Today, Canada 2020 will host a public panel event in Ottawa on carbon pricing. It is called ‘How to sell carbon pricing to Canadians’ and we planned it last fall. As it turns out, our timing could not have been better. In the wake of Alberta Minister McQueen’s statement on a possible 40/40 carbon emissions reduction plan for that province, new energy has been injected into the climate debate in this country.
We hope that the conversation is constructive, open, and reasonable: all things currently missing from our dialogue on carbon and climate in Canada. Our intention is to capture and reinforce that energy and enthusiasm to help build towards actual solutions.
Our goal in convening the panel is to open a dialogue that is respectful of all positions, so that we can begin to take steps towards identifying shared interest in the climate debate. This, in turn, could provide the basis for actions that will make the necessary cuts in our emissions.
A good first step would be to support our governments in finding ways to meet our Copenhagen commitments. But we can and should strive for more. Blame for inaction lies at the feet of all federal parties: quite simply, now is the time to move on.
Countries that have progressed in this area in recent years – such as Ireland and Australia – have benefited from a societal consensus that has transcended short-term political thinking. What is preventing Canada from following their lead?
Above and beyond the Alberta climate proposal, there are some indications that now might be the right time for action. A recent report by Sustainable Prosperity has detailed how companies across Canada, including in the oil and gas sector, are making use of shadow carbon pricing in their day to day operations – planning for a day when carbon pricing is introduced. The Canadian Council of Chief Executives has a standing call for a nationally consistent carbon price, and the Canadian Association of Petroleum Producers has apparently responded to the Alberta 40/40 proposal with a 20/20 proposal of its own, tacitly acknowledging that more needs to be done.
A more active dialogue is developing around Canada’s future as a large-scale energy exporter – with much of the open, constructive debate happening beyond our borders and not at home where it is most needed. President Barack Obama’s forthright statements on climate change – even if they are not yet matched by action – seem to be leading people to question why our government is avoiding engaging the Canadian public on these issues.
It is worth noting that upon advertising our event, it sold out in a few short hours. Over 450 people are signed up to be part of the conversation. They hail from all walks of professional life: the business community, the NGO sector, academics and public servants. The public is clearly ready.
If any country has the incentive to make progress, Canada does. The Arctic is warming at twice the global average rate. And if any country has the information available to inform that debate, Canada does. The province of British Columbia has had a ‘pure’ carbon tax in place since 2009. This is a revenue-neutral tax: all proceeds are returned in the form of business and personal tax cuts. It has not destroyed the economy as many predicted. In fact some businesses have benefitted significantly: the wood pellet and carbon-neutral bio fuel opportunities may have provided a lifeline to the forest industry. And carbon emissions and fossil fuel usage have gone down absolutely and relative to the Canadian average.
Meanwhile Alberta has a hybrid system of intensity reduction targets coupled with penalties (paid to a green technology fund) for failure to achieve these. Companies also have the opportunity to purchase offsets from others that are meeting their targets. And as of January 1 2013 Quebec also has a cap and trade system in place that links the province with California. With such a wealth of experience, Canada should be teaching courses on carbon pricing, not hiding in the back room.
Through our session on April 17 we are aiming to understand a number of the key dynamics at play in our carbon debate: how is carbon pricing best linked in people’s minds to beneficial economic outcomes? Can intergenerational responsibility (i.e. the fact that people care what happens to their children and grandchildren) translate into climate action? And can we build political momentum across party lines to use all policy tools available to meet our international commitments?
But most of all, our goal is to reignite a positive debate on carbon pricing and, in so doing, begin building towards a plan with which the majority of Canadians identify – and of which they can be proud.
Category: Opinion
Australia’s Asian Century – Canada’s too?
I am British by birth and Canadian by choice. While I have a healthy respect for the Commonwealth, I have never aspired to go beyond my two nationalities – until this week. Now I want to be an Australian.
This admiration for Oz is precipitated by a new White Paper presented by the Australian government last week, Australia in the Asian Century.
The nearly 300-page paper is ambitious, strategic, well-written and comprehensive. One Australian commentator called it ‘lofty and inspirational’. That is what is at the root of my Australia-envy. It has been a long time since I have been inspired by a white paper. But then it is also a long time since I have seen a white paper in Canada. The Parliament of Canada website shows that the two most recent white papers were produced in 2010: one on cyber security and the other on the Arctic. There were two produced in 2009, none in 2008 and one in 2007.
One inspiring thing about Australia in the Asian Century is that it connects the challenges Australia faces in penetrating Asian markets with domestic objectives, including building up the five pillars of productivity: skills and education, innovation, infrastructure, tax reform and regulatory reform. It also underscores the need for Australia to learn from, not just sell into, Asia, now a ‘world centre of innovation and technological development’ (p.43).
