to many economists. They favour cap and trade over administrative regulations like automobile mileage standards and smokestack scrubber requirements because the uniform price of permits allows every amount of CO2 reduction to be achieved at the least cost to the economy.

The 1,200-page Waxman-Markey bill imposes a wide array of costly administrative regulations that should be unnecessary if CO2 is limited by a cap-and-trade plan. Fifteen per cent of electricity must be produced with renewable technologies, including wind, solar and biofuels. Household appliances must meet various efficiency standards. The Obama administration has added a 39-mile-per-gallon fleet efficiency standard for new automobiles. To the extent that these rules restrict behaviour, the result will be a more expensive way of reducing CO2 than a pure cap-and-trade arrangement.

The combination of permit giveaways to selected firms, separate administrative regulations aimed at CO2 reduction and a market for offset credits means that the Waxman-Markey bill lacks the efficiency virtues of the classic cap-and-trade system. Some of its supporters may not care that it reduces U.S. emissions inefficiently and does little to reduce global warming as long as it produces a large future source of government revenue. If cap-and-trade legislation is passed, it should be for a relatively limited period of time like five or 10 years, rather than the 40-plus year horizon in the Waxman-Markey bill. We need to see how the system works in practice. In particular, it is not clear how CO2 monitoring and compliance will work in all of the participating countries.

Scientific knowledge in this field is changing rapidly, and our approach to global warming should be flexible as we learn more. One important approach being explored by scientists, geo-engineering, is not even recognized in the Waxman-Markey legislation or in the administration’s original proposal. (Geo-engineering uses a variety of technologies to offset the warming effects of the level of CO2 in the atmosphere.) If one or more of the geo-engineering methods is successful, it will be possible to have higher levels of CO2 emissions without the adverse environmental effects. And the higher level of CO2 will allow a higher level of economic activity and a higher standard of living. Governments around the world should be devoting more research funds to promising ideas.

If there is to be a U.S. cap-and-trade plan to reduce CO2 emissions, it would be best to avoid the big revenue creation of permit auctions and the arbitrary congressional granting of free permits to favoured industries and firms. Tradeable electronic permits should instead be distributed directly to all households. This distribution could reflect the average spending on CO2-intensive goods in different income groups and geographic areas. Individuals could then sell the permits through an organized auction exchange. The payments that they received would offset most of the adverse effects on their standard of living of the higher prices that they would have to pay for CO2-intensive goods and services. Such a system of individual permit distribution would reduce CO2 with all of the efficiency advantages of a pure cap-and-trade system but without increasing taxes and enlarging government.

Financial Post
Martin Feldstein is a member of American Enterprise Institute’s Council of Academic Advisers.

Photo: U.S. House oversight and government reform committee chairman Henry Waxman. (Getty Images)

William Watson: Washing hands in the daddy state

NP Editor — Wed, 24 Jun 2009 23:23:00 GMT

If you treat people like children, don’t be surprised if in the end they behave like children

By William Watson

o doubt you’re as outraged as most of the media by the latest scandal du jour, in which federal bureaucrats reportedly spent time — perhaps even days — debating whether to send alcohol-based hand sanitizer to native reserves to help fight swine flu because they were worried the alcohol might be abused.

Actually, the outrage isn’t that bureaucrats behaved like bureaucrats. Being careful and covering their backsides is exactly what we expect and, when you come down to it, want bureaucrats to do. We tried cowboy bureaucrats during the Sponsorship Program and most of the country didn’t much like the results.

Be honest. If you were in charge of making the hand-sanitizer decision, you might have done the same thing. Conscientious, well-informed bureaucrats will be aware of substance abuse on First Nations’ reserves. They will have dutifully sat through TV reports about all manner of noxious products being used as intoxicants. And let’s not be overly naive about the media here. If Ottawa had shipped off tankerloads of hand sanitizer and some enterprising reporter had got wind of even a small amount of it being diverted for, as they say, “inappropriate” use, the bureaucrats who acted promptly would have been publicly pilloried just as mercilessly as the bureaucrats who delayed are being now.

