Posts Tagged "Pittis"

As Alberta’s new government considers how to boost its traditional fossil fuel economy, research released today claims politicians and other Canadians have a blind spot when it comes to the job-creating power of green business.

The report declares that while Canadians obsess about pipelines and shrinking employment in coal, oil and gas, they and their leaders have been ignoring a sector that is outgrowing the rest of the economy, attracting billions of dollars in investment and creating more jobs than either the fossil fuel or mining sectors.

This isn’t the effects of some fancy Green New Deal. Instead, the report, called Missing the Bigger Picture consists of a relatively prosaic tabulation of the growing contribution of clean energy to the existing Canadian economy.

It estimates the clean energy industry accounts for about three per cent of Canada’s GDP, more than agriculture and forestry or the hotel and restaurant industry, and employed 298,000 people in 2017.

“It’s the most comprehensive look at Canada’s clean energy sector that’s been done to date, so it looks at the number of Canadians that are employed in this sector and the economic contribution the sector provides,” said Joanna Kyriazis, with Clean Energy Canada, a non-profit think-tank based at Simon Fraser University in Vancouver.

What it finds is revealing. As well as being big and growing, attracting more than $35 billion in investment in 2017, the clean energy business sector is invisible to most Canadians and not even classified in most statistics as a sector at all.

Today’s report is compiled from data assembled by Navius Research, a Vancouver-based business that has a reputation for collecting reliable data to guide companies exploring developments in the green sector. In any business, fudged data is a recipe for ruin, and the environmental sector is no exception.

An electric tram arrives in Toronto by rail from Thunder Bay, a component of the job-creating clean energy sector that many might overlook. (Don Pittis/CBC)

Part of what Navius has done is to try to create strict rational criteria for what to include in its assessment of the clean energy economy, exclusively targeting firms where the primary business was clean energy, whether in energy production or in improving energy efficiency.  

As the executive director of Clean Energy Canada, Merran Smith says in her introduction to the report, “Put simply, it’s made up of companies and jobs that help to reduce carbon pollution — whether by creating clean energy, helping move it, reducing energy consumption, or making low-carbon technologies.”

Whereas fossil fuel energy data has been accumulated for more than a century, and is clearly identified in government and market statistics, companies contributing to the green energy economy have never been classified as a group. As such, what’s in the category, such as traditional hydroelectric production or power storage or public transit alternatives to cars, or what’s out, may yet be disputed.

Blinkered view

That will work itself out over time, but the concern of Smith and her group, and the reason for assembling today’s report, is the blinkered view of many Canadians that the energy industry and the economy are somehow in conflict with green principles.

Instead, as long predicted by advocates of the green economy, businesses that may initially have been motivated by regulation have begun to find new market-based incentives as the world seeks low-carbon alternatives.

“Instead of being in the compliance part of a company’s brain, all of a sudden it becomes part of the profit part of a company’s brain,” Stewart Elgie, professor of law and economics at the University of Ottawa, told me in a 2015 interview on the future of the business-led green economy.

This has certainly happened as demand in the global green power sector, from components of electric cars to tools and techniques for energy efficiency, reach critical mass. 

Economic research has shown that making the world more energy efficient is exactly what successful businesses have done throughout history, because energy is a cost, and cutting costs is what thriving businesses do.

An electric vehicle charging station at the Canadian International Auto Show. As the green energy sector grows it reaches a critical mass of economic activity. (Chris Helgren/Reuters)

“The clean energy sector isn’t just about fighting climate change — it’s also about using Canadian innovation to create better and cheaper solutions for everyday life,” said Smith.

If current trends continue, the Navius research says that the effect of the green energy sector will become harder to miss in the economy. Studying the period from 2010 to 2017, not only did the sector outgrow the entire economy by more than one full percentage point, but jobs in that component of the economy increased by 2.2 per cent a year, compared to an annual increase of 1.4 per cent in jobs overall.

Part of the reason why the clean energy sector is not visible is because we think of it under different categories such as public transit or hydroelectric generation. But a second reason is that as a sector, clean energy is fractured into smaller players. It is unlike the fossil fuel industry, which is backed by decades of lobbying success and established connections to political elites.

The clean energy category has no giant business voice or industry group to represent it. Even the firms defined in this report as being clean energy businesses may not see themselves as part of this sector. Perhaps the report will help change that, and will help them get the economic respect they deserve.

Kyriazis says she hopes today’s report will make people more optimistic. Usually when we hear about energy in the media, it is bad news such as a lack of pipelines, falling prices, shrinking jobs or gloom over the effects of climate change, she says.  

“The clean energy sector, here, it’s obviously a big success story that is not making the headlines,” she said.

Follow Don on Twitter @don_pittis




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There is a principal of financial investigation so old that it’s often used in its original Latin: Cui bono?

The question of who benefits, as the term translates, implies that, if you are trying to solve any crime — particularly one involving money — you must look for who stood to profit. 

Despite commendable investigative work in B.C. lately on money laundering, experts say the fact that it has been a problem in Canada is an old, open secret.

As someone tweeted following a story on the C.D.Howe report by Transparency International’s Kevin Comeau, Canadian money laundering was not exactly “new news.”

‘Maytag’ of money laundering

“All available evidence suggests that international drug barons view Canada as a safe place to launder their illegal cash,” said a Maclean’s magazine story cited in the tweet. “In fact, DEA agents laughingly refer to Canada as the ‘Maytag’ of the money-laundering industry.”

It was definitely not fresh news. That Maclean’s piece was published about 30 years ago, in October 1989.

And experts say that while Canada has toughened up its laws, especially in banking, every time the government has tried to crack down, the potential beneficiaries of that flow of money have pushed back.

Margaret Beare, author of the 2007 book Money Laundering in Canada: The Chasing of Dirty and Dangerous Dollars, says we are seeing something similar in the latest fight to impose legislation that actually works.