The daunting thing is that Canada has to compete with Australia in developing relationships in Asia. We are clearly starting behind the pack. The Australian White Paper opens with the statement that:
“Our nation … has the strength that comes from a long history of engagement with countries in Asia. Australia’s relationships in our region are strong and robust, including with Asian nations like China, Japan, India, Indonesia and the Republic of Korea (South Korea).” (p.1)
Contrast this with the opening paragraphs written by Dominic Barton, Global Managing Director of McKinsey in Canada 2020’s 2011 anthology The Canada We Want in 2020.
“Asia….feels geographically and culturally distant, despite the fact that Canada is a Pacific nation. Links are sparse and Canadian businesses lag their rivals from other OECD countries in terms of Asian penetration”(p.35)
It is true that the Harper Government has “pivoted” towards Asia over the past two years. In addressing the recent Canadian Council of Chief Executives conference on Canada in the Pacific Century, Foreign Minister Baird noted that “We have made 77 cabinet-level or Prime Ministerial visits to the Asia-Pacific in the past three years alone”: tomorrow the PM will add to that total when he leads Ministers Fast, Ritz and Oliver to India.
Minister Baird went on to emphasize the steps the government has taken in the trade area (while acknowledging that there has yet to be a trade agreement signed with an Asian nation), its goals in regional security and governance and the important increase in Canada’s diplomatic presence in Asia. Lastly, Minister Baird noted the importance of promoting Canadian values in the region, citing Canadian support to Burma.
But this Australian manifesto underlines how far we have to go and how widely we need to participate in the effort. Skepticism and fear of Asia, and China in particular, is rife in Canadian society, government and business, as evidenced by the debate over the CNOOC/Nexen deal and the China-Canada FIPA. The government position on both these issues has done nothing to reassure Canadians that their interests will be served by deepening relationships with the globe’s most – perhaps only – economically vibrant region.
What the Australian White Paper does so well is to project a rallying cry to the whole of Australian society. What is required is concrete measures such as the proposal that one-third of board members of Australia’s top 200 publicly listed companies and Commonwealth bodies (including companies, authorities, agencies and commissions) will have deep experience in and knowledge of Asia, as will one-third of the senior leadership of the Australian public service.
Concrete measures yield concrete rewards. If Australia meets it objectives in Asia, it is projected that per capita real annual income will rise by A$3,000 per annum by 2025 (up from the ‘business as usual’ projection for 2025 of A$70,000 to A$73,000: the 2012 figure is A$62,000). This will put Australian in the top 10 globally for per capita income (it is already ahead of Canada, according to World Bank figures).
Rana Sarkar from the Canada-India Business Council provided much-needed inspiration when he wrote in his contribution to The Canada We Want in 2020 of our need to double down on existing policy, but also to be opportunistic, creative, bold and strategic in our approach to Asia.
This Australian White Paper puts flesh and clear targets on the strategies that Sarkar referenced. It talks of the need for government to lead a broad coalition of “business, unions, community groups and educational and cultural institutions” to improve people-to-people links to unlock large economic and social gains (p. 3) and while it pinpoints key growth opportunities for Australia (including mining, tourism, agriculture, education, environmentally sustainable development), it also highlights the contribution of culture and the arts.
“The arts, culture and creativity can broaden and strengthen Australia’s relationships in Asia, both formally and informally. Australia’s cultural strengths—as home to the world’s oldest living culture, and as a country that welcomes diversity—underpin values of respect, understanding and inclusion that help to connect people, business, institutions and governments.“ (p.8)
Australian commentators have criticized the document on two main grounds: the first is that it is not all new. A number of the targets and programs it apparently ‘announces’ are already in existence (cited here are the 12,000 Australia educational Awards (over 5 years) for study in Asia or for Asians to study in Australia). The second is that there are not enough specifics or resource commitments behind the lofty policies.
From a Canadian perspective we have to hope that that is the case. Australia starts ahead of us in Asia. It has a similarly stable economy to ours. But it also has greater ambition, it seems, and a stronger track record in solving the type of problems that Asian countries face (for example, it already has experience with carbon pricing and can point to successes in water and soil management, while Canada has no binding national laws on drinking water quality, river basin management or agricultural waste: all pressing problems in Asia).
If we are to ‘leapfrog’ others in our quest to get ahead in Asia we clearly have to jump very high: it would help if our competitors could crouch, but that does not appear to be happening.
Omnibus budget legislation hits a new low
‘What does this have to do with the ways and means of the government?”