The scandal is not that bureaucrats behaved like bureaucrats. The scandal is that people in Ottawa are signing off on whether people living thousands of miles away get hand sanitizer. If you go on eBay and look under “Soap Dispensers, Restroom Supplies, and Bathroom Supplies,” you get 183 hits on what look like the dispensers you see these days at every hospital entrance. We’re not talking nuclear isotopes here. There’s no worldwide shortage of sanitary hand sanitizer — if only because the private sector, not bureaucracy, produces it.

One report about Ottawa’s dithering indicated that a native chief had got so frustrated waiting for hand sanitizer that never showed up he drove hundreds of kilometers to buy some himself. This was supposed to be an example of the problem’s seriousness but in fact sounds like exactly the right response. Chiefs have budgets. Why don’t chiefs, taking advice from public-health specialists if they like, make their own decisions whether to procure hand sanitizer for their communities? Or even leave such decisions to groups and individuals within the reserve?

True, FedEx may not ship to all reserves. But getting deliveries there and deciding what you’re going to acquire in the first place are two different decisions. For the remotest reserves maybe there’s an argument for government helping with transport. But government shouldn’t be checking off on the shipping list.

If you treat people like children, don’t be surprised if in the end they behave like children.

Lest you think that’s a racist shot at native Canadians, exactly the same syndrome is working itself out at a popular children’s medical clinic on the West Island of Montreal.

To keep expenses down, Quebec’s Ministry of Health imposes surtaxes on physicians who make more than about $200,000 a year — gross of expenses. What with swine flu and all, it’s been a busy year for pediatricians. Some of those running the Tiny Tots Clinic apparently have already bumped up against their maximum income. As a result, they’re now going to be paid at 25¢ on the dollar for all the services they provide between now and the end of the year. Think of it as a kind of Tax Freedom Day in reverse. Tax Freedom Day is when you’ve earned enough in the year to pay all your taxes and can then start working for yourself. But if you’re a Quebec doctor, it works the other way around: As early as June, depending how hard you worked the first part of the year, you may start working almost entirely for the government.

Trouble is, 25¢ on the dollar doesn’t pay the clinic’s overhead. So the clinic has been restricting its hours while the doctors petition the Minister of Health for permission to be re-classified so they can keep working with full remuneration for the services they’re providing.

What a bizarre country we live in. A doctor wants to treat a child. That child’s parent wants the child treated. But if the doctor is to be paid for providing treatment, they have to await permission from the Minister of Health.

Native Canadians are falling ill and sanitary hand sanitizer would help them. But before they can get it they have to consult with federal bureaucrats.

It’s obvious that both our health-care system and our approach to natives are suffering from a severe excess of paternalism. We’re using the economic crisis as an excuse for rethinking all sorts of things. Why not these two systems? For Daddy clearly doesn’t know best.

Converging Storms

NP Editor — Wed, 24 Jun 2009 23:20:00 GMT

Ross McKitrick’s Green Shoots Reality Check: Part two: subprime round II and cash-strapped California

By Ross McKitrick

here are four looming threats to the U.S. economy. The first two, which I described yesterday, are national in scope, concerning the Federal Reserve balance sheet and the government budget deficit. The others are centered in California. One is what we could call Subprime Round II. So-called “Option-ARM” mortgages gave borrowers an interval during which they paid no equity, and less than the full interest, with the unpaid amount accumulating on the principal. When the reset date hits, borrowers must start making full payments, with payment increases often reaching 50% or more.

These mortgages were popular at the height of the property bubble, with 75% of them written in four states: California, Florida, Arizona and Nevada. Many borrowers expected that house prices would just keep rising, so when the reset date approached they could simply sell the house, pay off the mortgage and pocket the difference.