“The current publicity re B.C. laundering shows that a step like insisting on exposure of ‘real’ owners is resisted, regardless of the evidence that it is essential in most corporate or financial dealings,” Beare said in an email conversation last week.

There have been proposals that anybody buying real estate in B.C. will have to reveal the beneficial owner, but not everyone’s in favour of that move. 

“We still have the exception of lawyers from mandatory reporting and they still can take fees from dirty money!” adds Beare, a professor at York University’s Osgoode Hall law faculty.

For governments, one of the political difficulties of deciding to crack down is that the inflow of money — estimated in the recent report by Maureen Maloney using the gravity model at about $50 billion a year nationally — boosts many of the things governments like to boost.

As the B.C. investigations have shown, dirty money boosted real estate, car sales and casino income, as well as parts of the legal and financial sector involved in helping launder the cash. And once it is officially clean, completely above-board businesses are able to profit without legal taint.

“Money, dirty or clean, helps the economy until it becomes a distortion,” said Beare.

Experts say some of the money helping to keep Canada’s real estate market hot has come from money laundering, but after it is clean, money is just money, creating businesses and jobs. (Don Pittis/CBC)

Just as with any other inrush of cash to the Canadian economy, that money went into new businesses that paid taxes. It created jobs. If you didn’t look at the source, the money was good for Canada and Canadians.

So have successive Canadian federal and provincial governments intentionally turned a blind eye to the criminals who launder their money here? If so, why?

“It is certainly the case, even for someone like me who works in corporate criminal liability and not usually with organized crime, that Canada’s always had, unfortunately, a reputation for being a place where money laundering was perhaps easier than in other places,” says Jennifer Quaid, a lawyer who is a professor at the University of Ottawa.

Willful blindness?

She says too much time has gone by to claim that political and law enforcement authorities did not know it was happening or understand there were possible solutions that could have been adopted. The difficult question is whether the reason nothing has been done is simply benign neglect or something worse.

“Has there actually been kind of what we call a willful blindness, where you just don’t want to ask the questions, you’re kind of not wanting to look because you don’t want to know?” said Quaid.  “If that’s the case, it’s pretty serious.”

Because the process of money laundering is so opaque, pointing fingers in laundering cases is always difficult, said Vanessa Iafolla, who, as part of her research for a forthcoming book, interviews real estate agents and brokerages that have reported suspected money laundering attempts.

Iafolla, whose work is funded by the Canadian Research Network on Terrorism, Security and Society, said that when financial institutions opposed new rules in the 1980s, they complained the laws were too complicated or too costly, not that they did not want to lose business from laundered cash.

Surveillance video shows bundles of $20 bills dumped at a B.C. casino in an example of apparent money laundering. But other dirty money pours into Canada through overseas banks and cryptocurrency. (B.C. Ministry of Attorney General)

Despite the short-term stimulus that dirty cash might bring, all the experts I spoke to worried more about the cost of money laundering to Canadian society. Not only does illegal cash distort markets as in the case of real estate, it has a potentially corrupting effect.

In places such as Mexico or Colombia where the influence of criminal cash has been acknowledged, no one was surprised that the billions of illicit dollars corrupted politicians and police, squeezing out legal business and creating a climate more accessible to criminal elements. 

Canada does not have a special immunity to corruption. And while B.C.’s new public inquiry where witnesses can be subpoenaed and forced to testify may open up a Pandora’s box, experts say it is crucial to get to the bottom of that difficult question: Cui bono? 

“I think it’s the defining question,” said Iofolla. “Who benefits and how do we find that out.”

Follow Don Pittis on Twitter @don_pittis

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The potentially ruinous trade struggle now underway between the United States and China could well lead Canadians to wish a plague on both their houses. 

Following decades of stupendous growth, the Chinese economy, by some measures, is now bigger than that of the United States, and the current trade negotiation has become a battle of the titans.

But even as Canadians feel powerless in the face of two trade bullies that take turns kicking sand in our face, U.S.-China trade relations matter to this country.

Canada is, of course, affected by the global impact of escalating threats between the giants that many economists have compared to events that led to the Great Depression. But the more immediate issue is how, in a new era of muscular nationalism, Canada can keep avenues open for future trade with those two crucial export markets while sheltering our own domestic industries from the worst of the collateral damage. 

Sandbox diplomacy

Despite Canada’s strong traditional backing for the United States, Foreign Minister Chrystia Freeland was once again unsuccessful on Wednesday in getting the U.S. to end its arbitrary tariffs on Canadian steel and aluminum. And after years of supporting China’s opening to the world, that country has turned on us because we followed the law on Huawei executive Meng Wanzhou.

Listening to experts on the subject of dealing with the two trade superpowers, it becomes increasingly obvious that Canada’s strategy has much to learn from the study of bullying in the playground.

When dealing with trade bullies, maybe its time to learn from the sandbox. (CBC)

“Bullying is repeated, aggressive behavior … that involves a real or perceived power imbalance,” wrote Frank Smoll, a sport psychologist, in a discussion of playground bullying.

And while some have advised responding thump for thump — either against the U.S., against China, or both — that is not something recommended by bullying experts. Food trade expert Jennifer Clapp, Canada chair in food security and sustainability at Ontario’s University of Waterloo, agrees.

“We’re not in a position to take a hard line because we can get really punished,” she said. But caving in to one side or the other doesn’t work either.

As everyone knows, becoming a bully’s sidekick does not necessarily protect you from thumps once they know they have you in their power.

Canada plays fair

And while taking a hard line may score political points, Gordon Houlden, director of the University of Alberta’s China Institute, said Canada has had a long reputation, going back at least to the Pearson era, for playing the role of peacemaker and supporter of rules-based negotiation and diplomacy.

“We Canadians are legends in our own mind,” said Houlden, an Asia expert who also keeps a close eye on U.S. trade policy related to Asia. “We assume always that we do these things because we’re virtuous, but the cynic in me says no, that as a trade-dependent country — more trade-dependent than either the United States or China by a country mile — that we do this because it is in our own best interest.”