It was a question asked in the mid 1990s by government House leader Herb Gray in the early days of the Chrétien government, during a briefing he was having with finance department officials on the Budget Implementation Act (BIA). Gray, then a 35-year veteran of the Commons, had spotted a provision in the legislation that was non-budgetary, that had nothing to do with “the ways and means of the government.” To parliamentary purists like Gray, that is what budget bills were supposed to be restricted to.
The finance officials were caught flat-footed and had no answer to the veteran minister’s question. Nevertheless, despite Gray’s protestations, the bill remained as was and was introduced into the House of Commons.
Thus began a new era in Canadian politics — the era of the abuse of budgets and their implementing legislation. A period characterized by the increasing dominance of the finance minister and his department. An era in which the role of parliamentary committees in scrutinizing and amending legislation was disappearing before our eyes.
After 10 years in office, the Chrétien government’s budgets had grown from a slim 63 pages in length in 1994 to a bloated 380 pages in 2003. Not to be outdone, the final budget of Paul Martin’s minority Liberal government in 2005 was 450 pages long.
Budgets had morphed into governing agendas for the year rather than fiscal and economic statements that were restricted largely to taxation measures and the ways and means of the government. If a policy or program wasn’t in the budget, it either wasn’t happening that year or it was too trivial to worry about.
But the real abuse hasn’t been so much with the budget per se, but rather its implementing legislation. The 1994 Budget Implementation Act, or BIA, was 10 pages long. By the early 2000s, the BIA, then known euphemistically as “the omnibus budget bill,” had increased 12 fold. The advent of the omnibus budget bill did not come about due to an increase in the size of government. Rather, it happened as a function of the concentration of power — in a sense the shrinking of government — especially within the finance department.
The abuse of budgets and their implementing legislation has reached eye-watering level under Finance Minister Jim Flaherty. Flaherty recently introduced his second BIA of this year, Bill C-45. It’s a staggering bill, 443 pages long, amending some 60 statutes. Together with C-38, the government’s first BIA of this year, we have nearly 900 pages of legislation to implement a 500-page budget. A new measure of efficiency in government is thus born.
C-45 is controversial due to the degree of non-budgetary measures it contains, such as amendments to the Fisheries Act, amendments to the Hazardous Materials Information Review Act, changes to the Canada Grain Act, etc. So much so that the minister of finance has now decided to allow various parliamentary committees to study some components of the Bill. This is window dressing of course, because ultimately C-45 will likely be voted on as one gigantic legislative tome.
This year’s budget bills follow on the heels of the 2009 BIA, Bill C-2, which amended more than 40 statutes, many of which had nothing to do with the ways and means of the government. C-2 changed, for example, the Access to Information Act, the Navigable Waters Protection Act, the Canada Council for the Arts Act and the Canadian Race Relations Foundation Act. What are the financial implications of these legislative reforms? There are none. Canadians can be forgiven if they weren’t aware of any of the legislative changes resulting from C-2 because hardly any of them were ever debated in Parliament. C-2 was dealt with as one big omnibus bill, by one little committee of the House — the finance committee — over a few short days.
C-2, C-38 and C-45 are examples of budget legislation on anabolic steroids. This is the way Canada is governed today. It is the tyranny of the finance department. It is the subjugation of Parliament. It is the marginalization of the member of Parliament in the legislative process.
The logical extension of this 15-year path is to have Parliament sit for a week every year and pass with alacrity one big fat omnibus bill that deals with all the business of the federal government for that year. Then our legislators can retreat to their constituencies, we can save a few million tax dollars by turning the lights off early on Parliament Hill, and Canadians can sleep well at night secure in the knowledge that the finance minister and his department has everything in hand.
Falling off the ‘fiscal cliff’ will hurt Canada too
It has been said that when the U.S. sneezes Canada catches a cold. Today, America’s economy has a low grade fever that could develop into pneumonia in the next few months. This takes the economic form of relatively slow post-recession growth by US historical standards—an annualized rate of 2.0% according to the US Department of Commerce’s most recent estimate. The looming pneumonia is another American recession, a very real possibility.
The path the illness takes is dependent in the immediate term on whether Washington avoids the so-called “fiscal cliff”. If the politicians fail to avoid driving off this cliff, the American economy will suffer a major blow and will in all likelihood fall back into recession. This would be very bad news for Canada’s economy.
