Relentlessly Progressive Political Economy

RANK…………………..7

COMPANY……………..BCE Inc.

(Year-End)……………(De05)

EMPLOYEES…………..60,000

HEAD OFFICE…………Montreal,QC

REVENUE/EMPLOYEE…$319,167

PROFIT/EMPLOYEE……$32,683

Source: http://www.theglobeandmail.com/v5/content/tp1000/index.php?view=top_50_employers

Travis Fast

For the first time in almost three decades Quebec politics is being driven not by the national question but the ideological question. That is, instead of the nationalist question driving, with the ideological question as the passenger, the provincial election demonstrates the reverse is now the central dynamic in Quebec politics. In their rush to celebrate the waning of the PQ, which was falsely interpreted as the last gasp of the Sovereignty in Quebec, the English Canadian media (and the blog world) overlooked the fact that the ADQ is a nationalist party. What we have been witnessing in Quebec is a relative re-ranking of priorities.

The slam delivered to the PQ was not on the nationalist question, but, rather, on the question of the future direction and form of the Quebec state. When the PQ attempted to hush this issue by promising a vote on separation they were hoping to force the nationalist question to the fore and forestall the ideological question. As I read it the question of sovereignty is not dead per se, what is dying, however, is the presumption that an independent Quebec will be a social democratic Quebec. The rise of ADQ represents nothing less than a civil war between nationalists over what a future Quebec state will look like. The PQ is going to stare at the results and realize that the growth in the nationalist vote is decidedly on the right wing.

Over the next decade or so I predict we are going to watch the PQ tear itself a part from the inside out. If they lurch further to the right they are going to alienate their left wing activist cadres including many powerfull unions. If they lurch to the left they are going to bolster the ADQ. The debate over sovereignty forestalled the very question that left social democrats demoralized and tattered across western Europe and North America during the late 80s and early 1990s: which way do we go and what is our programme given the current structural constraints?

The ideological question is now out in the open in Quebec and it will not easily be made to play second fiddle to the question of nationalism in the near future.

For those of you who have not already read this might I suggest you check-out Nouriel Roubini’s rant about who is responsible should the markets meltdown. Lefties should take note. Here is an excerpt:

Who is to Blame for the Mortgage Carnage and Coming Financial Disaster? Unregulated Free Market Fundamentalism Zealotry
Nouriel Roubini | Mar 19, 2007

The sub-prime and overall mortgage carnage is now likely to lead to a financial crisis whose cleanup and bailout costs will make the S&L bailout bill look like spare change. We are only at the beginning of this fallout but, already, several proposals and bills in Congress have been submitted to help millions of sub-prime homeowners on the verge of bankruptcy and foreclosure. The prospect of millions of homeowners thrown homeless on the street is already shaking politicians of every stripe. The relatively modest bailout envisaged by the first bills currently proposed in Congress will mushroom into a much bigger fiscal bailout of homeowners, borrowers and lenders once the garbage of sub-prime, near-prime and pseudo-prime toxic waste spreads around the economy and likely leads to a hard landing recession that will cause a much bigger financial and banking crisis.

Given the fallout and real, social and financial costs of this disaster the political blame game will soon start. So it is important to make sure that the self-serving spin game that accompanied the game of those who happily ignored since last summer the looming housing, mortgage and economic mess will not be repeated again. Powerful political and financial interests will spin their self-serving ideological spin on who is to blame for this mess. Specifically be ready for a cabal of supply side voodoo ideologues – from the Wall Street Journal editorial page (and its invited op-ed writers) to hacks (calling them economists would be an insult to my profession) such as Arthur Laffer, Steve Hanke and other assorted voodoo religion priests – to start spinning a tale blaming government regulation and interference for this disaster that has instead its core in the lack of sensible government regulation, not the existence of such regulation. In the meanwhile powerful financial interests that repeat the mantra – or better the proof-less dogma – of unregulated free markets and do not like any – even sensible – supervision and regulation of the financial system will happily blame government action – rather than their own reckless greed and stupidity – for this disaster while happily demanding and receiving billions in bailout funds from the same government that they so happily disdain. This will be the most appalling form of corporate welfare: privatize the profits in good times and socialize the losses in bad times.

………..

Travis Fast

Updated: One important fact to keep in mind when reading this: Frank Stronach’s compensation was a cool 40,320,836 last year. Yes, you read that right 40 million and some change. This means the Ontario government (your tax dollars) is essentially covering Frank’s fees. I have yet to hear one squawk from the business press.