China’s President Xi Jinping and U.S. President Donald Trump back when they were more in tune. (Damir Sagolj/Reuters)

A standard recommendation when faced with a bully is to seek allies and present a common front, a point made by Munk School Asia scholar Lynette Ong on CBC Radio’s The Current this week.

While the giants want to set their own rules and make trade partners comply, Canada and 13 other less powerful exporting economies, including the EU, South Korea, Brazil, Japan, Australia and Mexico, have been trying to make common cause.

Another place to find friends is within the trade titans themselves.

Despite the Trump administration’s move toward one-on-one trade deals where the bigger party holds the biggest stick, there remains significant U.S. support for trade rules that prevent constant turmoil.

And while China’s political system does not lend itself to outspoken internal opposition, it is certain that within that country there are also those who believe in rules-based fair trade.

If Canada plays the long game, internal allies in both countries may come to power.

Canadian Foreign Affairs Minister Chrystia Freeland arrives for a meeting with U.S. Trade Representative Robert Lighthizer in Washington on Wednesday. Fairness and rule of law may be not just a virtue but also in Canada’s interests. (Kevin Lamarque/Reuters)

Of course, the fact that the rules-based World Trade Organization continues to exist, if in a weakened state, leads to another classic anti-bullying rule: Complain to an adult.

Anti-bullying wisdom also recommends that the bullied should remain assertive and unemotional, as Freeland continues to be.

As Houlden said, Canada cannot expect to win every battle, but on important issues — including the steel and aluminum tariffs imposed by the U.S., and the Canadian citizens being detained by China — we should not give up, even if our attempts lead to repeated failure.

And if we want to make ourselves less susceptible to future bullying, Canada must learn the lessons of its current predicament, said Waterloo’s Clapp, who researches the economics and political economy of world trade in food.

For instance, while Canada has been successful in exporting canola, soybeans and meat to China’s single enormous market, we now see there could be advantages in diversifying crops and export destinations — including producing more for the Canadian domestic market to be processed, if not consumed, at home.

It may be to this country’s benefit to be politely but firmly anti-bully, to stand for rules and follow them, to act in support of global trade fairness that helps others and does not just satisfy our own short-term interests.

And once the battle of the titans is over and cooler heads prevail, we may find they, too, will be glad we did.

Follow Don on Twitter @don_pittis

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Volkswagen, the company that alternates with Toyota for the title of world’s biggest carmaker, shook up the global industry last week when it announced it would begin accepting orders for its new electric car, the ID.3.

With a price and a 550 km range that challenge the Tesla 3, the new Golf-sized battery-powered car signalled a startling shift for the German automotive sector that only a few years ago seemed locked into its historic specialization in fossil fuel technology.

But just as skeptics have repeatedly underestimated the ability of the car business to adapt to climate change, there is early evidence of a potentially bigger transformation underway: the move to abandon car ownership altogether.

“I had an F-150, so when I did drive it was quite expensive,” said Calgary resident Damien Prud’homme, who gave up his Ford truck about six months ago. Besides the price of gas, the other expenses for the 10-year-old truck, including growing maintenance bills and insurance, just didn’t seem worth it because he drove it so seldom.

Instead, the telecom technician, who drives a company vehicle when on the job and who could afford to own a car if he wanted one, now uses car-share service Car2Go for occasional private trips. Prud’homme estimates his total cost for car sharing at about half of what he paid every month for insurance alone.

As the highrise building boom continues, downtown population concentrations mean not everyone can get around by car, whether it’s one they own or one they rent. (Don Pittis/CBC)

As General Motors shuts down plants in Canada and the U.S. and carmakers scramble to catch up to Tesla, many car analysts say a move away from private car ownership could be a hitch the industry hasn’t foreseen, and the reasons are not just economic.

In my family, after selling our beloved VW wagon back to the company last October as part of the “dieselgate” scandal,  and stumped over what to buy next, we decided to wait a while and try going without. Since then, it seems I keep encountering more people who have abandoned their private cars.

So far, anecdotal information about a decline in Canadian car ownership is not backed up by the stats, according Denis DesRosiers, one of Canada’s best known automotive number crunchers.

10 million more cars on the road

“Vehicle ownership in Canada is at all-time record levels, and it’s been increasing,” said DesRosiers, citing figures showing there are now 10 million more vehicles on the road than there were in the year 2000.

Recent figures have shown sales growth tailing off, which some have blamed on rising interest rates, although DesRosiers said the decline is likely temporary and sales remain at historic highs. DesRosiers said car ownership has never been evenly spread. He notes that his own daughter, an urban dweller in her 30s, does not own a vehicle, but he himself owns three. 

Charlotte Yates, a longtime car industry analyst who is now vice-president at Ontario’s University of Guelph, says other research may indicate something else happening: like DesRosier’s daughter, younger urbanites are delaying car ownership or abandoning it altogether.

Strapped by the high cost of housing, a downtown lifestyle, salaries that aren’t as high as previous generations and a growing variety of alternatives to car ownership, there are signs that fewer young people are getting driver permits, and many more are adopting a lifestyle that just doesn’t include a car.

That will grow as cities become more dense, something that has already happened in places like Hong Kong and New York.

“What I’m talking about is not a snapshot,” said Yates, referring to DesRosiers’ statistics. “This is about what we are projecting is going to be the long-term effect of shifting consumer demand amongst young people.”

Canadian car-sharing company Communauto, founded 25 years ago and now operating in 13 cities from Edmonton to Halifax, is one alternative to owning a private vehicle. (Communauto)

Current research by urban planning specialist Ahmed El-Geneidy at Montreal’s McGill University seems to confirm Yates’ analysis, with studies that show urban 30-year-olds today take public transit far more often than people in the same age group 20 years ago.