At the end of this year, the tax cuts put in place by President Obama’s predecessor, George W. Bush, which has been considered important stimuli during and after the recession, will expire. This will take purchasing power out of the hands of the debt laden American consumer. At the same time a “sequester,” part of the 2011 Budget Control Act, indiscriminately cuts $1.2 trillion over nine years from spending in Washington. According to the Congressional Budget Office, the combined effects of these two measures equal about 3.6% of GDP in 2013. Other analysts say it could be more like 5% of GDP, either of which is enough to end the fragile US recovery and tip the economy back into recession.
To avoid falling off the fiscal cliff the newly elected Congress and the Administration would have to agree before the end of the year on a budget that reduced Washington’s deficit by an amount at least equivalent to the sequester. In theory this is very easy. As TD CEO Ed Clark recently said, “If you put five economists in a room and say you each have half an hour to come up with a solution for the United States (fiscal problem), all five could say, ‘I don’t need half an hour.’” In practice, however, it seems an almost impossible task in the ideologically divided Washington of today, which reflects the deep divides within American society itself on the role and size of government—what The Economist calls “The 50-50 nation”.
What does all this mean for Canada? We are a trading nation. One third of our GDP, and one in five jobs in Canada, is export dependent. While Canadian exports to the US have declined in recent years – from a peak of over 80% of Canada’s total exports a decade ago—the US is still far and away our biggest market, accounting for nearly 74% of Canada’s exports in 2011. By contrast, Mexico, our other NAFTA partner, accounted for a paltry 1.2% of Canada’s exports last year, the UK 4.2% and China 3.8%.
Hence, if the US tips back into recession as a result of falling off the fiscal cliff, the negative economic effects in Canada will be real and significant, slowing what is already relatively slow growth in this country.
We also know that when the US economy struggles, protectionism south of the border rises. This came home to Canadians in spades during the 2008-09 recession with the Buy American provisions of the American Recovery and Investment Act of 2009, which excluded Canadian firms from supplying projects funded under Washington’s stimulus measures. Further protectionist measures emanating from Washington and negatively affecting Canada’s exports could rear their ugly heads if there is a second US recession in five years, in a country with a persistently high, and historically anomalous unemployment rate—nearly a percentage higher than that of Canada.
Put simply then, averting the fiscal cliff in Washington really matters in this country, as Canada’s Ambassador to Washington Gary Doer made clear Wednesday in a speech in Vancouver. So let’s hope our friends to the south can get beyond their 50-50 divide in the next sixty days and come to agreement on a new fiscal plan that will avoid plunging their economy into another recession and doing significant economic damage to their neighbour.
The New Deal for Skills-Based Graduates
Unemployment rates remain high and the latest data shows an uptick. Why is this, when so many businesses and companies are desperate for trained workers?
The key to addressing this disconnect is to bring balance to the supply and demand for postsecondary graduates. In many sectors, this equation has lost its equilibrium. The proof is found across numerous communities and in many market segments where people’s skills just don’t match the available jobs.
Postsecondary education has been producing a steady supply of graduates, without enough attention to the demand side of the equation. In fact, our success in turning out graduates is in many ways adding to the supply-demand imbalance. The mantra of ‘build it and they will come’ does not serve colleges or their communities well in the short or long term.
The move towards the knowledge-based economy has been underway for decades, gaining momentum and fuelled by capitalism taking flight around the globe with China, India, Brazil and Russia garnering much of the attention. With traditionally weaker economies expanding and driving the emerging economic powers up the value chain the trend for specific-skilled jobs and workers will only accelerate.
How did we get to this point of imbalance? The knowledge-based economy shift has moved many low-skilled, high-paying jobs offshore and left low-paying, high-skilled and professional jobs requiring specific technical skills within our borders. We are faced with the need to raise the education attainment level of our population to ensure we have the skilled labour force needed for continued prosperity.
The framework for responding to this need has created a rush to increase student enrolment without the necessary focus and has yielded undesirable results –an undersupply of graduates in key disciplines, infrastructure that will become increasingly difficult to sustain, and most notably, a lack of innovative solutions and initiatives leading to a slow re-tooling of postsecondary programs.
Our habitual response has failed to recognize two key factors. First, the pool of skilled labour continues to shrink, which creates an urgent need to match graduates to marketplace needs. Second, the conventional way of supplying graduates is unfocused and does not ensure opportunities are met. This is evidenced by the gap between the individual skill sets, high unemployment rates and the unsatisfied needs of the knowledge-based economy.
Today, the economy does not have the capacity to absorb this historical level of waste nor should these historical shortcomings be accepted.
In the past, the unfocused supply could be absorbed within the fabric of the economy, masking inefficiency both in terms of financial and human costs. Today, the economy does not have the capacity to absorb this historical level of waste nor should these historical shortcomings be accepted. The continuance of the old system, primarily focused on supply, is irrational and does not address the challenge before us.
