:LPE:

The first time I heard that phrase used as a slogan, it was the managing partner of a large Toronto law firm who claimed that it was his attitude toward obtaining clients for the firm. He also said some things like, go big or go home, we fight to win, and other exhortations to obtain the client at all costs.

The Panel on Competition Policy in Ottawa, staffed by some people known to that managing partner, has adopted his slogan to characterize their policy proposals for the future organization of Canadian markets. In short, they advocate opening up heretofore managed markets like mining and telecom, focusing government resources in “innovation” industries and increasing competition here and abroad, and lowering any other regulator barriers to foriegn investment here.

This will, they seem to think address one of the difficult policy problems facing corporate Canada: the increasing foreign ownership of Canadian coporations (and with them, resources). Depending on your point-of-view, this has harmful domestic effects, or, if it exists (some deny), it is not a problem because it is a sign of growth an innovation, etc.

Without getting into the merits of the positions, which require a lot of study, it seems clear that the proposals of the competition panel will only exacerbate current trends (whatever you think of them). It would make it more difficult, for example, for Canadian governments to constrain foreign purchase of Canadian corporations, businesses. NAFTA has done a good amount to lock in such a permissive framework, and this would help complete the job. If NAFTA was good to you, then this might be good to you too.

It is interesting, though, that this policy direction comes at a time when other major countries or blocs are considering the merits of exactly the opposite policies: several times in the past couple of years EU and US have blocked mergers or buyouts fearing foreign owners (usually, “national security” reasons). On the other hand, DOHA is stalled because northern governments will not or cannot remove price subsidies, and so southern countries will not participate in unbalanced trade; WIPO is attempting to impose monopoly pricing policies on developing countries in order to protect developed countries IP; several southern cone countries have rejected IMF-led de-regulation and restructuing (and their loans). Not all these speak directly to the competition policy issue, but inform it and describe elements of a borader re-thinking of the right mix of managed economies and open economies.

I have not done a study of the relationship of major financial sector markers in Toronto to GDP growth and as compared to other competitor sectors (say, financial sector in Chicago or NYC), if that is possible. If it were, my bet would be that, along with the foreign ownership of Canadian businesses, we are seeing a slow erosion in demand for those services domestically. Maybe I’ll try looking up some data.

I’ve posted briefly on the US Treasury department’s bailouts of the mortgage lenders and at least one investmement bank. The Treasury and particularly former investment banker Paulson is denying vehemently that these are taxpayer-funded bailouts of investment bankers and their shareholders, but he has to say that, it is his job: to admit that these were taxpayer-funded bailouts of the richest people in America, while some of the poorest lose their homes on the same problem, that would be political mayhem. Reporters don’t, on the whole, seem to be making such a fuss. (There are exceptions, like Gretchen Morgensen at the NYT).

A slightly less obvious bailout was introduced by the SEC last week in the form of new rules prohibiting short-selling. That is, rules that make it difficult or impossible to bet that prices of shares will decline in value. This is a direct imposition of price controls on capital markets, and in effect, a subsidy of every company whose shares are over-priced (say, because they made some very bad mortgage loans and didn’t admit it in their financial statements).

Think about that: the SEC has, with full government blessing, imposed price controls. It has told the market you cannot bet against it, only with it. If any Treasury official or Federal Reserve official utterns the phrase “free market” to justify a policy decision, you now have your clear rebuttal. Prices are only free to go up, not down.

It is getting increasingly difficult for Treasury head Paulson to speak with any credibility about bailouts. First, opening the discount window to hedge funds, then bailing Bear Stearns (Lehman on the horizon).

The latest move is to offer to buy two major mortgage lenders (Freddie Mac, Fannie Mae) equities if their stock tanks any further, and to offer them money through the discount window (in addition to brokerages, investment banks — a massive expansion of his traditional commercial deposit bank jurisdiction that seems to have gone undebated). Let’s see: public purchase of the equities in a company, that’s nationalization. If they are re-sold at a loss, then that’s subsidization of shareholders. Not pretty for a “free market”.

Paulson continues to insist that he and the financial sector believe in freer markets, and then undermine those actions by subsidizing losses on a massive scale. It may be the right move - no-one by some dogmatic marxist seeking the right precondition wants to see so much wealth evaporate and, especially, so much wealth of homeowners evaoprate (houses are the single biggest asset for most people who have the luck to have one — pension the second biggest).

But we can no longer even pretend that these actions are not bailouts of some very wealthy people indeed, and that these markets require some pretty extraoridinary structuring if not re-structuring by public policy. They’re not “free” in the way the deregulation movement claimed. Paulson himself seems wracked with anxiety - speaking recently about the need for a system in which some lenders or banks in general can fail without the whole system being jeopardized, and him put in the impossible position of eating his words as an investment banker for the past 20 years.