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Canadian political memos



Jim de Wilde

September 2007




                        Thanks to the initiatives of Roger Martin at Rotman and Gordon Nixon at RBC, the issues of howCanada becomes a globally competitive society have catapulted to the top of the political agenda this summer.   Their Canada Day article in the GLOBE was a welcome boost to the system, where the issues of how Canada responds to the opportunities of a global marketplace have remained inexcusably obscure in the last two decades.   Canadian politics became smaller, focused on a mixture of organization-driven ambition on the left.    On the right,   conservatism has had little interest in competitiveness because too many social conservatives espouse views that result in resisting the innovation and experimentation required for global competitiveness.  The simplistic agenda of tax cuts and limited government had the replaced the entrepreneurial conservatism and growth economics   that   animated the Mulroney era.   The left is trapped in a vocabulary of regional subsidies and the political narcissism of excessive spending.  The right proposed occasional tax-cutting measures, but usually in an ideological way.   The left wanted an expensive, non-innovative healthcare system rather than an innovative export-oriented health care sector.  The right actually symbolically cut the GST (a productivity-enhancing fiscal innovation) instead of embarking on a tax reform initiative which would have facilitated the development of competitive strategies in Canada.


                        The Martin-Nixon piece is extremely timely, essential as two of the traditional engines of compensatory competitiveness strategies, Alberta and Quebec are running out of political gas.   The strategic and financial acumen of Jim Dinning was rejected by the internal politics of the Alberta Conservative Party as it retreated from a discussion of how the Alberta Treasury could become the Canadian version of the Norwegian Treasury or Norsk Hydro and embarked on a rear-view mirror vision of social conservatism.   Quebec's competitiveness agenda, which had provided a strategy under Bourassa and Landry for two decades, was replaced by a tax-cutting ideological agenda in Mario Dumont and a confused set of messages about the management of globalization from Andre Boisclair and Jean Charest.       There is clearly an opportunity for a national agenda on how Canada becomes globally competitive now that hasn't existed in previous federal-provincial alignment.   


                        Before discussing the specifics of any proposals (whether Martin-Nixon or the proposals for strategic tax-reduction for capital gains to increase productive reinvestment, or past attempts to make venture-capital backed commercialization of technology as a parallel growth engine to resource investment that have been made by many including this writer), we have to ask an obvious question:  why has it proven to be so difficult to put competitiveness on the national political agenda.   Canada had a Royal Commission on Competitiveness in the 1980s under the terms "Economic Union and Development Prospects".      Issues of "economic nationalism" have been a fundamental of our political discussions   since the development of Silent Surrender by Kari Levitt in the 1970s.   Why has the political strategy for advancing competitiveness proven to be so elusive?


                        In short, the answer might be that in Calgary and Montreal, Edmonton and Québec City, where this discussion has been at the political centre since the 1970s, with the development of a strategy for the CDP in Quebec and the Heritage Fund in Alberta, there has tended to be a view that the federal government has little to add to a serious discussion of competitiveness, serving up policies which dilute their competences.  Many people have looked at the preconditions for having a successful, growth-oriented technology sector.  Canadian capital markets have lacked the coherence of other smaller economies.    Canada has historically lacked the export-oriented vision of Swiss multinationals, and we lacked the strategic focus which would facilitate Nokia's penetration of the Chinese market or Ericsson's expansion.  While the impact of North Sea Oil on Norway was not as apparent in the 1970s to North Americans, it was clear even then that energy could be a ticket to global economic activities or alternatively a crutch to justify inefficient subsidization of the sectors in which employment was concentrated.  Canadian federal policies were predicated not on global competitiveness, but on regional economic development, a theme that was actually put into constitutional language in 1982, something which made us the only country in the world to mandate economic inefficiency in its constitution.  Our tremendous resource-wealth camouflaged a range of decisions and attitudes which limited our capacity to sustain innovative strategies and commercialize and export our intellectual capital.


                        In the 1980s a confused debate about Canadian economic nationalism replaced the competitiveness agenda.  Instead of looking at how we could create world-class enterprises and use international arrangements like a free trade agreement with the United States to launch these new companies and sectors, we viewed the FTA as a means to hold on to traditional markets, a loss-negating, risk averse strategy.  As was said by so many people at the time, whether or not one supported the 1988 FTA, the debate about it was very disappointing in terms of moving Canada forward at a time when other countries were talking about new global competitiveness strategies, either in the east Asian economy or the move toward European integration.


                        As we discuss individual proposals to take competitiveness more seriously, it is essential we remember the failures of political will which have impeded previous efforts.  During the free trade debate, I wrote two pieces, one on "Canada: Global Competitor or Farmteam Economy" trying to focus the question as to why Canadians were not using their capital markets to launch acquisitions, why expansion capital was so difficult to come by, why we lacked the investment banking base to be able to deal ourselves into major league games.  In Calgary and Montreal, in Edmonton and Quebec City, these issues were debated and, in both instances, when national politics seemed disinterested in, or even hostile to these objectives, so called "province-building" exercises accelerated.    By the 1993 federal election, Lucien Bouchard was articulating a dramatic competitiveness strategy for Quebec mixing neo-Thatcherite state restructuring with a global vision that he felt could not be effectively promoted from a brokerage-driven federal system in Ottawa.   