What is required is a new focused framework that is relative to today; that has direct links between the postsecondary student and the employer, with higher education acting as the conduit of knowledge and skill… a new deal that formalizes the link between the employer and future employee – the current student. And most importantly, a strong resolve by the private sector to work with colleges to close the skills shortage gap before it becomes lethal to the health of our economy.
The private sector has been too complacent in redefining and articulating its needs as well as expressing these needs to government, students, and parents – the public at large. Their demands on the education sector to provide specific training has been, for the most part, absent in the public forum.
An action-based approach that flips the current supply-demand approach to a demand-supply model is the most effective and efficient means to close the gap between individuals and the required skill sets, thereby returning balance to the education equation. The need for human capital is unmitigated for industries from finance to manufacturing and construction, according to forecasts from Human Resources and Skills Development Canada. Projected shortfalls of workers range from 200,000 to 1.8 million by 2031 according Dr. Rick Miner’s study Jobs Without People and People Without Jobs.
We need a resolute and focused plan that moves us to address the imbalance of our labour supply, where skill sets do not meet opportunity. This demand-driven approach requires a framework that includes proactive human resource planning in the province, a revenue and tax model that accelerates capital investment by the private sector and a learning and skill development incentive program shared by the public and private sector. While targeted investment directed at individual sectors may not be popular or palatable in some jurisdictions, the need to address the skills shortfall requires quick and decisive action. We must do things differently and not be bound by standard conventions to meet our commitments and obligations.
As a college, we will continually evolve our programs and services to fulfill our mandate. This translates into constantly innovating and investing in new programs and services with the support and foresight of industry partners, individuals, alumni and government while divesting from others. A vibrant college always continues to evolve and renew.
A healthy economy, excellent healthcare, high quality education, positive business conditions and secure retirement are dependent upon us reestablishing balance to the education equation by eliminating the gap between the skills shortage and those required by the marketplace.
What Canada should take from the WEF Competitiveness Report
This year, Canada slipped from 12 to 14 in the World Economic Forum’s Global Competitiveness Rankings, having dropped two places the previous year and one in 2009-10. So in three years we have gone down five places, from 9 to 14. The countries that have pulled ahead of us are: Taiwan, Qatar, the United Kingdom, Hong Kong and the Netherlands (which now stands at number 5, up from number 10). Over the same period, the US has also dropped five spots, from 2 to 7.
In analyzing Canada’s decline, the report highlights: a less favorable assessment of the quality of our research institutions and weaknesses in the contribution of government procurement practices to promoting innovation (a key concern of the Jenkins panel review of Federal Support to Research and Development). While we remain strong on human capital factors and, somewhat surprisingly, on labour market efficiency, the report also points to lower enrollment in higher education and some relative weakness in workplace training. It is not news to us that we have a skills problem in Canada: what is a little surprising is that it has not pulled us down further.
It is interesting to look in greater detail at Canada’s profile and see where we stand out, both positively and negatively. The index is a composite ranking of weighted factors in three broad areas: basic requirements, efficiency enhancers and innovation and sophistication factors. Within these three areas, there are 12 `pillars of competitiveness’ which, in turn, are comprised of between two (for market size) and twenty one (for institutions) separate indicators. So there are a lot of data and a lot of rankings to muse upon.
The good news is that we come top of the pile (no. 1 ranking) in 4 areas: malaria cases/1,000 population and business impact of malaria (phew…obviously none of our top business execs are vacationing in the Dominican Republic) as well as annual change in inflation rate and, again somewhat surprisingly, the number of procedures required to start a business. Less surprising is that we are top-ranked in soundness of banks. This really is an advantage on which we should be able to capitalize as we reach out to increase economic links between Canada and Asian countries, in particular.
Our really bad scores (where we rank below 100 out of 144 nations) are in mobile telephone subscriptions (111: could that be the cost?), government budget balance as a % of GDP (104), general government debt (129) and imports as a % of GDP (112). In none of these areas have we improved our rankings since 2011-2.
Another interesting outlier is in ‘business costs of terrorism’ where we came in at number 82, happily an improvement of our 93rd place the previous year. I assume this ranking still has to do with restrictions placed on US border crossings in the aftermath of 9/11.
A fascinating, but less well-reported, section of the report deals with ‘the most problematic factors for doing business’. These are derived from the WEF’s executive opinion survey. Respondents are asked to select from a list of 16 factors those five that they deem to be the most problematic for doing business, and then to rank them. Given that this is a ranking process, it does not pay to attribute too much import to the actual scores for each factor, but it is interesting to see what Canadian executives are worried about and how their concerns stack up relative to their counterparts in other countries.
