:LPE:

For those who say hollowing out is merely hollow fear (see, Globe), the Glamis-Goldcorp deal is an example of the positive give-and-take of foreign ownership. They suggest some Canadian companies go global and this is part of the chaotic growth of an economy. While others are taking over Canadian companies, here a Canadian company (Goldcorp) is taking over another Canadian listed, Nevada-run company (Glamis), and becoming a large international player. The Globe had it ranked 3 or 4 out of the top ten extraction companies last week.

And today we see some rancour about the deal. Apparently, there is a proxy battle coming, and the transaction has been structred through a special purpose entity subsidiary to avoid fundamental changes to the parent entity, which would require a vote. Looks like a founder of Goldcorp (Ontario registered compny, with his own issues) is proposing a proxy battle, althopugh, of course, the management says the owners (shareholders) are in favour and would win a proxy battle. Link.

Of course none of this is proven and it may all be smoke from disgruntled shareholders. But wait - aren’t shareholders the owners? Under US law, this would be subject gto a shareholder vote. Not here.

So who’s making the decisions? Ain’t clear. Will management locate in Vancouver, or Nevada? Could be an interesting test case.

Some not unexpected annoucements in the Flaherty budget, including debt reduction. For lawyers, though, a couple of interesting cuts: the Court Challenges Program, which tested legislation against the Charter, and the Law Commission of Canada, which investigates and provides research on law reform initiatives. About $10M in savings between the two, which were underfunded to begin with. For comparison, that is about two weeks worth of interest on this year’s surplus, $13bn. But then, we knew these cuts weren’t about being fiscally responsible.

They issued another one in their contining mission to characterize taxes as “burdens” and Canada as a “bay boy” for stifling growth as a result of its tax regime. This rhetoric is not only inflammatory, it’s misleading. The CD Howe’s own data suggests that there is no real problem or crises of tax policy, nor a strong link between economic growth (often considered a good thing - but query good growth versus bad growth) and tax cuts, especially income tax cuts. In short, where’s the problem? The report does not make a good case that there is one, and we must look elsewhere for the motive behind the call for more aggresive tax cuts.

This report is too long and complex to present a detailed critique of in a blog, and I don’t have the time, but here are a few interesting things to note about it:

+ The “worst” countries include the US, China and Brazil, by many measures, the fastest growing economies in the world today. This growth appears to have come with the current levels of taxation (they use a combined measure to create an “average tax rate”). This neatly fits with historical data — corporate taxes were higher during the long bull run of the 1990s, and in the post-war era, the highest growth rates (growth here in a blunt and aggregate measure, GDP per capital), occured during the time of highest taxation in each of the decades after 1945. So, at a very general levl, without getting into the causal relationshio between “growth” and taxes, CD Howe presents a non-obvious conclusion.

+ Some of the highest raw corporate tax rates are in those economies: Brazil (34%), Germany (38.4%), U.S. (39.2%), Canada (34.2%), China (24%). The effective tax rates on capital show similar results.

+ The report asserts that lower taxation leads to economic growth, and cites several studies (in some cases, over 200) to back this up. There is no doubt a significant literature on the relationship between taxation and growth, but it is not a conclusion that: (i) tax cuts lead to growth, which the report acknoweldges by admitting they are only one variable in growth theory, and ; (ii) more importantly, whether tax cuts are the most effective drivers of growth given other available policy options. The latter is often over-looked, because tax cuts tend to be less efficient policy stimulants to economic growth.

+ Similarly, the causal relationship between income tax cuts and “savings and investment” is one that is intuitively difficult to establish: we assume that money saved through taxes is saved, and then that it is invested. Both steps are not necessarily true, or true most of the time. In particular, tax “savings” can be moved offshore: lower income taxes in Canada might end up as repatriated profits in the U.S.

+ A similar set of objections could be raised to the “barriers to work” argument. The higher marginal income tax rate can be a factor in the decision to work more or less, but labour markets are much more highly structured than that, and typically workers cannot chose to work “marginal” hours more or less than these structures permit. Most people, especially those in the bottom say 7 deciles of the income scale, do not have a choice NOT to work, or even work more, and tax rates are likely not as strong an influence on the decision to work (and save and invest) as other important structural features of labour markets. We might also note parenthetically, that the very top earners manage to take their income in tax-efficient forms.

+ Cross-country comparisons are very difficult to achieve with any degree of certainty, precisely because of the differing determinants of growth, the institutional and “path dependent” features of each jurisdiction. For this reason this sort of “competitiveness” study is less valuable than, for example, single-jurisdiction longitudinal studies.