El-Geneidy’s research in Toronto shows that while some better-off urban dwellers may buy a car once they move to the suburbs to start families, high downtown housing costs force low-income families to move out along existing transit routes to avoid the cost of car ownership.

Public transit use, along with services like Uber and Lyft, car sharing and bike sharing plus traditional car rentals are all elements of a new way of looking at transport called “Mobility as a Service,” or MaaS. The term implies people will increasingly hire their transport as needed and as appropriate rather than investing in the capital cost and upkeep of a private vehicle.

Wilson Wood, a senior executive with the Canadian car-sharing service Communauto, is one of the people profiting from that change. Founded in Quebec City 25 years ago, the company, a global pioneer in car sharing, has spread to 13 cities across Canada, from Edmonton to Halifax, with a branch in Paris that Canadian members can use as well (if they dare).

Wood said his figures show that every Communauto vehicle represents about 30 members who decades ago might have owned a personal vehicle.

Not everyone can drive

While car-share numbers remain tiny compared to private cars on the road, Wood said his company continues to grow and continues to be profitable as people reconsider buying cars that sit unused most of the time.

The fact is that in jammed urban cores with highrise population densities it’s simply impossible for everyone to travel in a car, whether you own it yourself or rent your ride — something that Marco D’Angelo, CEO of the Canadian Urban Transit Association, realized before getting rid of his own car about six months ago.

“Someone’s not going to use a ride-sharing program 100 per cent of the time,” he said. “But once they’ve moved away from having a privately owned vehicle that’s parked 96 per cent of the year, all of sudden all of the options are on the table.”

That’s certainly true in our household. We have not ruled out buying another car. If VW’s new ID.3 had been available when we turned in our diesel last October, it is very possible we would spent the rebate on one of those.

But now that we’re living comfortably without a car, without car insurance, without snow tire changes and maintenance bills and parking hassles, never mind considering the tens of thousands of dollars in purchase price and our carbon footprint, like others who decided to wait, we’ll have to find a very good reason to go back.

Follow Don on Twitter @don_pittis

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Canada has become a well-known target, even a magnet, for money laundering, and no wonder. 

According to a report out today from the C.D. Howe Institute, a Canadian think-tank, 99.9 per cent of those money launderers are just never caught.

And as British Columbia begins to crack down on the washing of dirty money, the author of the new report, retired corporate lawyer Kevin Comeau, says failure to change national laws just means the crime will go elsewhere in the country.

“It’s highly unfair to law enforcement agencies to say that they’ve been ignoring it,” said Comeau, a member of Transparency International Canada’s working group on beneficial ownership transparency, in a telephone interview. “The problem is that they don’t have the tools to address it.”

Ironically, it is Canada’s reliable rule of law system that attracts the money launderers. Dirty money can come from crime anywhere in the world, including Canada. But much of it is funnelled out of poor countries and autocratic regimes.

But whether the source is drug crimes or political bribery and theft, the people who claim that money don’t want to keep it in those autocratic countries because a more powerful leader could simply take it.

Not so in liberal democracies like Canada where, once you have the legal right of ownership, the law firmly protects that right.

For that reason laundered money in Canada is much more valuable than dirty money elsewhere. And that is why money launderers are pleased to pay well over asking for high-priced real estate, where multimillion-dollar blocks of cash can be cleansed in a single deal.

Former Peruvian president Alan Garcia killed himself after being accused of accepting kickbacks from construction companies. If corrupt leaders can get their money to Canada and laundered, it is hard for the government to get it back. (Pilar Olivares/Reuters)

Unlike perpetrators of many other crimes who can be caught in the act and arrested, money launderers have three big advantages.

“One is the invisibility of the crime. The other is the anonymity of the perpetrators of the crime, and the third is the legal difficulties of tracing the money,” said Comeau. “Because you don’t have a money laundering crime until you can prove that it’s the proceeds from an underlying crime, i.e. drug dealing, political corruption, kickbacks, that kind of thing.”

For all practical purposes, tracing the money back to it its original illicit source can be impossible for Canadian law enforcement officials.

Down the rabbit hole

Not only has the money been filtered through a web of corporate entities before it comes to Canada, but sometimes the cash passes through companies headquartered in notorious tax havens such as Saint Kitts and Nevis, where it is actually illegal to reveal the beneficial owner. Comeau describes that as the “rabbit hole” of hidden money.

Comeau says that despite Canada’s fractured securities laws controlled by each province and territory, there are things lawmakers can do now if they are serious about making Canada less of a money laundering oasis and bringing the country up to the standards of other rule of law countries.

Canada allows nominees, companies and trusts to buy and sell property without revealing the person who is the beneficial owner. Comeau said that must change.

‘Clean’ Canadian money is worth a lot more after it has been laundered, making fines almost meaningless. Instead, the C.D. Howe report is calling for prison time as a penalty. (CBC)

The key provision of any such laws would be that the lawyer or other agent moving money through Canada must reveal the beneficial owner of that money in a publicly searchable database.

Comeau insists it is crucial that the information is not on a private database, but is available for everyone, including people who may have lost that money overseas.

While that conflicts with privacy laws, proponents of the changes says it is well within Canadian law in order to solve this money laundering crime.

Prison time required

To be effective the law must create offences that could include declaring money to be clean when it is not, falsely declaring beneficial ownership, and something called “unexplained wealth orders” that allow authorities to demand the source of money back to its origin.

The other essential part of the new laws must be the inclusion of imprisonment as a penalty for serious violations, because with so much money at hand, fines become meaningless. Prison time would be something else again.

“Then the law enforcement agencies would have something right at the beginning to say to the guy: ‘Tell us who the beneficial owner of all this is or we’re going to charge you,'” said Comeau.

“The money launderers have to bear the very real risk that the person will cut a deal with law enforcement agencies and give them the information leading back to the perpetrators of the original crime.”

The entire C.D. Howe report will be available in this link once the document is released at about 7 a.m. ET Tuesday.