The good news first. Once again, ‘crime and theft’ was not selected by any Canadian respondent as a major constraint to business (good to know that we have all those prisons in waiting, though…). We were not so lucky on corruption this year, no perfect zero. At least one executive must have had a bad experience, pushing us up to a score of 0.3.
But what about the top ranked concerns? The top five worries of Canada’s executives are, in order: (i) inefficient government bureaucracy; (ii) insufficient capacity to innovate; (iii) access to financing; (iv) inadequately educated workforce and (v) tax rates.
It seems a bit of a stretch that tax rates are still in the top five, given that corporate tax rates are at an all time low, though not, of course, nearly at the level of our low-tax competitors such as Qatar (10%), Singapore (17%) and Taiwan (17%). Tax rates are the top-ranked concern in four of the countries that are above us in the overall global competitiveness rankings (Sweden, Finland, the UK and Japan). They come a close second in the US. The actual rates are, according to KPMG figures, similar in Canada, Sweden, Finland and the UK, so I guess we are complaining relatively less than our peers about tax.
The other four factors that are important here in Canada are also important in most of our immediate competitor countries. Ten of the 14 most competitive countries rank government bureaucracy amongst their top five problems (along with us, only the US gives it top billing: is it a worse problem in north America or are we less tolerant of bureaucracy than the Europeans and Asians?). Eight countries see problems with capacity to innovate (Germany, the US, Japan, Qatar, Denmark and Taiwan are fortunate in that they do not rate this as a top five problem) and 11 of the top 14 countries’ executives experience problems with financing, again, unsurprising in the current climate. In four countries (the Netherlands, the UK, Qatar and Denmark) this is seen as the top problem.
So what does all this tell us? For me, it points to the need for effective policy and well-targeted government action. Innovation in the public service is, as Canada 2020 author Peter Nicholson suggested, a key concern. That should help businesses, as would the related issue of doing better on promoting innovation through government procurement.
Skills of different types are also a key factor in our competitiveness. There has been a good deal of commentary, of late, on the relative value of university education versus technical training. Both are critical, as is the need to ensure that we are matching skills training and our university enrollment with workplace needs. Employers also need to take responsibility here for on-the-job training.
I suspect we have much to learn here from the Swiss. In the indicator rankings they score top marks overall (no 1 ranking out of 144 countries) for both the quality of their educational system and the extent of staff training. But Swiss executives still rank an inadequately educated workforce as the most problematic factor for doing business. They know this is the key issue for the future. We still have a lot to learn.
Nexen-CNOOC – Searching for Canada’s “Net Benefit”
Next month shareholders of Nexen vote on a lucrative offer from a company owned and controlled by the Chinese government for all of the shares in the Calgary-based, Canadian oil and gas company. If they do not say “yes” it will be a miracle. After all, The Chinese National Overseas Oil Company, or CNOOC as the buyer in known, is paying a sixty-six per cent premium on the price the shares were trading at when the offer was made on July 23, 2012.
CNOOC is so confident of the shareholders’ agreement that it has already asked for federal government approval of the deal, even though the formal vote has yet to be held. Because this would be a foreign takeover of a large Canadian company, the purchase requires the approval of the federal government agency, Investment Canada, before it can go through. The fact that the buyer is a company controlled by the Chinese government means that the pending decision by Ottawa has already attracted a lot of attention and comment.
The Nexen deal falls neatly into two of the five areas on which Canada 2020 is focusing in our ongoing project, “The Canada We Want in 2020.” Launched in the fall of 2011 and followed up with five public sessions in the spring of this year, the project looks at Productivity and Innovation, Income Inequality, Health, Carbon and Energy and the rising importance of the Asia-Pacific region. The Nexen deal clearly falls into the ambit of both of the last two categories and is also of relevance in the productivity and innovation area.
When it reviews the deal, Industry Canada, on behalf of the federal government, will have to decide if there is a “net benefit” to Canada should the sale of Nexen to CNOOC go ahead. Clearly Nexen shareholders benefit, as does the Chinese government. That is why the deal has been tabled. Shareholders get a large premium for their shares and China gets all of the company’s energy resources, not just in the Alberta oil sands but also in the Gulf of Mexico, the North Sea, Latin America and West Africa.
Those supporters of the deal who do not directly benefit from the sale believe it is good for Canada because it attracts much-needed foreign investment to develop the oil sands. This is crucial not just for Canada’s energy needs, but also for the revenues and both direct and indirect jobs the oil sands will create. And, they point out, saying “no” would represent a big setback to warming economic and political relations between Canada and China, which stand to yield other, larger benefits over time.
