Stuck Between Two Centuries

Yesterday afternoon, our International Trade Minister David Emerson and his Indian counterpart announced a trade agreement between the two countries which will guarantee fair legal treatment for each other's investors. Whatever that may mean, this type of agreement is generally regarded as a stepping stone for an eventual free-trade deal. So who knows, in five to ten years, we might have free-trade with India (I can already hear the NDP screaming).

This agreement follows a major free-trade deal which we signed last June 7 with the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland), and to add to the buzz, there are negotiations being currently undertaken towards a free-trade deal with South-Korea. So wake up people; borders are disappearing and trade is increasing. Meet... globalisation.

We’ve all heard of this fancy phenomenon called globalisation and we’ve all got a rough idea of what it means and entails: more trade, less tariffs, more outsourcing, more communication and the list goes on. But while we may all know about it and understand it and while our International Trade Ministry may be taking steps to keep up with it, our monetary policy is still years behind and our whole business sector seems to be complacently watching it hit us.

We all seem to assume that globalisation will only affect us in terms of job losses and money leaks; that it is simply about Canadian firms investing and moving operations abroad. This is all true, but globalisation also means the reverse. It also means foreign companies investing in and moving to Canada, foreign workers resettling in Canada and foreign capital coming to Canada.

Just look at the banking sector. Ten years ago, there was only the “Big Five”, which had a total monopoly over the whole Canadian banking world that allowed them to comfortably sit on their market share and gauge consumers by charging ridiculously high fees while paying no interest on their personal savings. Today, we’ve got new foreign players such as the Dutch giant ING, who are attacking the “Big Five” right in their home turf and forcing them start competing for business.

The clear winner from this new situation is the Canadian consumer, who can’t be taken for granted anymore and who is now being offered more and more options and benefits. The clear losers, of course are the big Canadian banks, who are now facing competition in what is the only market they have access to because of their small size (compared to giants from other countries). Now, you’d think that the government would have adjusted its monetary policy and let Canadian banks merge so as to make them competitive on the international stage thus allowing them to compensate losses at home with gains abroad, but our government is still living in the 20^th century and assuming that letting banks merge would ultimately hurt Canadian consumers. Of course, our big banks merging would have absolutely not effect on the consumers because of the foreign competition which would force them to keep competing for their business.

Another example would be our mining giants (or what we think are giants), which all seem to be disappearing into foreign hands. Instead to giving them the tools to be aggressive on the foreign takeover market through smart tax policy and less merger regulation, the government has been content with letting them stick to the home market until they grow big enough to become takeover prey. Remember Inco and Falconbridge? One of the reasons that they didn’t merge was become they feared our Competition Bureau would put its foot down. And more recently, we saw Flaherty’s failed budget bill on “double dipping” and “offshore tax deductions” which precipitated the bidding war for Alcan.

One could advocate that Canada should close its borders to foreign takeovers and encourage its companies to stick to the domestic market. That model was very much in style during the last century, and is still adopted by a number of countries. Today, most economists would advocate that Canada should open its borders to foreign takeovers while also giving its companies the tools to make foreign takeovers. That model is theoretically much more adapted to the reality of globalisation.

At the moment, Canada is stuck between the two and suffering from it. Our borders are open and our firms are going like hotcakes, but they aren’t being given the tools to engage in merging and buying abroad. We should really stop now, because this can only lead to troubles.

Think Twice

I’m really getting fed up by all the militaristic macho patriotic junk that I’ve getting from the papers and an alarming number of parliamentarians. They all seem to regard our strong and proud military as the proof of our country’s greatness and as an essential part of our Canadian identity.

I know that this debate has been going on for ever since confederation, so there’s no use in expanding on this topic any more. Instead, I’m simply going to treat you to a few numbers and pictures and let you draw your own conclusions.

This is a Boeing C-17 Globemaster 3 airlifter, which is sold at the friendly price of $202.3 million USD apiece. National Defence has just acquired four of those, which amounted to a little less that a billion USD once maintenance and repair were included. They use to simply rent a fleet whenever our SWAT team needed a lift, but that was simply considered inadequate for a military as great and powerful as ours.