The Ontario Liberals earmarked 50 million dollars for a direct grant to Magna. Magna is rapidly becoming like that other Canadian success story Bombardier which was has seen more than its fair share of government subsidies. The question I have is why should we put in 50 million dollars of public money into a company that is notoriously hostile to unions, happy to move jobs outside of Canada and for which “we the people” receive zero direct compensation?

If Magna needs 50 million dollars in investment should not the taxpayers of Ontario receive 571,428 shares in Magna(50 million/ 87.50)? That is, if the government is going to be in the business of investing in Canadian companies why is this happening in the form of grants and not as would any other investor through an equity stake or as a holder of corporate bonds?

This is especially so in light of the fact that Frank Stronach’s attachment to Canada is about as stable as an accountant’s heart. As Frank once said:

To be in business your first mandate is to make money, and money has no heart, soul, conscience [or] homeland”

Given this, surely an ownership stake would not be too much to ask. At least Ontario would have something to sell when Frank’s fickle heart found a more lucrative trough to feed in.

Continuing on our P3 and infrastructure discussions, an unreported part of the 2007 federal budget. The conservatives announced the establishment of a “new federal office to identify and implement opportunities for public-private partnerships in infrastructure”. They then go on to say that

In the case of large projects seeking funding from the Building Canada Fund and the national fund for gateways and border crossings, proponents will also be required to demonstrate that the option of undertaking the project as a public-private partnership has been fully considered.

One wonders whether only considering the option will be enough to receive needed grant dollars. Also funny how the feds are willing to subsidize up to 25% of P3 projects — talk about bad incentives. It seems Flaherty has picked up where he’s left off in the move towards infrastructure privatization.

Travis Fast

UPDATE: We should note that since the publication of this article the Heritage Foundation has removed their methodology section and no longer provides a detailed description of each of their sub-indices’s

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Here is a question for our readers. What do the Heritage Foundation and Karl Marx have in common? The answer it turns out is that they fundamentally agree on the definition of “labour Freedom”. Seems odd, I know, but to understand how there could be such a strong symmetry between the Heritage Foundation’s concept of Labour Freedom and Marx’s definition we need to first unpack what Karl Marx meant by the freedom of labour.

Doubly Free Labour

Key to understanding Marx’s definition of Labour Freedom is to appreciate that whenever Marx speaks of the freedom of labour he is speaking about the two-sided nature of labours freedom within capitalist economies. Marx noted that as the commons was shut down and as formally tied labour was made “free” from the land due to the withering of feudalism and the associative process of the increasing productivity of agriculture, workers found themselves increasingly made doubly free. On the one hand workers were freed from what Marx called their means of production, i.e., the ability engage in subsistence farming to meet the basic requirements for the reproduction of the family unit. On the other hand, it also meant that labour was “freed” from all those customary ties that had bound labour over to the land. This freedom of course created another freedom: the freedom to search for employment and the freedom to be fired.

Capitalist forms of labour do not rely on direct political coercion to induce labour to work. What induces labour to engage in wage labour is their “freedom” from the means to (re)produce the necessaries of life. This freedom ensures that in order for labour to survive it must be contracted to capital via the wage relation. Labour is thus doubly free. Labour must, owing to its freedom from the means of production make a wage contract with capital. True labour can contract with any employer that offers it such a contract but contract it must because in absence of entering into a wage contract labour also finds itself freed from the necessaries of life.

Heritage Foundation Freedom Index (HFFI)

I am sure at this point that some readers are asking, “what does all this have to do with the Heritage foundation?” Quite a bit. Apparently understanding the class character of capitalist social relations the Heritage foundation has taken to publishing a “freedom index” which can be found here:

.http://www.heritage.org/research/features/index/countries.cfm.

This index is really an index of several sub-indices, one which being a “labor Freedom” index. The Heritage Foundation derives this index by examining the ease with which owners can fire and hire workers along side of the costs of doing so. According to the Heritage Foundation Canada has a relatively high degree of “labour Freedom.”

Canada: Labor Freedom – 82.7%

.
The labor market operates under flexible employment regulations that enhance employment and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is relatively costless. The labor law does not mandate retraining or replacement before firing a worker. Canada’s labor market flexibility is one of the 20 highest in the world.