+ In passing, the report mentions that it is desirable to move from income to consumption taxes. This is a very contested proposal - consumption taxes are regressive, and one of the fundamental features of our tax system is ability to pay — a form of equitable treatment — which means we have a progressive tax system. Poor people spend (consume) 100% of their income, so they are effectively taxed on it all. Rich people do not spend 100% of their income, so under a consumption tax, they avoid some tax when they save. At page 17, the CD Howe report endorses this principle, which is quite contradictory to the recommendation to move to consumption taxes. If the CD Howe believes that we should have a regressive tax system it should say so.

+ The report is entirely correct to state that tax systems should be neutral and administraitvely simple, where possible. It correctly argues that social policyt objectives, which include fiscal and industrial policy, should not be pursued through the tax system wherever possible: this applies to tax credits and subsidies for corporations or specific industries as well as clawbacks for income tested programs, etc. Those policies should be pursued through separate and accountable programs.

More on this when I have time to work on it. This work should be taken up by the Tax Justice Network of Canada.

Photo 11.jpg

Originally uploaded by Simon Archer.

so much fun.

Dennis O’Connor, Associate Chief Justice of Ontario, has filed the report. Major conclusion: RCMP ought not to be in the intelligence biz, and ought not to share ANY information with other countries if it can’t be sure Canadians won’t be tortured, or worse. Arar was innocent, way, way innocent.

Deja vu? Was this not the exact conclusion of the McDonald Commission in the 1970s, hard on the wake of the dirty tricks campaign by none other than the RCMP? And for a good read on the history of RCMP screw ups and incompetence, see Ian Adam’s work: S, Portrait of a Spy, and Agent of Influence.

Adams’ own tale at the hands of the RCMP is relevant. He broke the story for the Globe and Mail, on Grey Cup weekend in November 1973, of the Chilean Cabinet of Salvador Allende seeking asylum from certain torture and death in the aftermath of the miltary coup by General Pinochet. One of the places they turned to was the Canadian Embassy. The Embassy forwarded the information on the names and whereabouts of the Allende cabinet (all, by the way, democratically elected politicians) to the RCMP, who turned it over to the CIA, who turned it over the General Pinochet, who rounded up the Cabinet members and ‘disappeared’ them.

So, not the first and undoubtably not the last time the RCMP will facilitate the torture and slaughter of innocents, because it has no idea what it is doing.

So, the good news keeps on coming: correction is nigh. US data on housing has come in.

+ Average equity in homes has fallen to 54%, 10% lower than in prior four decades. This is in part a result of equity being taken out through re-financing at low cost or innovative financing arrangements. As boomers reach retirement (we’re at the leading edge now), this ratio would be expected to move higher, not lower, as mortgages get paid off. Instead, they went the other way. When boomers move onto lower, fixed incomes (pensions), they can absorb fewer bills, changes, shocks, etc.

+ Credit card debt has increase 10% over the year-over-year average this year. Spending needs to come from somewhere.

+ Housing sales have flattened considerably over the summer, and starts have fallen off. So, the source of income (increased equity), is now dried up.

The potato is hot, it’s going to get tossed. The first to get it will be those who signed up for mortgages that pay lower-than-prime interest early, then add the extra interest onto the principal. These were popular in the US, and they will default most quickly. Who is holding that credit, I don’t know, because banks (typical lenders) have gotten pretty smart about re-packaging that debt and selling it at a competitive price to risk-taking investors. Let’s hope it is not a lot of the same pension funds that cannot pay enough to the mortgage holder in the first place.

What a beauty, this one has a lot of juicy details. Post-Enron unregulated energy trading in natural gas, large leveraged bets by physics geek-turned-master-of-the-universe, weather derivatives, one of the largest partnerships in the world (by money value) losing $5 bn in about a week. It goes on. Link.

A friend drew attention to the NYT op ed last week, which quoted founding father John Adams, in noting that we are about to find out whether it is a country made of laws, or of men.

Bush II is pressing the Senate to pass his legislation continuing the secret prisons run by the CIA. There are some pretty sweeping powers granted in this legislation: imprisonment without trial, limited access to counsel, private, not public trials, not permitted to know evidence against you, evidence accepted if obtained through torture, etc.

This stuff rolls back civil rights established, oh, about a 1000 years ago. Not satisfied with invading the home of modern civilization under false pretenses, Bush II seems bent on reversing the linear progress of Time in his hurry to find the terrorists or create them, it is never clear which is his aim.

The NYT appears to take this legislation seriously, as do I suppose a number of lawyers and libertarians and other wonks around the country. John McCain, who would succeed Bush II and who has the added authority of actually having been a PoW, has taken note and opposed it.

