A Skeptical Look at Turks And Caicos Joining Canada

I'm sorry, I can't get enthusiastic about Canada having its own tropical paradise without wondering what the financial angle is.  The biggest alarm bells for me come from Turks and Caicos being notoriously corrupt (to the point that the UK Government took away home rule in 2009), with a higher banking secrecy rating (90) than Switzerland (78) and the Caymans (77) and "absolutely no taxes."  Well, ok, it seems they have a tax on hotel rooms and a "stamp duty" (which if I read correctly is mostly to cover transfers of money from the island back to the UK).

This increasingly looks like a scheme to set up a tax haven within Canada.  Forget racing to the bottom against Alberta, Canadian provinces would be plummeting toward the bottom well behind a micro-province with next to no taxes, a massive influx of the wealthy setting up residences there (for the attractive climate of course), and absurd levels of banking and financial secrecy.

A couple findings from that last:

• Turks and Caicos does not adequately curtail banking secrecy
• Turks and Caicos Islands does not maintain company ownership details in official records
• Turks and Caicos Islands does not require that ownership of companies is put on public record
• Turks and Caicos Islands does allow harmful legal vehicles (nb. reference to trusts)

Any of the people pushing this idea could have massive investiments there, and there would be no way to know. 

Yes, it's true if the place became a province (or territory) it would be subject to Canadian income tax.  It would also receive equalization, and though the population is small, given that their GDP per capita is about one-quarter that of Canada, it wouldn't be a trivial amount, in order to bring the island government's ability to offer comparable services up to Canadian standards. The key thing about Canada's financial laws is that they are mostly provincial, a power the provinces have zealously guarded, in particular over this government's proposal to set up a federal regulator for stock markets. 

Sure, ordinary Canadians would benefit from having the ability to fly domestic to a place that would run on the Canadian dollar for vacations. That's not really much of a benefit for the one or maybe two (and often less than one) annual trips to warm locales that the typical Canadian takes. We'd be subsidizing a libertarian paradise for our 1% to park their wealth, run their businesses (via teleconference) and shirk their duties to the commons.  It would likely become even less of a benefit as I expect prices to visit (and especially to buy real estate) on the islands would soar and there wouldn't really be much employment in the jobs most of us have. 

Conservative politicians have been pushing this idea since Borden in 1917 (and one NDPer in '74) and it's not hard to see why it appeals to them.   The UK seems willing to give up the islands, probably because the "Tax Haven Capital of the World" is already in London and they have plenty of other warm-weather overseas territories for their 1% to winter in (also notorious tax havens).  Canada's conservatives and business elite are just jealous of this arrangement, but that's no reason we should be beguiled by the mirage of beautiful beaches and warm ocean waters. 

The Resource Trap Explained

Canada is suffering from the Resource Trap, or Resource Curse. We don't have it acutely yet, to the point of sterotypical corrupt petro-states, but we are suffering numerous symptoms from the list:

• Dutch Disease. Yes, Mulcair was right. Oil sales have driven up our dollar and made our manufacturing and service exports less competitive.  This isn't difficult to understand and while you can try to argue the overall effects of oil are net positive (e.g. Alberta buys equipment from Ontario), there's no denying the basic case that manufacturing (concentrated in Ontario and Quebec) have been hurt.
• Revenue Volatility. Alberta has gone through serious cases of this several times. Now with Newfoundland and Saskatchewan increasingly reliant on oil sales for their provincial budgets, I think we can call this a national problem.
• Lack of diversification.  Not only are we failing to diversify, we are concentrating ever more of our labour market on extractive industry.  Every article extolling all the people moving out West for work is really about this.  Some of them come from industries that are already in long term decline or outright dead, like various depleted fisheries, but many also come from the manufacturing sector (see Dutch Disease above).
• Corruption. This one hasn't shown up yet in terms of oil execs doling out sacks of cash to buy off government officials, but if you look you can see our political system restructuring itself to serve the needs of the country's most powerful economic class.  The Federal Government gutted environmental laws to ensure various oil projects would get rapid approvals, and withdrew from Kyoto.  Climate change is just ignored.  Even the Alberta PCs with decades of uninterrupted majority rule were gunshy about raising royalties more than nominally despite credible analysis from all sectors not owned by big oil that this could and should be done.  They were right to fear it, Big Oil nearly put the Wildrose into power in protest over it.  Approval of the Keystone XL pipeline federally was basically a non-issue.  Not even Mulcair is openly opposing it and Trudeau has spoken out in favour.  Oil pipelines spill all the time and the companies are handled with kid gloves, huge ponds of horrific toxic sludge accrue in the north, and there's no plan to do anything about them.  Eventually, a flood will take them into the MacKenzie river.  Problem solved!