But opponents of the deal have a number of arguments as to why the sale should not go ahead.
The opposition of environmentalists who oppose any further development of the oil sands is easy to understand. But others have raised objections on a number of grounds, including that:
- Nexen operates in one of Canada’s core strategic industries.
- because CNOOC is owned by the Chinese government, this is not really a business and economic question but one of politics and foreign policy. Even if, as promised, the American head office of CNOOC is in Calgary and a class of shares in the company is traded on the TSE, the company will be an instrument of the Chinese government’s political, economic and foreign policy and the deal must therefore be regarded in that way.
- there is no Canadian-Chinese reciprocity on such transactions. If a Canadian oil company wanted to buy a Chinese-owned one it could not.
- the Chinese record on repressing human rights is reason enough to block the sale (opponents cite the Chinese government’s dealings with its smaller neighbours in disputes in the South China Sea, its manipulation of exports of rare earth minerals and its support of both Iran and the current regime in Syria).
The “net benefits” test in the Investment Canada Act was not conceived to deal with such non-economic questions. Yet the rise of state owned enterprises and sovereign wealth funds that are created and operated by governments, has made these questions at least as – or even more – important than the pure economic questions that were originally envisioned by the test.
A further problem is that the definition of “net benefits” is so vague that it can mean almost anything on any given deal.
Whatever answer is given will set a precedent for how future, similar deals will be judged. This is why there is so much interest in how the Nexen – CNOOC deal plays out and why, at Canada 2020, we are following the developments very closely.
Venus and Mars Align – Income Inequality Agendas in France and America
When the President of the most anti-government country on earth and the President of the country that invented dirigisme are converging upon a political narrative, if not a shared policy agenda, something is going on that Canadians better pay close attention to.
Francois Hollande, the newly elected socialist president of France, is defining the early days of his presidency on the issue of income inequality. Barack Obama, who faces a jaded American electorate in a few months, has decided to make income inequality the central issue of his re-election campaign. This amounts to the political equivalent of the alignment of Venus and Mars.
Canada lies, both culturally and politically, in the mid- point of these two planets. And yet oddly enough politicians in this country are saying almost nothing about income inequality.
Hollande has exhibited the most extreme rhetoric and pointed policies on the subject, echoing the language of the Occupy Movement. He has called “the world of finance” his main enemy. The government Hollande leads plans to introduce a variety of tax increases to level things out on what he has termed “the grasping and arrogant rich”. These include wealth, financial transactions and inheritance tax rises. An extra 3% dividend tax on business has been mooted. Planned increases in value added tax by Nicolas Sarkozy, Hollande’s predecessor—which would have hit hardest on low and average earners—are being cancelled, even though the French government desperately needs the revenue (not having balanced its budget in thirty eight years and with a debt GDP ratio of 86%). A new 75% top rate tax on incomes over 1 million euros is expected. Salaries at majority state owned companies, of which there are dozens, will be capped at 20 times the lowest paid worker’s wage, meaning some chief executives could take as much as a 70% pay cut.
All in the name of reducing income inequality. And all quite popular in the land of liberty, equality, fraternity.
But how can an income inequality agenda be popular in America, the land of the free and the home of the brave, a country that likes to present itself as the world’s beacon of unbridled free market capitalism. President Obama certainly thinks it can be. He sees income inequality as the “defining issue of our time”. While Obama’s points are subtler and less overtly “soak the rich” than Hollande’s, the message is pretty clear.
In his State of the Union Address in January the subject of income inequality featured prominently. The president said– “No challenge is more urgent. No debate is more important… We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.” Building on this theme in April, the president said–“What drags down our entire economy is when (sic) there is an ultra-wide chasm between the ultra-wealthy and everyone else.”
So for Obama, income inequality is bad for the economy, which fits well with America’s basic narrative. And for Hollande and the French socialists, income inequality is an affront to the core French values of egalite and fraternite. Different strokes for different folks.
President Obama has been shorter on solutions to the defining issue of our time than has Hollande, but he has put a couple things on the table. Notable among these are extending tax breaks for America’s struggling “middle class”, by which he means everyone but the top 2% of earners, who drive the income inequality gap so wide in America. And he has expanded tax credits for low income people and put more money into education.
While income inequality has emerged over the past few months as a dominant issue in France and America, the silence among Canada’s politicians on this subject is truly deafening. This is especially puzzling given that measures of income inequality are much worse in Canada than in France. And income inequality in this country is rising faster than it is south of the border.
This week the Premiers gather for their annual confab to discuss the major issues they think confront Canada. Energy, a perennial favourite, is at the top of their agenda. The Premiers would be well advised to spend a little more of their energies on the defining issue of our time.