But it doesn’t seem that many others do. They seem firmly esconced in their rush to spend the last of the mortgage re-financing on cars or ipods, catch their Survivor re-runs and find new mashups of their appropriated hippety hop music. Why should they? It does not appear that these laws are being used to do anything but round up the usual suspects (brown people) and pursue some old greivances. Apparently, anti-terror finance legislation has been used against Cuba more than any other country, including Iraq, Afghanistan and Jordan. But there are no white folk in Gitmo, and there do not appear to be rounding up unionists or Unitarians yet, so the use of this law is still selective enough so as not to compete with the Great Race.

Adams, well, all the Founders would be apoplectic to see such concentration of power, but even more suicidal at the lack of response from the citizenry. Makes you think of Tacitus, or perhaps Apellonius, watching the Republic ossify. And it is aging and creaking. Ceasar Dubya deals in crowds and spectacle, doesn’t want to report to the Senate anymore. People don’t seem to notice. That idea of Adams’, a rule of law and not men, well, that would be a good idea.

He’s got a new one coming out December November 21. It promises to be another unforgettable ride. Here’s the blurb:

Spanning the period between the Chicago World’s Fair of 1893 and the years just after World War I, this novel moves from the labor troubles in Colorado to turn-of-the-century New York, to London and Gottingen, Venice and Vienna, the Balkans, Central Asia, Siberia at the time of the mysterious Tunguska Event, Mexico during the Revolution, postwar Paris, silent-era Hollywood, and one or two places not strictly speaking on the map at all.

With a worldwide disaster looming just a few years ahead, it is a time of unrestrained corporate greed, false religiosity, moronic fecklessness, and evil intent in high places. No reference to the present day is intended or should be inferred.

The sizable cast of characters includes anarchists, balloonists, gamblers, corporate tycoons, drug enthusiasts, innocents and decadents, mathematicians, mad scientists, shamans, psychics, and stage magicians, spies, detectives, adventuresses, and hired guns. There are cameo appearances by Nikola Tesla, Bela Lugosi, and Groucho Marx.

As an era of certainty comes crashing down around their ears and an unpredictable future commences, these folks are mostly just trying to pursue their lives. Sometimes they manage to catch up; sometimes it’s their lives that pursue them.

Meanwhile, the author is up to his usual business. Characters stop what they’re doing to sing what are for the most part stupid songs. Strange sexual practices take place. Obscure languages are spoken, not always idiomatically. Contrary-to-the-fact occurrences occur. If it is not the world, it is what the world might be with a minor adjustment or two. According to some, this is one of the main purposes of fiction.

Let the reader decide, let the reader beware. Good luck.

McKenna filed a story a few days ago that the copy editor sanguinely titled “US courts not the best forum to lift the world’s working conditions”. It was buried on B15, so she could get away with that tongue in cheek (September 12, 2006).

The article argued that a class action in the US alleging that Walmart broke its own code of conduct, California laws against unfair competition, and laws in other lands when it outsourced some production to a Bangladeshi corporation that beat its employees when they refused to work longer than 12 hour days, then fired them.

McKenna’s take is that “the laws of one country should not be used to impose justice on anorhwe, however well-intentioned.”

There is rich irony here. This is the US we’re talking about. This country invades other countries regularly. This country prosecutes people doing business with Cuba. This country thinks nothing of exporting its own laws - nigh, imposing its own laws - when it deems appropriate.

No doubt McKenna would oppose these actions too, although I didn’t read about him opposing the invasion of Iraq on the grounds of sovereignty, or Grenada, or Nicaragua, or wherever else the Marines have landed.

McKenna’s argument is that interferes with US foreign policy, which apparently means, ensuring a cheap supply of labour overseas.

More fundamentally, though, doesn’t it wactually work the other way around? Isn’t Walmart undermining US laws, which would protect workers from beatings and life-destroying overtime, by hiding behind Bangladeshi laws, which are lower? Isn;t that why they outsource? To avoid paying labour? And, isn’t Walmart using the threat and example of Banglsdeshi exploitation to reduce US workers’ lot? That is what is actually happening, every day.

Because we know that US laws don’t apply to people in Bangladesh, we asked the company to adopt a code of conduct - to treat all its employees properly. So, more fundamentally - the lawsuit is filed in part by US workers suing their boss for breaking US laws, and even more, the boss’ own “Code of Conduct”, which it has apprently regularly and systematically broken. Does this not merit a hearing in a US court?

As the header implies, no-one expects US courts to actually require Walmart to follow its own code of conduct, or to award Walmart employees damages for outsourcing to countries that permit workers to be exploited to a degree that no US law would permit. This case is about whether a court will enforce a code of conduct, a voluntary code of conduct. There is close to no chance and almost no precedent for that. These things are voluntary because they are not laws, not mandatory. What this case will confirm for us is that, yes, US courts are definitely NOT the place anyone’s labour rights will be protected, if there is not already a law requiring that.