But housing prices in places like California have collapsed. Homeowners are now facing payment hikes on houses worth far less than the loan principle. According to a recent Credit Suisse analysis, by fall 2011, the volume of Option-ARM (and related Alt-A) resets will have risen from $2-billion per month to $25-billion per month, dwarfing the size of the subprime wave. And according to data from T2 Partners, 30% of Option-ARM mortgages are already 60 days or more in arrears. A new wave of defaults could bring a new wave of bank failures.

The best hope is that continuing low interest rates will help many Option-ARM resets go through without default. But this is where the threat of rising interest rates due to the U.S. deficit begins to matter. On May 27, the Treasury conducted an auction of $35-billion in five-year bonds, with a plan to auction $26-billion in seven-year bonds the next day. The market reacted by dumping longer-term bonds, sending mortgage rates from 5% to 6.5% in one day. While this spike tapered off over the next few weeks, it sent an early signal that large-scale government borrowing will raise long-term mortgage rates. In California, foreclosures and Notice-of-Trustee sales are already back to levels observed during last year’s subprime crisis, and the trend is up, not down.

This brings us to the fourth harbinger of trouble ahead: the California state budget. California accounts for 10% of the U.S. economy. Its state budget is about $125-billion, and the deficit is about $25-billion. By law, California must balance its budget each year, and the fiscal year ends June 30. Back in February, the Democrat-controlled legislature could not agree with Republican Governor Arnold Schwarzenegger on spending cuts, but it did agree to put a series of tax increases and borrowing schemes before the voters in a referendum. On May 19, all were defeated. California treasurer Bill Lockyer appealed to Washington for access to bank bailout funds, but he was turned down. He has since warned that the state only has enough cash to meet payrolls until mid-July.

California matters because of its sheer size in the U.S. economy, and because 49 other governors are watching to see how Washington reacts to its budget crisis. Data released in mid-June by the Nelson Rockefeller Institute of Government showed state-level income tax revenues from January to May were down 26% across the country. Regardless of whether Washington is able to scrounge up some assistance, state governments are contemplating layoffs, program cuts, tax hikes, facility closures and other such measures, all of which will cut into U.S. employment and consumer spending in the third quarter.

Over the summer, we will learn how these four issues play out. In the meantime, policymakers should realize that this recession is not a simple business cycle, it is more akin to the aftermath of a giant earthquake. Borrowing or printing money to paper over the damage is not the answer. Starting the slow process of rebuilding private-sector wealth through entrepreneurship and profitable enterprise is the answer.

The United States is putting forward daily examples of what not to do. It is borrowing heavily to prop up money-losing industries like wind energy and automobiles. Alternative energy boondoggles destroy more jobs than they create, and they are unsustainable without taxpayer subsidies.

Government efforts should focus on personal income assistance, not subsidies to businesses. The financial collapse leaves retirees especially vulnerable, as pension funds have fallen deeply into deficit, and newly retired individuals suddenly find themselves with far less capital than they expected. Instead of “stimulus” spending on hastily conceived construction projects, funds should be used on an as-needed basis to help elderly persons whose investment income collapsed through no fault of their own, but who can no longer work to make up the losses.

Government should also resist the one-size-fits-all notion that all public spending is expansionary. Today’s problem is wealth destruction, and deficits cut into future wealth. Cutting non-essential spending will help keep borrowing needs to a minimum, thereby keeping us on track for lower personal and corporate taxes. The United States will soon have to ramp up its tax burden, giving Canada a historic opportunity to become a haven for North American entrepreneurial talent and investment. But failure to cut the bloated Ottawa budget now will condemn us to higher future taxes as well.

Canada must also resist Obama’s crisis-driven expansion of the state, which is manifesting itself in nationalized industries, environmental overregulation and the suspension of financial contract law. Real backbone will be needed in the future to resist misguided energy sector intervention (including attempts at extra-territorial greenhouse-gas regulation), nationalization of manufacturing and banks, and other Obama initiatives. Unfortunately the Harper government has so far adopted a supine, yes-sir approach to copying Obama’s environmental policies, regardless of the costs to Canadians.