Why does this happen?

The basic problem of an abundance of natural resources is that in order to exploit them as a free-market economy, you're bascially expected to sell/rent permits to private owners to extract the resource and sell it for profit (Norway is a noteworthy exception, but sadly not really a model followed by Canada).  You are, by definition, setting up a class of rentiers who draw wealth from the land by virtue of a legalism issued by the state entitling them to that wealth.  These people are not like sterotypical gold prospectors panning rivers from a 19th century gold rush, they will already be rich and powerful since it takes a lot of money to get a modern resource extraction operation running.

Rentiers are not really entrepeneurs.  They are in the business of extracting rents, foremost.  Competition is not that important (except in obtaining more sources of rent in the form of extraction permits to resource rich land).  You're not really going to be able to drive your competition out of business - after all they have guaranteed revenue streams too, from their resource leases.  You can fight for market share, but that's a lot of work. Better ROI on spending your time finding more of the resource in areas not yet exploited.  I really suspect the big oil companies do not actively collude on gas prices, they simply all choose not to compete very hard because competing is a lot of work and effort and it isn't their focus.  We'll buy the product anyway, so why bother?

This is, you might say, the default direction of a resource system.  Avoiding this takes a lot of work and thought in how you design the incentives and how the money is used.  We really didn't engage in such an exercise.  Pierre Trudeau tried to do a few things on this score, but they were undone and they didn't become self-sustaining. 

It becomes a curse when it becomes your society's dominant industry, a sort of "resource industrial complex" that automatically has power and influence over the political system just by dint of its impact on the economy and government revenues. It begins to take over.

Of course rentiers never just sit back and let their influence over the state accrue naturally, they aggressively seek to expand it through all means legal and not so legal.  After all, at some level you understand that your primary source of wealth is not "innovation" or some such nice market concept, but a piece of paper issued by the state which empowers you, and you alone, to profit from this stuff that nature left in the ground (oil, diamonds, whatever).  If government is the source of your wealth, then the easiest place to make yourself wealthier is by influencing government to let you keep more of it.  Decreasing royalties, tax breaks on capital expenditure (which you would have made anyway), and straight up tax cuts all work.  So does gutting labour and environmental standards, which drive up your costs for extracting the stuff.  Annoying!

Canada has gone several steps down this path. At some point, perhaps we've already done it, you cross a kind of Event Horizon where the logic of the system carries you the rest of the way whether you want to or not.   Any hope we have of stopping this rests on not just electing a new government in 2015, but ensuring that government is empowered and emboldened to take us off this path.  I'm afraid neither major opposition party looks likely to do that as they stand (I'd give the NDP better odds, but far from a lock).  This is where ideology matters much more than partisanship.  Broad awareness of our poor strategy in going all-in on oil is key.  Without a change, we may as well join OPEC.

The Canadian 1% Want To Privatize the CBC

And it's just them, from a new Forum Research poll for the Globe & Mail, Canadians in general oppose privatizing the CBC by a 2:1 margin, and it is a majority (51%) who are decided against, versus only 25% who are for it.  That's the good news, and it is pretty good news considering that it's not like we've been waging a major national debate about this (though movement conservativism in Canada has made this a major goal for at least several years, the PM and Government have made no overt suggestion or move to do this).  The bad news is that those for it are the people who count:

Every other income group is strongly opposed, and what's remarkable is that the merely affluent in the 80-100K and 100-250K groups are very strongly opposed.  It really is the 1% versus the rest here (technically 32 people out of 1525 in the sample is 2%).

Now 32 is a small sample size for the subgroup, so I'm sure the margins of error are fairly large on this group, but I doubt they're enough to reverse a 66% for, 32% against trend.

Citigroup called Canada a "plutonomy" in a memo a few years back, a country ruled by the very rich.  If that's correct, it means the privatization of the CBC is likely to happen.  The 1% want it.  The CBC competes with their private media empires, it accurately informs people, and it isn't beholden to them.  All good reasons to eliminate it (a privatized CBC would not recognizably be the CBC anymore).