                        The second piece I wrote in 1988 looked at Canadian companies with export-driven strategies for competitive advantage.  At the time, that was a radical departure from conventional thinking, where exports were the spillover from domestic production.     Now, Roger Martin's Competitiveness Institute has made a point of documenting those companies whose dominance in their space makes them global competitors.    This understanding has still not been successfully connected to public policy in Ottawa .


                        Part of the problem is   leadership.  The 1990 Paul Martin campaign for the Liberal leadership was largely based on competitiveness agenda.  The coalition behind Martin understood these challenges to Canada and was seeking a pro-economic growth, pro-competitiveness agenda.  This was a form of shock therapy to a Liberal Party that had grown used to spending tax revenues from the wealth-producing parts of the country who didn't vote Liberal.   When Martin's campaign faltered, the coalition he had assembled fragmented with many key players joining the Bloc Quebecois, the Reform Party, or simply pursuing non-political strategies for enhancing Canadian competitiveness.    Neither Harper nor Day took advantage of the opportunity to recast that pro-growth, pro-global competitiveness     political coalition. Both seemed preoccupied with a language of western interests which meant a "firewall" in Harper's case.    The firewall line has caused the Prime Minister much embarrassment, but at its core was a competitiveness argument:  the responsibilities of provincial governments are to create a shield against federal policies that impede wealth-creation and competitive reinvestment strategies.  Whether the metaphor is firewall, insulation, force field, shield, inoculation, the debate is still a key debate in Quebec politics, British Columbia politics and, of course Alberta politics.   A national competitiveness debate requires that the pro-growth, pro-competitiveness forces that have focused their energies on Edmonton and Quebec City engage nationally.   Sadly, by the time Paul Martin retired and the federal Liberals picked a new leader, economic issues were almost completely absent from the debate.


                        If Canadians are to benefit from the discussion initiated by the Martin-Nixon piece, the political preconditions for success need to be understood - a left preoccupied with archaic notions of Canadian "identity" (defending a healthcare system that is constrained from innovation, a knee jerk reaction against foreign investment) and a right preoccupied with a two-decade old anti-government rhetoric of tax cuts will fail.  In an era where renewed infrastructure is a prerequisite to competitiveness, where global network building is essential and innovation-based competitive advantage is a key to sustainable prosperity, Canadians need a new politics and a new political framework.


            Here are some first steps:

1.      Stop demonizing those who advocated provinces as effective instruments of promotion global competitiveness, like Bouchard or Harper.  They were right.  Advocates of a sluggish status quo at the federal level were wrong.  It is no coincidence that among the most dynamic arguments for political renewal in Canada in 2007 are the so-called "lucidiste" proposals of former Premier Bouchard and his associates and those who are trying to plan a "Beyond Oil Revenues" investment strategy for the Alberta economy.


2.      Global competitiveness requires many things, but it starts with having a global vision.  What are our strategies for collaborating with Korea, with Singapore, with Dubai?  How is Canada positioned in the Dubai-Singapore or Istanbul-Mumbai networks? Why don't we know how many Chinese have graduated from Canadian universities and enlist them in fundamental network-building?


3.      We need a coalition of wealth-creators, emphasizing the importance of export-oriented business leadership.    The denigration of successful business leadership in our political culture is unacceptable.   We need to remember who has been pushing for competitiveness, the ecosystem of world-class technology around RIM and Open Text in Waterloo, the Quebec venture capital community in health sciences, the entrepreneurial finance network around the Alberta oil patch, the Ballard-created venture capital community of British Columbia, the new entrepreneurial visions of Atlantic Canada with their attention to world-class undergraduate education as opposed to duplicating research.


4.      While changing attitudes, assumptions and political culture are the most important challenges to be met, we do need some new policies.  An adaptation of aspects of the Irish tax-system with fewer taxes on individual initiative and more on consumption, capital gains tax cuts for new investments to encourage serial entrepreneurship would help.  But mostly we need a change of attitude, a movement away from the protectionist language which dominated the free trade debate, the aiming-low strategies which characterize so many investment deals.



5.      A national goal for Canada is to become the most scientifically literate society on the planet, one which educates its citizens to understand science, which encourages our talent to engage on the scientific issues of our times  and which brings scientific literacy to the questions of environmental management, innovation in food production, and an understanding of the interconnectedness of agricultural, health and environmental policies which will be the cornerstone of effective public policies going forth from here.


 A Canadian government which was based on a coalition of globally-focused, wealth-creating economic innovators would transform the country within a decade.  