As we move into the summer, four economic storms are converging, and it will take an extraordinary miracle of timing to avoid all of them breaking together.

Financial Post
Ross McKitrick is professor of economics, Guelph University.

Photo: California Governor Arnold Schwarzenegger tried to slash his state’s budget without avail. (Getty Images)

High EI benefits discourage work

NP Editor — Wed, 24 Jun 2009 23:13:00 GMT

Long periods of entitlement for short periods of work subsidize firms, such as fish plants, that provide unstable employment

By Patrick Grady

iberal leader Michael Ignatieff has proposed that the period required to qualify for Employment Insurance be temporarily reduced for the duration of the national economic crisis to a uniform 360 hours across the country (“Make EI Work,” Financial Post, May 23). At a cost of $1-billion estimated by TD Economics, the proposal would replace the current “patchwork” variable entrance requirements ranging from 420 hours to 700 hours depending on the unemployment rate in each of 58 sub-provincial economic regions.

As far as I can glean, a worker who lost his job after working 360 hours over nine weeks would, under the proposal, be entitled to collect EI for 37 weeks. If the worker had made $12 an hour or $480 per week for a total earnings of $4,320, he would be entitled to benefits of $198 per week for up to 37 weeks. At a cost of only $179.28 in employer and employee premiums, his total benefits could reach $7,326.

The proposal’s rationale is two-fold: to counter the unfairness of the current system that favours certain regions of the country over others and discriminates against workers largely in the cities of Ontario and the West; and to provide support to workers losing their jobs because of the economic crisis, thereby supporting spending and cushioning aggregate demand during the recession.

The big problem with liberalizing EI, however, is that it discourages work. That is why both Liberal and Conservative governments have tried to tighten up the system over the years.

The major extension of the Unemployment Insurance program, as it was then called, by the Trudeau Government in 1971, gave rise to a perception that a 10/42 UI system (10 weeks work and 42 weeks of UI benefits), which is, by the way, not unlike that proposed by Mr. Ignatieff, had taken root in some rural areas of the country, and that it had created a culture of UI dependence.

Long periods of entitlement for short periods of work subsidize firms, such as fish plants, that provide unstable employment. Obviously, these are not the firms that are likely to be the dynamic engines of economic growth in a knowledge economy.

The latest measures to tighten EI were implemented by the Liberals in 1996. At a painful cost in lost seats in Atlantic Canada, they pared back the work disincentives posed by EI and contained them to rural areas of the country that accounted for a small and shrinking fraction of the labour force. This made the EI program much less of a source of structural unemployment.

The Liberal leader is proposing to undo the hard-won progress made since 1971 and extend a system that already provides EI benefits far greater than any premiums paid to marginally attached members of the labour force right across the whole country. And instead of 10 weeks to qualify, it would only be 360 hours or nine 40-hour work weeks. This could have a substantial adverse impact on the Canadian labour market, perhaps even similar in magnitude to the 1971 UI changes, which economists estimated to have raised the Canadian unemployment rate by more than a percentage point.

The disincentive effects of EI will be compounded because the reductions in eligibility requirements will be greatest in the nation’s largest cities where the labour force is growing rapidly due to immigration. Many newcomers will be forced by economic conditions into undesirable low wage jobs, not so different from those prevalent in rural areas of the country. Under the circumstances, EI benefits supplemented by earnings in the underground cash economy may become a much more attractive alternative to employment in bad jobs.

The Liberal leader may argue that he is only calling for a temporary reduction in entrance requirements as a counter-cyclical measure and that it would be easily reversed once the economy recovers. But surely it is unlikely that a government of any political stripe will ever allow the system go back to something “unfair.”