This is one of the four infamous Victoria-class submarines that we bought used from the UK at a friendly price of £244m, which is around $600m CAD. Unfortunately, they are all in so bad shape that the cost of the repairs which will have to be undertaken to make them battle ready is estimated to be comparable to their initial price. So if we add another $600m CAD to make the subs water-tight and battle ready, we’re up to 1.2g CAD.

And just in case you weren't impressed yet, here’s an image of one of the two “Future Carriers” that are being developed for the Royal Navy at an estimated cost of £3.6 - £3.9 billion, or $8 - 9 billion CAD.

Now, for a change of scenery, here’s the tallest skyscraper in the world, Taipei 101, which is known to the world and provides the rapidly expanding city with an additional 412,500 m² of floor area. The total cost of the project came to around $1.6 billion USD, which is a little more than the total cost of our four Victoria-Class submarines and about half of the price of a single “Future Carrier”.

Here’s an MRI scanner. They cost around 3-4 million CAD. We are at a shortage of those, which is really a problem when one considers how significant and life-saving they can be.

Here’s a small child in Ethiopia getting his first vaccinations. They cost less than a dollar per child. In other words, a billion CAD less than four used British submarines.

It makes you think twice, doesn’t it.

Free Press

This link contains a video prepared by a Belgian TV station showcasing French President Nicolas Sarkozy arriving late at a press conference and visibly completely drunk. http://www.youtube.com/watch?v=Wd44XTlUQjQ

As you can see, it’s an absolutely hilarious clip! My favourite part is when he tells the journalists that they should ask the questions because he wouldn’t know what to ask them. Strangely though, not a single French TV station decided to broadcast this clip.

It really is unbelievable: a clip of their drunken president didn’t make the French’s 10 o’clock news. To add to the drama, the country is currently going through an election campaign (this current election is the legislative elections, which is not to be confused with the Presidential election that was won by Sarkozy) and Sarkozy’s party desperately wants a victory.

With the first ballot results announced, that victory seems almost assured, but this may not have been the case if the clip had been broadcasted nationally on the eve of the election, which would no doubt have happened in Canada if faced with a similar situation.

This is a reminder of the vital importance of a free press. In France, the Sarkozy virtually controls the main TV agencies, and in the case of this video, his control had a grip on the election results. In Canada, though the problem is not nearly as drastic, our government has been notorious for making the media's life difficult, and this trend has shown no sign of reversing itself. We must tell Harper that enough is enough so as to avoid ending up with dismal and controlled reporting à la Française.

TSX

The S&P Composite TSX index hasn’t stopped climbing in the last few months. It started the year just above 10 000 and is now hovering around 13 500, having just peaked a few weeks ago at 14,216. It doing so, it has significantly outperformed other major stock exchange indexes including the Dow Jones, Nasdaq, FTSE 100 and Nikkei.

These are indeed pretty sweet number for the Bay Street world, but they’ll also dangerously deceiving when it comes to measuring the overall value and healthiness of the exchange.

To get a more accurate idea of the direction towards which the TSX is heading in terms of competitiveness and size, we must look much farther that the simple S&P Composite index, which while being a useful tool, only provides us with a small part of the picture.

First and foremost, the index’s rise is almost solely due to the rise in value of Oil and Gas firms, which is itself directly correlated to the price of oil. Put it this way, if they have another major hurricane in the Gulf of Mexico which destroys a few refineries thus sending the price of oil skyrocketing, we can bet on the index gaining 250 points in an hour. This can look nice on paper, but is hardly a proof of an exchange’s strength.

Another key indicator of an exchange’s heath is its diversity, and most notably the diversity of its largest firms. Here’s an alarming statistic: in the year 2000, at the height of the high-tech boom, the ten most capitalised companies in the TSX were in telecommunications, oil and gas, mining, transportation and financials. With BCE up for grabs, we can be fairly certain that by the end of the year, the top ten will all be in either finance (banking or insurance) or Oil and Gas. Contrast that with an exchange like London where the ten most capitalised companies are currently in Oil and Gas, banking, pharmaceuticals, mining and telecommunications. This may not seem like such a big deal at the moment, but I can assure you it’s dangerous for a country’s main exchange to be reliant on two or three industries.