Follow Don on Twitter @don_pittis

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Conservative politicians who think action on climate change is a left-wing project should look to Britain.

While not advertised under the Green New Deal banner, the U.K.’s climate plan, expected to be approved by Britain’s Conservative government, has many similarities, intending to boost the economy while fighting climate change.

Many Canadians, observing extraordinary levels of flooding, windstorms, forest fires and drought have come to accept that “something’s going on,” as Ontario Premier Doug Ford said during a visit last week to flooded Ottawa suburbs.

As Michael Morrice, an entrepreneur and activist who recently became the federal Green Party candidate in the southern Ontario riding of Kitchener Centre, repeatedly insists, fixing the climate can be good for business. And as Morrice has shown, business-friendly climate change success does not require handouts.

A decade ago Morrice set up Sustainable Waterloo Region, a non-profit group to support and publicly recognize businesses that cut their carbon footprint. Within five years, he told me, 14 per cent of the Waterloo workforce was working for an employer committed to the scheme.

Like winning a war or going to the moon, experts say, government investments in green projects can create radical new technology that the private sector could never afford on its own. (NASA/David Scott/Reuters)

“And they were saving money while they did it,” said Morrice. 

As political parties and activists across the spectrum consider election-winning strategies that include climate action combined with a stronger and fairer economy, it is a message they will likely want to consider.

Transformational impact

But when they do commit to using their enormous spending power, governments can have a transformational impact, says British-based scholar Mariana Mazzucato using evidence from the most successful parts of the U.S. economy. 

In her 2015 bookThe Entrepreneurial State, the economist’s intent was, as the book’s subtitle suggests, “Debunking Public vs. Private Sector Myths.” 

Mazzucato makes the strong case that, contrary to the stereotypical neo-liberal view that the private sector creates wealth while governments spend it foolishly, the most vibrant parts of the U.S. economy have been a direct result of government investment.

“From the internet to biotech and even shale gas, the U.S. state has been the key driver of innovation-led growth —willing to invest in the most uncertain phase of the innovation cycle and let business hop on for the easier ride down the way,” Mazzucato writes.

Private sector risk-takers might not call it easy, but as Mazzucato points out, Uber would not exist without government-funded GPS. The billions in the coffers of Google, Facebook, Amazon, Apple, Samsung, Tesla, SpaceX and many lesser companies would simply not have happened if taxpayers had not financed the technology they depend upon.

Even the earlier generation of computer technology credited to Bell Labs was based on a government deal forcing the telecom giant to divert a share of its windfall as a monopoly to R&D.

Otherwise the money would have simply disappeared into the pockets of shareholders — reinvested yes, but usually in financial endeavours that would show a short-term return, not in the highly risky original research that transforms economies.

And as governments consider how to reshape the economy to fight climate change Mazzucato has said perhaps the most wasteful way to spend is to simply hand out taxpayer money to companies to do what they were going to do anyway.

“You give them some sort of tax incentive to do it,” said Mazzucato, in a recent interview about her latest book, The Value of Everything.

In her book, economist Mariana Mazzucato demonstrates that rather than being a waste, government money spent on risky research is key to U.S. private sector wealth, a business-friendly lesson for the Green New Deal. (Penguin)

Instead, she says, governments must spend on green innovation the same way they spent on winning a war or launching a moon shot, with a goal firmly in mind. The modern green equivalent is ARPA-e, similar to defence research (DARPA) and space research (NASA), except directed at “high-impact energy technologies that are too early for private-sector investment.” 

One common argument against government-directed investment is that governments aren’t qualified to “pick winners,” but Kyla Tienhaara, Canada Research Chair in Economy and Environment at Ontario’s Queen’s University, says that seems to be forgotten when taxpayer money is directed into projects like pipelines.

Tienhaara conducted research on green stimulus spending following the 2008 credit crunch, and she discovered that in many cases taxpayer cash labelled green turned out to be handouts to the better-off or to corporations in ways that did not necessarily advance a climate agenda.

She cites a British Columbia transmission line funded under a green infrastructure project.

“The only people wanting to use that amount of electricity up there were actually mining companies,” said Tienhaara.

Canada can be a player

She also points to taxpayer-funded carbon capture and storage that she says was mainly a justification for the oil and gas industry to keep producing as normal.

Just because Canada is a small economy does not mean it cannot be a player. Artificial intelligence funding, for example, has demonstrated Mazzucato’s contention that unlike handouts, creating an area of radical expertise attracts a cluster of businesses that gather to feed off the groundbreaking ideas that result.

On the Green New Deal front, Tienhaara said there is plenty of room for Canada to compete by investing in appropriate specialities that might include such things as radical cold-weather construction or energy-storage technology.

Tienhaara says research investment need not be just in high technology, but in new ideas about “decoupling,” a term for thinking of ways to separate economic growth from climate destruction, and on how to stimulate climate action at the grassroots level.

Community involvement is exactly what Priyanka Lloyd’s organization, Green Economy Canada, is all about. A biochemist with an MBA, she heads a national organization that has grown up out of the Waterloo project that Mike Morrice founded a decade ago.

Lloyd’s group, now operating without government funding since the scrapping of Ontario’s cap-and-trade program, cancelled by the new provincial government, is working to support green business hubs like the original Sustainable Waterloo in cities across Canada.

Lloyd’s organization acts as a national hub for new regional hubs that share ways for small and medium enterprises to boost their bottom line with things such as improved lighting, keeping in the heat and advanced telecommunications systems to save money — and carbon — on unnecessary airline trips.

Lloyd says while the group continues to seek donors to supplement the small fees it collects from members, the loss of government support is not going stop the effort.

“We’re scrappy and resourceful, and the work is important.”

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Canadian borrowers may have heard a whisper in favour of lower interest rates yesterday, as U.S. Federal Reserve chair Jerome Powell did not rule out an interest rate cut if inflation stays low.

But so far, the world’s most powerful central banker said he would continue to be patient, holding rates steady as he waits for more data on the direction of the economy.