To stave off an election, the Prime Minister agreed to establish a working group to develop proposals for Employment Insurance eligibility reform for the fall. It is unfortunate that politics has put EI reform high on the agenda just at the time when the results are likely to increase structural unemployment and be most damaging to Canada’s long-term growth prospects. Hopefully, sound economic analysis will win out over politics.

Financial Post
Patrick Grady is an economist who chaired the Working Group on Seasonal Work and UI, which reported to the government in April 1995.

Peter Foster: Profiting from green hysteria

NP Editor — Tue, 23 Jun 2009 23:38:00 GMT

How can the WWF be an eco-watchdog while it bills Nike, Sony and Lafarge?

By Peter Foster

‘T

here is no business on a dead planet.” That balanced and inspiring message was displayed at a seminar yesterday organized by the Investment Funds Institute of Canada (IFIC) on how to profit from climate change.

There is something jarring, even obscene, about regarding the allegedly apocalyptic threat of climate change as a money maker. Still, for many people, from Al Gore down, that is what it primarily is. The problem is that all the investment potential derives from restrictive legislation and/or subsidies, that is, from force and favour, salted with a good dose of economic fantasy.

From the point of view of investment funds, it’s rather like observing that Frederick Bastiat’s broken window fallacy (that broken windows are good for the economy since they mean business for glaziers) is government policy, then suggesting investors buy mutual funds filled with window manufacturers. Except that climate change amounts to a rationalization for a much more comprehensive bout of economy-smashing.

Bastiat’s 19th century had no equivalent of modern multinational environmental NGO lobbyists who could manufacture and/or promote scares and then take fees for advising companies on how to respond to them. But then perhaps a World Window (Smashing) Fund (WWF), might have seemed beyond satire even to Bastiat.

Now we have the World Wildlife Fund, which has a growth business consulting to major companies on their environmental impacts, both real and imaginary.

WWF-Canada was represented at yesterday’s IFIC seminar by Hadley Archer, its perky vice-president, strategic partnerships. Mr. Archer announced that he was not going to get into the specifics of doom and gloom. “You’ve all bought into the science,” he said, “if not we can talk after.”

This is surely one of the remarkable aspects of the climate-change industry. It depends on the utterly non-scientific notion that the enormously complex science of climate is “settled,” even if average global temperatures have actually been falling for the past decade, and the only “consensus” is coming from highly politicized reports issued by the UN and governments trying to justify draconian legislation, such as that of President Barack Obama.

When Mr. Archer and his ilk suggest that it’s “just good business to address carbon emissions,” he means something quite different from traditional notions of “good business.” Every business thrives by economizing on resources. But this “good business” means anticipating both a barmy regulatory environment and “stakeholder expectations,” that is, the fact that some NGO might chain itself to your front door, or climb your smokestack, or smash your windows or tell lies about you to a gullible media, thus representing a “competitive disadvantage.”

Every business now lives under the expense of having to “disclose” its carbon emissions, and spout about its concern for the environment, and yet, according to Mr. Archer, most consumers think it’s all greenwashing. So what businesses need is for Mr. Archer to tell them how to exercise “leadership on climate change.” In fact, leadership — when it doesn’t amount to begging for “certain” legislative shackles or gimme subsidies — amounts to signing onto a meddlesome list of carbon-checking activities that are mostly covered by simple adherence to the bottom line. Except that would be “Business As Usual,” the most hated phrase in the green lexicon.

Mr. Archer displayed an impressive list of “Climate Savers” who had achieved that designation by paying greengeld to the WWF. What he didn’t explain is the blatant conflict of interest if the WWF is meant to be a watchdog of the environment at the same time as it is billing Nike, Sony and Lafarge.

The IFIC’s other presenter was Elizabeth McGeveran of London-based F&C Investments, which has $3.2 billion in “sustainably managed assets.”

This gives it an immediate advantage over all those funds who are into unsustainable asset management.