We should also remember the importance of flagship industries. Every exchange has them. For instance, the Paris Stock Exchange, now merged with other European partners to form Euronext, has always been the place to raise capital in the fashion and cosmetics industry. The TSX’s flagship indursty has always been mining. It’s used to attract major minors from all around the world, and had its own set of respected major Canadian miners such as Inco, Alcan, Dofasco, Falcongridge and you name them. Nowadays, with both Alcan and Stelco likely to be taken over by foreign firms, the only major Canadian mining company left seems to be BarrickGold. The TSX’s supremacy in the industry is also following suit and losing major ground to emerging markets such as Hong Kong, Sydney and most notably London.

To make matters worse, Toronto is also behind in the race to forging new alliances. Just this past year, we’ve seen New-York merge with Euronext, London team-up with Singapore, and the Nasdaq try to acquire London. Even the Montreal Exchange has gone looking south of the border for partners and settled on a 34% stake in the Boston Options Exchange. And Toronto? They’re considering their options.

So next time you read the paper and see a big green number with an arrow pointing upwards beside the S&P Composite TSX index’s symbol, don’ be fooled!

Transit

What problem does every big city in the world suffer from? Well, I guess there are lots, but I think we’d all agree that transit would usually claim the first prize.

Still, some cities, especially European ones, have dreamed up some pretty good solutions to the problem. I guess that they’re usually denser, so that must help, but it’s also a question of smarts.

Yes, smarts, the Europeans are smart about transit. They understand how to get as many people from A to B with the least possible investment. In Canada, we don’t get that. We’re always wanting to start major projects, and never getting past negotiations, even though all that is needed is a new bus line or a road improvement.

Here’s an example. All large European cities have buses. Some have subways too, but they all have buses.

But they’re different buses; actually, they’re a bit like subways on wheels. You see, the thing about them is that they have a limited number of stops. Some buses in London, for instance, have only four or five. And this, obviously, means that they go faster. This is a good thing.

In Ottawa, on the other hand, some buses literally have over fifty stops. They stop at every darn street corner. So obviously, they go slower. This is a bad thing.

So put it this way: if I have the choice between biking home from school and getting there in half an hour, or taking the bus and getting there in a forty-five minutes, what will I do? Bike.

Now, if they cut the number of stops by two thirds and the bus take 15 minutes plus a 10 minute walk, what will I do? Bus.

Get it! This was just an example, but I’m sure you get the point. You don’t need to spend hundreds of millions of dollars to get results. You need to be smart.

Hockey And Soccer

I’ve been watching soccer for almost a year; The Premiership League, Budesliga, a little Spanish Liga and a few other teams.

So obviously, I don’t find it boring. Don Cherry would be scandalised. Well, it can sometimes get a little tedious, but it’s usually very exciting. Now, you’re probably all dying to hear how I feel it compares to hockey.

The truth is that they’re both pretty fun to watch. They’ve both got their strengths and weaknesses. Hockey can provide an exhilarating and quick game, but I often get annoyed because teams often have difficulty constructing plays. Soccer, on the other hand, can go for 20 minutes without a shot, but some plays can be absolutely breathtaking.

In Canada, hockey is still the most watched and followed sport, but more people play soccer. We’ll see where that goes!

Cold War 2?

The Globe and Mail’s European correspondent Doug Saunders has just wrapped up an interview with Russian President Vladimir Putin, during which the President threatened to target Europe with nuclear missiles if the US went ahead with it’s plan to build a missile shield in Eastern-Europe.

So Putin is nostalgic of the Cold War, why am I not surprised. For god’s sakes, this man got his training from the KGB and has been engaging in ruthless bullying of weaker Eastern-European countries for the last few years. He’s the kind of man who played soldier as a kid and who still finds guns cool. He’s dangerous, that’s the bottom line. He won’t blow up Berlin, but he could easily cause some serious international havoc.

Anyhow, it’s obviously impossible to get rid of Putin. Even if the Russian people wanted to dump him, he could still buy the elections with the help of his oligarch friends. So, let’s simply keep our eyes peeled and see where this situation goes. With some luck, he’ll get bored with politics and move to a stately home in the countryside, but I’m not counting on it.

Oh, and by the way. The Conservatives are now attacking Dion for eating a hot-dog with a knife and fork…