Green vs. Growth: the false dichotomy
Earlier this month the UK’s Confederation of British Industry (CBI: the UK’s top business lobbying organization) released a report entitled The Colour of Growth: Maximising the Potential of Green Business.
In Canada we are used to hearing about the conflicts between `green’ and `growth’. This report – authored not by an environmental NGO but by the powerhouses of British industry – argues forcefully that this is a false dichotomy. Indeed, its underlying premise is that green is not just complementary to growth but a vital driver of growth in the UK.
The main messages of the report are that:
- Green means opportunity.
- In order to stay ahead and fully exploit green growth opportunities the UK needs a coherent, consistent and strategic policy framework from government.
- The UK should project an overarching brand in the green economy: government action is critical to this.
- Consumers will only play their role in the green economy if they receive the right facts and consistent government messaging.
- Long-term strategies for energy-intensive industries must be developed. These should be sector-specific decarbonization roadmaps that enable such industries to play a role in the low-carbon transition.
As one commentator put it: `In essence, the CBI is calling for a policy framework that is both simpler and more ambitious – a system of regulation that is streamlined, stable, and sharply focused on giving businesses the confidence they need to invest.’ (James Murray http://www.businessgreen.com).
UK business (or at least a significant section of it) has clearly bought into the economy of the future and is pushing the government to provide the right incentives and enabling environment for innovation and success. What stands out in the report is the need for consistency and predictability in the policy environment.
Would that were all we needed in Canada. Consistency here is sorely lacking (witness the flip-flopping on home energy retrofits and feed in tariffs, battles over electricity prices as well as the far bigger problem of a government that is committed to facilitating ever-increasing fossil fuel extraction while still paying lip service to a 17% reduction in carbon emissions over 2005 levels by 2020). But our problems run deeper. We also lack a meaningful overall commitment to decarbonization, a sensible debate about the facts and opportunities of the green economy, and any shreds of the international credibility that might enable us to develop a green Canada brand (one of the key proposals in the paper written for Canada 2020 by Stewart Elgie and Alex Wood in The Canada we Want in 2020).
Indeed, while the CBI bemoans a lack of green brand in the UK, a report by the American Council for an Energy-Efficient Economy, also released this month, ranked the UK as no.1 overall in energy efficiency (which must enhance the brand somewhat). Canada came a dismal 11 out of the 12 largest economies, beating out only our old foe, Russia. And while the UK is home to over 75% of all carbon market trading desks, our current federal government has firmly rejected the idea of carbon markets in favour of a slower, far less efficient, regulatory approach. (This, in response to the fact that the public apparently has no appetite for carbon taxes: unsurprising if there is neither leadership nor good information on these topics issuing from government.) It comes as no shock, then, that we pick up all those fossil awards and are currently battling for the future of what the European Union would like to designate as `dirty oil’.
The CBI report states that `In trying economic times, the UK’s green business has continued to grow in real terms, carving out a £122 billion share of a global market worth £3.3 trillion and employing close to a million people. ‘ This is real growth in a dynamic market, something that should motivate all politicians in the current environment. Furthermore, a high concentration of UK green exports go to Asia (around 20%, including 12% to China and Hong Kong), a priority area for Canadian trade.
So where do we start? We do have green business in Canada and we are not doing badly in renewables, despite the pro-fossil fuel stance of our federal government. Ernst and Young recent rated Canada as coming 8th (out of 40 surveyed countries) in terms of `renewable energy country attractiveness’ (the UK ranked 5th, China came out top). It cited the Ontario election result and our relative strength in wind, as well as ambitious plans for harnessing wave power in BC, as key factors in this ranking.
When it comes to green investment, we are well behind European countries and the US. Not only have we been at it for a far shorter time, but we also have far less money invested in the green economy. Investeco, Canada’s first environmental investment company currently manages just $35million for over 100 Canadian Investors. Compare with the UK where just this year a government-sponsored Green Investment Bank that aims to release 3bn (sterling) to fund green infrastructure was incorporated.
So now is the time to cash in on the hidden advantage of playing catch-up: we do not need to reinvent the wheel. Let’s start by heeding the CBI’s advice ….just substitute Canada for UK below:
`If we are to capture the full value of the low-carbon transition …. we need to think about what a smarter approach looks like within the context of a broader industrial strategy. We should look to build up and promote UK strengths, identify strategic opportunities and ensure that we have the right institutions and intellectual infrastructure to underpin these activities. In doing so, we can make sure that the UK is best placed to supply – and export – the solutions.’
(The Colour of Growth: Maximising the Potential of Green Business, p.6).