Ms. McGeveran claimed that higher temperatures were already “locked in,” whatever that meant. She then presented categories of companies that could benefit from the policy climate including manufacturers of “smart” electricity meters (a great idea unless some central authority is using them to regulate your thermostat, or shut off your “non-essential equipment” during energy shortages precipitated by the central authority.)

She suggested that since travelling might go the way of the Dodo, manufacturers of teleconferencing equipment would be big (Just think of the huge emissions savings if those weekly cast-of-thousands pre-Copenhagen climate change meetings went electronic).

Ms. McGeveran’s most intriguing revelation was that the U.S. solar industry had been hard hit by the bankruptcy of Lehman Brothers, which was also hot on carbon trading. Meanwhile her most revealing stock pick was Munich Re insurance, because the company is “incorporating climate risk into their pricing.” In other words, they are using the threat of climate change as an excuse to jack up rates (as noted by Lawrence Solomon in his Saturday Climate Profiteers series).

“Socially responsible investing” is the playground of moralists and those who wish to make a buck from them. Nothing wrong with that, but while people should be free to avoid investing in tobacco or alcohol or weapons companies (suicidal as the last-mentioned is), there is something obscene about profiting from a movement that demonizes consumerism and wants to eradicate free markets. It’s like the businessman manufacturing the rope for his own hanging being concerned that the process is “carbon neutral.”

They could be weeds

NP Editor — Tue, 23 Jun 2009 23:30:00 GMT

Ross McKitrick’s Green Shoots Reality Check: Part one: the U.S. Fed’s ticking monetary timebomb

By Ross McKitrick

bewildering series of economic events over the past 12 months has put a large question mark over the global economy. Many have interpreted the recent stock market rally as a sign of recovery: the so-called “green shoots” concept. But this optimism ignores four looming problems, all centred in the United States, that threaten a new round of pain this year. The four problems are: the diluted balance sheet of the U.S. Federal Reserve; Obama’s deficit binge; the growing wave of “Option-ARM” mortgage resets in U.S. real estate; and the California state budget crisis. We need to watch how these issues develop over the summer to know whether a recovery later this year will be possible. Those green shoots could be weeds.

In Washington this week, after a meeting of the Federal Open Markets Committee, we can hope that the first of these four problems — the Fed’s balance sheet — will be raised when Fed Chairman Ben Bernanke appears before a Congressional committee. Buried in the seemingly arcane balance sheet numbers is a ticking monetary time bomb.

The total U.S. money supply is the product of two variables: the monetary base times the velocity of circulation. The expansion of the monetary base must be matched to the growth of real economic production, so as not to debase the currency. With few exceptions, annual increases are kept to a few percentage points. But from last August to the present, as the Fed scrambled to finance a massive bailout of the banking system, it more than doubled the U.S. monetary base, increasing it from $870-billion to about $2-trillion.

This has not led to inflation, however, because the money is not circulating. Banks are merely leaving it on deposit at the Fed. This too is unusual. The U.S. banking sector, despite its size, normally keeps very little on reserve at the Fed over and above what the law requires. From 1959 to 2008, excess reserves at any one time ranged from a few hundred million to about $2-billion. But since last August, excess reserves have soared to $844- billion. One analyst recently likened this to a giant pile of kindling threatening an inflationary bonfire.

But in this case the kindling is soaking wet. Normally, the release of new money into the banking system gets multiplied because of the way fractional reserve banking works. The so-called money multiplier has always been above 1.5 or so, meaning that every dollar of new money from the Fed expanded the money supply by at least $1.50. But in December 2008, something unprecedented happened: The multiplier collapsed to 0.91. New liquidity is causing the money supply to shrink, not grow. During the “green shoots” April stock market rally, the money multiplier actually fell further, hitting 0.862, its lowest level ever. Banks are hoarding money, perhaps afraid for their own solvency, or that of the households and firms to which they would otherwise lend.