The question is, how much patience can U.S. President Donald Trump stand?

After repeated calls for interest rate cuts, the president was thwarted once again by the man he appointed as chief central banker.

Reporters asked Powell what he would do if inflation remains as low as it is right now, around 1.5 per cent. Would he cut interest rates in order to stimulate the economy and inflation?

Knowing that a few loose comments from a central banker can launch a thousand headlines, Powell was cagey. Despite repeated questions from the assembled business press, the words “rate cut” remained unsaid.

“To go back to your question, if we did see … inflation persistently below [target], then that is something the committee would be concerned about and something that we would take into account in setting policy,” Powell told reporters.

Stubbornly low inflation

Essentially, the concern he was addressing was the stubbornly low inflation that has continued even while many other economic indicators have been surging ahead.

Even last year, while unemployment was sinking to new lows and tax cuts and government spending were pushing the economy to new highs, inflation remained decidedly moderate.

An Amazon employee fills a delivery box. Powell said wages are rising, especially at the low end. (Clodagh Kilcoyne/Reuters)

As Powell reiterated yesterday, the central bank’s twin goals are to keep employment strong and inflation centred between one and three per cent. But as members of the business media pointed out, even at its recent highs, inflation has really never risen above the middle of that range.

And Powell admitted that persistently low inflation could be unhealthy. As one Canadian economic researcher has shown, inflation is at least partly based on what people and businesses expect it to be.

“Inflation expectations could be pulled down and that could put downward pressure on inflation and make it hard for us to react to downturns,” Powell said. 

However, the reason that Powell said he will remain “patient” is that he and his advisers believe the slump in price increases is transitory. In other words, several one-time declines in prices — including energy, airfares, and a new way of calculating the price of apparel — were not broad signals of inflation’s path.

In fact, one indicator of core inflation, a measure that chops out the most and the least volatile goods, registered inflation of two per cent, he said.

Solid signs

Powell observed that the economy and job creation remain strong, that consumer spending would persist and strengthen, that household lending is sound and that financial markets are well placed to cope with any sudden downturn. He did not see a recession coming this year.  

Not only is the economy continuing to crank out jobs, but wages are on the way up, he said. The highest wage hikes are among people at the low end of the income range, something Powell spoke of approvingly.

Productivity, the amount of goods and services produced per person and a holy grail of economics, was also rising.

But if the bank does decide to cut rates, Powell made it very clear that it will not be due to badgering from Trump.

U.S. President Donald Trump, left, has repeatedly told Powell to cut rates, but Powell insists the central bank does not make decisions based on politics. (Carlos Barria/Reuters)

Both the president and his expected nominee for a seat on the Fed board of governors, Stephen Moore, have called on the Fed to not just cut rates but to cut by one full percentage point.

Speaking through an intermediary yesterday, Moore said that had he been a board member, he would have gone against the unanimous decision and voted for the cut that Trump requested, and thereby “help solve the Federal Reserve’s groupthink problem.”

Having a perceived Trump toady in his own ranks may not be a problem Powell will face. Some Senate Republicans who would have to approve his appointment have reportedly balked at Moore’s possible candidacy, since it could politicize a studiously apolitical body.

‘A non-political institution’

Associated Press reporter Martin Crutsinger put the question to Powell bluntly.

“You’ve repeatedly said that the Fed is going to conduct monetary policy without regard to outside political pressure, but it seems like the president is intent on increasing that political pressure,” said Crutsinger, noting Trump’s request for a one percentage point cut and a return to quantitative easing. “What do those comments do in affecting how you pursue policy and how you convey your decisions to the public?”

As he has responded to similar questions in the past, Powell was very careful not to mention the president by name. But his rejection of political interference in the bank’s decision-making was unyielding.

“We are a non-political institution,” Powell responded. “And that means we don’t think about short-term political considerations. We don’t discuss them and we don’t consider them in making our decisions, one way or the other.”

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Economists have been among the most insistent that the prohibition of drugs and alcohol doesn’t work.

In what many have observed as a perverse symbiosis between enforcement agencies and the producers of illicit drugs, cracking down on the substances people use to addle their brains only makes producing them more lucrative.

U.S. economist Peter Reuter, a scholar known for his early research on the illegal drug market, observed this relationship when it came to cannabis and cocaine.

“The relatively high prices of these drugs historically are a consequence of enforcement,” he wrote in the abstract for a 1986 paper titled Risks and Prices: An Economic Analysis of Drug Enforcement.

More than 30 years later and despite billions spent to stem their use, illegal drugs, especially opiates, continue to devastate communities. The death toll in Canada — more than 10,300 in less than three years — is large enough that health experts warn it may be having an effect on Canada’s overall life expectancy.

Facing a deadly opioid epidemic, British Columbia is facing pressure to decriminalize drugs. There may be lessons to be learned from cannabis. (Rafferty Baker/CBC)

Now an increasing number of experts are observing Canada’s legalization of cannabis for lessons — a kind of trial run for getting drugs out of the hands of organized crime.

There are plenty of critics who say that, so far, Canada’s legalization has been a failure, partly because governments refused to learn from the experience of places like Colorado that led the way. Among them are Ian Irvine, an economist at Montreal’s Concordia University.

“The illegal market is really being wiped off the map in Colorado,” said Irvine. “There were two things necessary for that: One is accessibility and the other was price. But here we still have high prices and have low accessibility.”

Government missteps

Government bungling may be partly to blame. In Ontario, for example, after many delays, 25 retail licences were granted by the province, but to date, nearly half have failed to open.

That lack of access is helping to keep the illegal drug sellers in business. Irvine says similar mistakes are being made across the country.

When it comes to price, Jean-François Crépault, from the Toronto-based Centre for Addiction and Mental Health, is no supporter of low pricing or other free market measures to take on criminal suppliers.