Contrast Canada with Sweden:

Sweden: Labor Freedom – 52.0%

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The labor market operates under inflexible employment regulations that hinder overall productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is costly. Rigid labor market regulations, including high statutory overtime payment, have contributed to Sweden’s failure to create jobs, particularly in the private service sector.

What the Heritage Foundation’s labor freedom index actually measures is the degree to which Marx’s conception of the “doubly freed” worker is enforced within capitalist economies. The higher the restriction on terminating workers—“freeing” workers from their ability to earn a living as Marx would have it—the lower the labour freedom index. In this sense the Heritage index gives us a good metric of the degree to which classical liberal ideas dominate labour markets in various countries. Ironically they have had to invoke Marx’s definition of freed labour to achieve this.

Inadvertently their index also gives us a labour commodification index. Moreover, it also provides a flexibility index against which unemployment rates can be regressed which would provide a quick and dirty way to test the supply side argument about the supposed positive relationship between flexibility and unemployment.

Note that Canada’s unemployment rate is a full percentage higher than Sweden’s despite the fact Sweden has a much lower score on the freedom index.

NB Even a superficial glance at the HFFI reveals that it is wortheless as guide to the real conditions in labour markets in the third world as they have zero appreciation for the rules governing labour markets in the informal sector.

Travis Fast

From a policy point of view election budgets are always a bit of a disappointment. And this year’s budget is no exception. The problem with an election budget is that it is designed to spread the gravy over the finest pork going.

Why pork? The central issue is this. There are any number of serious structural problems within any given country at any given time. The problem with election budgets is that they do not set a list of priorities and decide which structural issues will be given the necessary attention and resources, but, rather, are driven by the need to placate all the major vested interests: voters, corporations and provinces. The problem is that placation does not equal a comprehensive solution but rather a series of eclectic half-measures that do not add up to a coherent national policy or plan. So while everyone gets a little bit nobody gets enough to solve their fundamental problem: a little for the environment but not enough to even come close to a serious plan; a little for child care but not enough to actually make cheap affordable high quality child care a reality; a little for provinces but not nearly enough to make up for previous years of off-loading and the economic inequalities that it help to create.

The list of course goes on and on. Election budgets are bad because they attempt to mask the priorities of the ruling party and this is exacerbated when speaking of ruling parties in a minority position. I do not have the details at this time but I suspect as the fine print is sifted through and the numbers are crunched this budget is going to be long on smoke and mirrors (and provincial federal relations) and very short on decisive action. And while that might be a good thing so far as Tory budgets go, Canadians would to well to dwell on the fact that this tickle trunk approach to politics and economic development is the kind of monkey business that lead to 15 years of irresponsible liberal and conservative budgets and another painful 15 years to unwind.

And it seems this what we are back to: budgets devoid of vision and a plan but filled to the brim with crass political calculation. Gravy on top of the pork is good but vegetables are better.

Travis Fast

1.) Environment: Kyoto and its associated mechanisms for reducing carbon emissions are a place to start but it is clear from the European and American experience that government will have to use a series of carrots and sticks to force / encourage compliance within the private and household sectors. This means creative use of the tax system and legislated reductions in carbon emissions. Given the urban density in Canada the federal and provincial governments need to come up with a ten year road map for the public transit in the cities and an expansion of inter urban rail transit. This plan needs to be supported by a robust set of disincentives to automobile usage.

2.) Income Inequality: In an era of regulatory arbitrage particularly with regards to corporate and capital taxes there is a limit to how progressive the tax system can be made. Even if we conclude that Canada is already competitive in this respect it still means that there is not much room to increase corporate and capital taxes. As such stronger legislation for employee standards and industrial relations, which empowers workers to bargain over their share of the output they produce, is the easiest way to decrease income inequality between employers and employees.

3.) Taxes: As Canada is already quite competitive on corporate and personal income tax rates within High Income OECD countries tax cuts should be given low priority. Instead a revaluation of the tax mix and burden of the tax system should be engineered to accomplish social and economic goals.

4.) Health Care: We have long since past the point where tinkering at the margins of the system will suffice. It is time for a radical rethink of socialized Health-Care. Private delivery is not the direction to go. The left needs to think how health care can be delivered in a more cost effective and direct fashion. Ultimately this will involve creating new classes of health practitioners that can perform some of the functions now preformed by doctors. Community Public Health needs to be re-envisioned so that it takes the burden off the short supply of doctors and the expensive use of emergency health services.