Given they're already consistently running behind Trudeau's Liberals, we can hope this scares the Conservatives off any such scheme, but we're in the mid-term period of a majority where you've got time to do things that anger the public and hope they forget in time for election day.  Destroying the CBC has been a long running conservative goal, they might try it whatever the polling.  Once it's done it will be very expensive to undo.

Why Not Share Embassies with the UK?

I don't have a big problem with Canada finding economies in sharing real estate with other nations in maintaining our diplomatic and consular services around the world.  As this map shows, we've got a pretty extensive reciprocal arrangement with Australia.  Good for both of us.

I do take issue with sharing with the UK though.  Three main reasons:

• Canada was a UK colony and doesn't exactly have a very high profile around the world.  One of our big national stories concerns the World War 1 battle of Vimy Ridge, the first time Canada's forces all fought together, and fought under Canadian instead of British command.  We teach kids in school that the victory at Vimy was the first time the international press wrote about the activities of Canadian troops in WWI as Canadians rather than just as part of British forces.  It's something of our foundation as a separate nation apart from the UK.  When Britain declared war on Germany in 1914, Canada, despite having independent rule simply understood itself to also be at war with Germany.  All that is to say historically we took some pains to distinguish ourselves from the UK.  I don't love the idea of implicitly putting ourselves back in the mother country's shadow.  We only repatriated our own fully domestic Constitution in 1982.
• Quebec.  There are serious points of contention with Quebec and while there's little immediate danger of a new referendum on sovereignty it's irresponsible to needlessly offend them like this for something as petty as some operating budget savings (which is how the government is now justifying this).  Quebec is not going to break the country up over this, but all these petty cultural insults by this government just serve to remind Quebec how little they support the government, and how little influence they currently have in Canada.  It all adds up.
• The UK's colonial baggage.  This mostly isn't about any specific recent thing the UK has done or is doing but just that much of the world has not forgotten that Britain ruled an empire that included many of them, and they didn't like it very much.  One of Canada's under appreciated diplomatic strengths has been that we don't have the baggage of colonialism.  We never had a global colonial empire.  Britain still has simmering disputes around over their few remaining holdings, and don't say those don't matter.  But when you combine our underwhelming presence and identity on the world stage the last thing we need is to start letting ourselves be defined as Britain's little brother.  Better than "America Jr." perhaps, but not by much. 

It could be much ado about not much, but to the extent that views of our country are shaped by people in other lands driving past a building that says "Joint Canadian and British Consulate" - they know damn well who Britain is, but they probably don't know much about us, so we are too easily defined in relation to whom we associate ourselves with.   Sharing with nations like Australia is far less a problem in this regard.  I'm sure their foreign policy record isn't ideal, but they don't have a global legacy of centuries as the Superpower. 

Warming Wednesdays: Why isn't Canada better on Climate Change?

Even before the current government, Canada has not exactly smothered itself in glory on the Climate Change file.  While the Chretien Liberal government did ratify Kyoto, they never actually took action to implement it and actually reduce emissions.  While plenty has been written rightly scolding both Chretien and Martin for their lack of action, it must be said that there really wasn't a lot of public support for it.  Rather than rehashing the failures of elites, I think this lack of groundswell is somewhat noteworthy given how close Australia is to implementing its own national carbon pricing scheme.  While some would hand wave about the impact of Canada's oil patch, Australia has huge coal reserves, and pricing carbon will make them seriously unhappy. 

While there are many things going on, I'm going to submit that this map really must be a signifiant part of the story:
 

(source)

If you know anything about Canada, what this map tells you is that almost all the warming is happening where people aren't.  Here's a map of Canadian population density:



Even this doesn't tell the story as well as I'd like, that blob by the Great Lakes in southern Ontario stretching accross into Quebec is where something close to 50% of Canadians live.

Let's look at the climate situation in Australia:

(source)

And where are Australia's people?



Something fairly similar to Canada can be said about America, at least with respect to most of the warming not impacting the bulk of the population, but I wouldn't want to underestimate the impact of the powerful interests funding the denial machine in the US.  Not that these are absent from Canada or Australia, but basic acceptance of science is so much more prevalent in both, so the impact of the denial machine can't really be the decisive factor.

I hate to think things have to become acute before there will be a public groundswell for action, but if you were trying to distribute the warming in Canada in the least politically impactful way, it would look something like that map above.

Meanwhile, if you stick to the national average temperatures in relation to the norm:

Grim and grimmer.