While libertarians might see a free market for drugs as a good thing, those like Crépault, who advocate liberalization as a harm-reduction measure, view legalization or decriminalization more as a necessary evil: It is a means of preventing worse damage.

Just as with tobacco and alcohol, governments can use taxes to set prices low enough to dissuade consumers from seeking other sources, but high enough to discourage consumption. 

And rather than liberalizing the rules around cannabis advertising to bring them in line with alcohol standards, Crépault favours reining in alcohol promotion to make it more like weed.

According to Crépault, the legalization of cannabis has led to a re-examination of substance use and abuse in new contexts. There are already U.S. studies that show legal weed can act as a substitute for opiates and alcohol — both of which are more damaging.

When it comes to legal cannabis, Quebec offers legal prices lower than other provinces. But the variety of retail models playing out across Canada offers an interesting opportunity for those looking to learn what works and what doesn’t. (Don Pittis/CBC)

“The legality of a substance, or the legal availability of it, should be at least roughly proportional to the level of harm,” said Crépault, citing the concept behind a new European drug strategy.

Under a policy like that, alcohol would be more tightly regulated than psychedelic drugs, such as MDMA and ketamine, which Crépault says are seen as less risky than alcohol for adults and may also offer therapeutic effects.

While critical of Canada’s stumbling cannabis legalization process, Michael Armstrong, a business professor at Brock University in St. Catherines, Ont., says that recent data from Statistics Canada shows people are willing to pay more for a legal product.

While the illegal market will never disappear entirely, Armstrong predicts that once legal shops have expanded enough, offering enough of the right product, at the right quality to satisfy demand, illegal pot will be about as common as illegal wine.

“I expect it will be very much the same, eventually,” he said.

Cannabis vs. opiates

Armstrong also suggests that busting illegal dispensaries before people have a legal alternative will be a waste of police resources — and will merely drive the illegal trade deeper underground. But once there are enough pot shops in operation, a crackdown could push illegal prices close enough to their legal alternatives, making the black market not worthwhile.

Then, with the legal price as a ceiling, the symbiosis between enforcement and criminal income will be broken, he says.

Despite the obvious differences between cannabis and street drugs like heroin, there are many lessons to be learned from marijuana’s legalization, said Rebecca Jesseman, with the Canadian Centre on Substance Use and Addiction.

People from around the world are coming to Canada to study the different provincial and territorial legalization models as they develop, she said, to see what works and what doesn’t.

For instance, the issue of quality control, which has attracted some buyers to legal cannabis stores, applies even more so when it comes to opiates, which are now so often adulterated and made deadly with substances like fentanyl

In some places in Canada, including Vancouver’s Crosstown Clinic, patients are provided with medical-grade heroin for supervised injection. Other places offer testing for purity and strength.

As with cannabis, access is crucial, especially for those with addiction.

And while we must wait until the legal cannabis market develops further to be sure, Jesseman believes Canada’s experience may show that legal sources really do drive out illicit producers by removing the risk premium.

What’s more, when even the most brutal and expensive means of rooting out illegal drugs fail, legal cannabis offers an example of what may be possible.

“There are many different distribution models we can look at, and I think the important thing is to consider each substance on its own properties, merits and impacts,” said Jesseman

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When the Bank of Canada released the text of its latest report yesterday, the loonie fell off a cliff — and no wonder.

Interest rates were unchanged, but more important, governor Stephen Poloz had downgraded growth from 1.7 per cent to 1.2 per cent. Exports were down. So was investment. The housing bounceback was delayed.

But an odd thing happened. Once Poloz began to talk to reporters, the Canadian dollar began to recover. 

While all those negative economic indicators were true, Canada’s chief central banker and his senior deputy, Carolyn Wilkins, began to paint a more subtle and much more positive picture.

For indebted Canadians hoping for an endless holiday from higher borrowing costs, the news was both good and bad.

“If our forecast is right, which I firmly believe it is, what that means is interest rates are more likely to go up than down,” said Poloz.

Of course, the more subtle story told by the central bankers was not universally good.

Trade shock

The predominant reason for their lowered expectations for the economy since the last report in January was what the bank called a “shock” caused by a sharp increase in uncertainty over trade at the end of last year, which has played a malicious trick on the global economy.

Trade battles between the U.S. and China, the U.S. and Europe and the U.S. and Canada knocked the stuffing out of not just global trade, but new business investment. And the effects go far beyond Canada.

“Forty-seven countries have experienced a slowdown very similar to our own,” Poloz told reporters. “That’s not a coincidence. That’s 47 countries that rely on international trade in order to do business.”

Ontario Premier Doug Ford’s recent budget also contributed to the bank’s lower outlook. While fiscal spending in Quebec, B.C. and at the federal level were all higher, a cut in projected government spending in Canada’s most populated province was enough to offset all the others and more.

The Bank of Canada says home sales are now stabilizing as Toronto and Vancouver adjust to new mortage rules. According to Poloz, Canada’s growing population will buttress prices. (Don Pittis/CBC)

Another drag on the economy, said Poloz, was the energy sector, still struggling from low prices and poor market access. The exceptional frigid and stormy weather across most of the country also delayed exports, retail spending and other economic activity.

But as Poloz and his group of advisers studied the gloomy data they had assembled, they were skeptical that it was really as bad as it seemed.

A half-million vacant jobs

Despite an interruption in employment growth last month, there are other indicators that the economy is still hungry for workers. Wage growth outside the energy-producing provinces continues to rise at rates well above inflation.

“Vacancy rates are still above 500,000,” said Wilkins. “They’ve kind of given up on hiring the perfect person. They’re hiring young people out of school and they’re training them.”

That private-sector investment in human capital expands the capacity of the economy — a good sign for future growth.

On housing, the unwinding of overcharged markets in Greater Vancouver and Greater Toronto is big enough to show up in the national statistics, though in most other cities, the real estate market remains healthy.

Poloz expects what he calls the “froth” to come out of those two markets as soon as this spring, as Canada’s expanding population puts the housing market back on track.