5.) Education: For too long the K-12 system has been asked to do much more than simply educate young Canadians. It has become the primary agent of socialization for broad classes of citizens. This role needs to be recognized and accepted and specific policies and resources need be developed for the public education system, which allow it to accomplish these goals alongside producing high quality students. Given that a university degree / trades degree is now all but standard there should be greater emphasis on integrating the grades 10-12 curriculum with that of the first two years of university / occupational training.

6.) Higher Education: University and Technical training are now standard requirements in the Canadian Job market. The funding of higher education needs to be made more accessible and affordable. The system of student loans is inadequate and regressive. Serious consideration should be given to using the personal income tax system to fund higher education. The most elegant solution would be to instigate an income tax premium for every year of higher education beyond grade 12. This would effectively allow the public to see a return on investment in education over the lifetime of workers earnings and would allow citizens to pay for their education over a lifetime of their earnings. Along side of this proposal special incentives need to be developed for the training of professionals and trades that are currently in short supply or are projected to be in short supply.

Someone should tell Labour this was tried in Canada, failed miserably, the banks abused it, and the government had to step back in. Should governments really be trying to raise money this way? Why would any government sell “assets bearing a steady stream of income.” Sound familiar?

Brown to sell off students’ £16bn debt

By Chris Giles and Nicholas Timmins

Published: March 14 2007 23:20 | Last updated: March 14 2007 23:20

Gordon Brown will raise billions of pounds to put education at the centre of next week’s Budget with a privatisation of the student loans system.

The chancellor will make the announcement of extra billions for education the centrepiece of what seems sure to be his last Budget.

The book value of student loans at the end of March last year was £16bn and the Treasury is planning to sell a large chunk of this to a private sector that has an almost insatiable appetite for assets bearing a steady stream of income.

The money raised will lower government debt, ease the chancellor’s constraints from his budgetary rules and allow him to meet his manifesto commitment on education of raising its spending faster than the growth of the economy.

Education is set to receive a budget settlement in the comprehensive spending review of about 3 per cent above inflation, more than the projected 2.75 per cent real growth of the economy.

If somebody walked up to you and said they had an investment tip that would give you a return of 8-10% a year for 25 years, you’d probably ask, “what’s the catch”.

Infrastructure is a hot topic in investment circles these days, particularly for pension funds. The major public pension funds (Teachers, OMERS, etc.) and our collectively owned CPP have been seeking out infrastructure deals of all sorts, including energy, water, and roads/bridges. A few examples:

- Borealis Infrastructure, a subsidary of OMERS, owns parts of Associated British Ports, the Confederation Bridge (in PEI), and 16 elementary schools in Nova Scotia.
- Teachers has significant stakes in two U.K. water systems, 10 U.S. power plants, and a U.K. gas distribution network.
- CPP has a stake in a the major Chilean electricity company.

It’s no secret why pension plans are all over infrastructure investments. Everybody needs the services infrastructure provides, so they generate steadily increasing revenue streams over time, perfect for funds looking to get decent, long run, low risk returns.

Good returns on the long run? Sounds great! I’ll be able to retire! The problem is that users of this infrastructure, which for all intents and purposes is every citizen, are paying for these returns.

Returns imply that profits are made, and profits imply that prices are above costs. Take a water plant. If your pension fund is making money from owning a water plant than it’s charging you more than would otherwise charge so that it can earn a profit. Seems like a shortsighted plan, doesn’t it.

Some would say that the profit is earned from efficiency enhancements rather than higher prices. I will discuss this myth in future posts. “Efficiency enhancements” usually come from fewer services at lower quality and/or lower labour costs. Labour costs are lowered through layoffs or the dismantling of unions and the ability to bargain collectively. Again, another cost to this “investment”, whether in poorer services or in, well, your job loss.

Although we never think about it this way, governments earn a similar return from investing and owning infrastructure assets. Investments in publicly owned/managed hospitals, schools, transportation networks, and water systems provide benefits (a different kind of “profit”) to society as a whole. When private profit is introduced to these services, the return to society is subsequently reduced.

So there is “a catch”. Broadly speaking, these infrastructure arrangements are about undermining the role of the public sector, something I’ve discussed in an earlier post. We must start paying more attention to the investments being made by the large pension funds that supposedly represent our interests.

Part 2 of an ongoing series on P3s.