There are now two great financial forces precariously balanced, exerting equal and opposite pressure on the U.S. economy. The expansion of the monetary base has created an inflationary risk. But the collapse of consumer wealth has shrunk investment and lending, creating a deflationary vacuum. No recovery, no inflation. But if a recovery starts, all those excess reserves will flood the banking system, setting off inflation.

At this point the ability of the Fed to manage the money supply becomes critical. The Fed injects or withdraws money from the base by buying or selling assets. To ensure its ability to do so, it is only authorized to hold liquid, risk-free securities such as Treasury Bills. But last year, the Fed bailed out crumbling U.S. banks by swapping its T-bill holdings for assets the banks were unable to sell. This helped bank stocks to recover and kicked off the stock market rally. But it left the Fed with a balance sheet full of trash.

As of December 2007, the Fed owned $800-billion in T-bills, and another $50-billion equally split between repos (overnight loans guaranteed against T-bill collateral), and currency swaps with other central banks. As of today, the Fed lists about $2-trillion in assets, but only $640-billion are Treasury securities. Over $1-trillion is a mix of stocks and bonds nobody else was willing to hold, much of it listed at book value rather than market value. For instance, $455-billion is in mortgage-backed securities from failed lenders Fannie Mae and Freddie Mac. $100-billion is loans to troubled insurance giant AIG as well as other financial basket cases. The list goes on.

What is this stuff actually worth? Fed officials have long insisted that the assets are rock solid, but those assurances may soon be tested. U.S. Congressmen Ron Paul and Alan Grayson now have 237 cosponsors for HR 1207, a bill to audit the Federal Reserve balance sheet. Any such audit will likely reveal that the Fed lacks the assets to cover the U.S. monetary base.

This matters because, if a recovery gets going, the Fed must quickly draw the monetary base down from $2-trillion to about $900-billion, otherwise inflation could cut the value of U.S. dollars in half. If the Fed can’t get face value for its holdings, it will fail to draw the necessary amounts of currency out of circulation, and U.S. currency will be debased.

Ironically, the Fed is safe as long as the credit system remains frozen. But then again the economy cannot recover. The Fed seems to be hoping for a miracle of timing. If the economy starts to grow, the assets it is holding might appreciate quickly enough to be sold at their face value before inflation breaks out. But if they gain in value only after bank excess reserves start hitting the market, the U.S. will face an inflationary crisis comparable to the 1970s.

The second problem looming over the U.S. economy is the Obama administration’s massive deficit. The Congressional Budget Office predicts that U.S. government spending will jump from $3-trillion to $4-trillion this year, even as revenues fall to $2.2-trillion. Nearly half of U.S. government spending is now borrowed money, and the deficit will hit 13% of GDP this year. In order to raise all this money, the U.S. Treasury is holding a series of record-breaking note auctions this summer. This week alone the Treasury must sell over $160-billion in notes with maturities ranging from three months to seven years, and there are many more such auctions to follow. We will learn over the next few weeks how high interest rates will have to go to sell all those notes.

As with the perilous Fed balance sheet, Obama’s deficit plan creates a problem that worsens if a recovery begins to appear. Growth in the stock market increases the competition for investor funds. The only way the Treasury can sell all those bills is to offer sufficiently high interest rates to compete with equities. As the interest rates on Treasury bills rise, money will flow out of the equity market, depressing stock prices. Rising interest rates will be avoided only if the stock market drops over the next few months and people look for low-return government bonds as a safe haven.

But if the stock market remains attractive to investors, interest rates will have to rise to meet Obama’s borrowing needs. And that will impair the ability of homeowners to cope with the next wave of mortgage refinancing. Tomorrow on this page I will look at this issue, as well as the California budget crisis — and what this all means to Canada.

Financial Post
Ross McKitrick is professor of economics, University of Guelph.

Photo: Fed Chairman Ben Bernanke (Reuters)