On the carbon-pricing front, the new charge will have a small effect on inflation this year: about a tenth of a percentage point that will drop by half next year. The bank’s calculations show the effect on economic growth will be negligible because the rebates mean the money will still be spent — just on different things.

While the damage to the fossil fuel-based energy sector due to reduced investment and poor transportation links will continue to bite energy-producing provinces, the recent sharp increase in oil prices mean things will be much better than they were.

Battles over trade have hurt economies around the world as uncertainty leads businesses to delay new investment. (Chris Radburn/Reuters)

And, of course, winter is finally over.

All that does not mean the Canadian or global economy is entirely out of the woods. Failure to resolve trade disputes could mean the downturn would continue to inflict pain. On the other hand, a successful resolution of trade disputes could cause the opposite effect: that strange central banking concept of “the upside risk.”

But barring further shocks, Poloz said the Canadian economy would not just recover soon, but is recovering now: The depths of the economic dip were the last three months of 2018 and the first three months of this year. 

“We’re into the positive frame already,” he said.

The slower pace of rate hikes by central banks around the world have already had their effect, raising stock markets and commodity prices.

“Right now, we believe that this setting of interest rates will give the outlook,” said Poloz. “Growth picks up in the second quarter and picks up for real in the third quarter.”

But like the rest of us, the experts at the Bank of Canada will be watching the economic statistics as they roll in to see if their wishes have come true.

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Following a month of surprisingly strong indicators on the economy, it is an interesting thought experiment to imagine what it would take to make Bank of Canada governor Stephen Poloz actually adjust Canadian interest rates this year.

It’s a subject that is always of fascination for heavily borrowed Canadians laden with mortgages, car loans and home equity lines of credit.  A quarter-point hike in rates would leave many scrambling to scrape together a little more cash. A cut would potentially offer a little relief.

The bank releases its latest Monetary Policy Report tomorrow, when Poloz and his senior deputy, Carolyn Wilkins, will also submit to detailed questioning.

An analysis of futures trading markets certainly shows the chance of Poloz announcing a change in rates is effectively zero.

And while they are unlikely to say it themselves, it may well be that officials at the Bank of Canada will find themselves paralyzed in 2019 by political and economic uncertainty. As some market advocates call for cuts and economic indicators hint at rising inflation, it will almost certainly take some kind of serious jolt to break the bank out of its current immobility.

Expect to hear Canada’s central bankers talk Wednesday about a balance of risks between economic good health and the threat of decline.

A home is shown for sale in Montreal’s Mile End neighbourhood. With many Canadians heavily indebted and a federal election coming, it will take a lot to make the bank change interest rates. (Don Pittis/CBC)

And while the Bank of Canada’s own spring outlook, released last week, declared that demand was slowing, the market gloom at the end of last year appears to have gone away. Back then, people complained central banks were raising rates too fast for a moribund economy. But over the last two weeks, stocks have been flirting with record highs.

There are also new glimmers of increased inflation. Despite rock-bottom gas prices in February, consumer prices are once again nudging into the range where the bank must begin thinking about whether, or when, to begin raising interest rates.

Two of measures of core inflation — the statistic the bank uses to decide whether to cool the economy with higher interest rates — are now back up to two per cent, the mid-point of the bank’s target inflation range.

No more cheap gas 

Without low gas prices, Statistics Canada said last month’s inflation rate would have been 2.2 per cent (rather than the 1.9 per cent recorded). And the majority who still use fossil fuel vehicles will know those extremely low pump prices that were holding the inflation rate down are no longer with us.

One new anomaly that will skew gasoline’s contribution to inflation is the federal carbon tax. As has been reported, the recent rise in gas prices is only partly due to carbon pricing — and the expectations of another 15 cent increase are not caused by carbon pricing at all.

As many Canadians know, the carbon tax is being refunded, so you will not be out of pocket. But the statistical effect may be to show an increase in inflation over the medium term. Unlike the volatile factors affecting energy prices, if it works as planned, carbon pricing is not going away.

U.S. President Donald Trump has been trying to keep U.S. interest rates down — and may object to an unfair trade advantage if the loonie sinks further. (Carlos Barria/Reuters)

Until Canadians adjust their spending away from fossil fuels, the net effect should contribute to higher prices: directly on fossil fuels and indirectly on things such as goods shipped in diesel trucks.

Since Canadians get that money back, the impact on the most households’ finances will be negligible. But like the difference between house-price inflation, which is not measured in the inflation stats, and rising mortgage costs and rents which are, such statistical quirks may be the price of having a consistent measuring tool for comparison over time.

At the end of last year and even at the beginning of this one, some analysts were suggesting Poloz would or should actually cut interest rates this year. Last week’s Business Outlook Survey, based on interviews with Canadian business leaders, would seem to indicate the bank should not be considering a rate hike.

But as other commentators have mentioned, such surveys may merely show how gloomy business leaders were in recent months rather than tell us anything about the future.

Trump and Trudeau

Surely if the economy went into a sudden tailspin due to some outside shock, Poloz would be justified in cutting rates. But there are good reasons why the Bank of Canada would not want to lower interest rates without a strong negative signal. 

One is our growing trade surplus with the United States. President Donald Trump and the Democrat-controlled Congress could view a cut as an attempt to further lower the loonie in order to give Canada a trade advantage.

The other reason is the approaching federal election. While there are no rules preventing Poloz from doing what’s right to keep the economy stable, central banks are supposed to be non-partisan and are loath to be seen interfering in politics.

An interest rate cut might be seen as a helping hand to the party in power, or used as evidence by government opponents that the economy is slipping.

In a similar fashion, the closer we get to an election, even a moderate surge in inflation is unlikely to be enough to persuade the bank to intervene.

Whichever direction the Bank of Canada ultimately decides to move, unless it is urgent, homeowners and other borrowers should likely plan on no change in interest rates, at least over the next six months.

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