            Eight Steps to Sustainable Prosperity

           Jim de Wilde

           January 2007

The economic agenda for Canada in an era where Brazilian companies are buying Canadian mining assets, where Kazakhstan is promoting itself as the new Canada, where Finnish pulp and paper companies in Latin America are exporting into the Canadian marketplace, where China and India are becoming sources of knowledge-based innovation is very different from the strategy of previous eras.   Debates about foreign investment, regional subsidies, free trade seem like the residue of a bygone era.    But there has not emerged a political strategy for preparing Canada for an era of global growth.  We have played with ideas like globalization, looking at the behaviour of capital markets, or export opportunities in suddenly significant markets,  but beneath all that has been discussed, we remain a resource-producing economy cross-subsidizing many other activities, with a few competitive players like RIM ,  OpenText and Ballard emerging from the competitive races.

            The federal government has long been searching for a strategy.    It protests that there is an innovation agenda and that we are constantly adapting to the new conditions of global competition.   But that is not the reality.   An innovation strategy and an approach to the rise of China, India, and Dubai require a rethinking of the kind of economy we want to build in Canada over the next decade.   These are the areas where national public policy is essential for competitiveness.  While practitioners of public policy frequently forget that informed market decision-making and entrepreneurial activity are the keys to economic growth,  sound government policy can facilitate the former and attract the latter.      We live in a world where the Dubai stock exchange can go from an obscure regional entity into a major driver of the global economy in five years.   The responsibility of competent public policy makers is to ensure that Canadian entrepreneurs and investors have access to global trends, global markets and global investment opportunities or risk becoming a farm team economy.    That is what governments can do to enhance Canadian competitiveness. 

            Before this vision can be credible with the Canadian electorate,    the federal government has to   consolidate the lessons of the 1990s:  first it has to prove that it knows how to do no harm.  Deficits and other symptoms of a poorly-managed economy are even more dangerous in a world of global competition where access to capital defines competitive advantage for new entrepreneurs.  The skepticism about federal public policies on the economy are that regionalism will trump competitiveness as a criterion for decision-making,  that "innovation strategies" will become strategies for subsidizing companies ill-equipped to create globally competitive companies, and that public monies will go to institutions ill-equipped to develop market opportunities (government research labs and universities).     The federal government needs to show that it understands the sources of wealth-generation in the Canadian economy.     If Liberals want to replace a Prime Minister and a leadership team from Calgary at a time when Calgary is driving much of Canada's global economic presence, it has to be even more committed to the practice of market-disciplined economic growth than the government it wants to replace.    A first step for doing this is to show that the federal government and its agencies are potential partners in investing the Alberta resource profits in global expansion.    The federal government can either pursue a growth-oriented strategy which facilitates Alberta institutions becoming like Norsk Hydro to the benefit of all Canadians, or a strategy based on regional rivalries which will ensure that Canada will continue to underperform internationally.     To succeed, Canadians need more than sound fiscal management; they need a growth strategy.    But there can be no growth strategy without convincing Canadians that this is a very different Liberal Party, one which wants to be more entrepreneurial and market-driven than its predecessor Conservative government, one which understands the new roles of public policy in a global economy.

            The federal government's role is to assist in preparing Canadians for the best jobs in the new global economy.   Perhaps this means that we become self-consciously a Switzerland, a Norway or a Finland.  At the minimum, we need to build on aspects of the way other small economies - some resource-rich, others not - have carved out a role for longterm sustainable prosperity.    Like Switzerland and Holland, we need financial institutions that are capable of transforming investment into value-added activities in the growth regions of the planet.   Like Norway, we need to be able to show how resource riches can be transformed into longterm equity investing.   Like Finland, we need to be able to create Nokia-type companies which are able to provide magnets of excellence for the next generation of Finnish management and deal a small economy into major economic transformations, like those going on in China and India.  Like Finland , we need to aspire to be ranked first in the Transparency International list of non-corrupt economies, a key to attracting growth-oriented longterm investment in the future.

            Canada's competitive advantages are enormous.  As a resource-producing economy, we have the potential to be as wealthy as Norway in planning our longterm role.   We have strengths in key sectors like environmental engineering, alternative energy, power utility management, healthcare administration and other categories which venture capitalists view as the most important bets for the next decade.    We also have institutional investors like CDP and OTPP which are capable of expertise in global investing which is competitive with financial institutions in Holland or Switzerland.   We lack strengths in marketing driven companies, with the exception of some companies like Tim Horton's.   Our deficiencies are issues about which we have long fretted and done little:  our capital markets lack the investment banking skills to assist Canadian companies in growing through global expansion.    Our marketing skills as a nation are weak, reflecting the engineering competences of a resource economy.  Our incentive structures both cultural and in terms of financial incentives dissuades entrepreneurs from creating new businesses in Canada.

            Eight proposals:

            1.   Canada should be the most economically literate and scientifically literate society on the planet.    That should be a goal of public policy and political communications.   The link between competitiveness and scientific/economic literacy is key to 21st Century prosperity.  The first thing governments can do is to increase the level of economic and scientific literacy in their society.    Political speeches talk constantly about investing in education and everyone applauds.    But we don't know what that means.    If it means subsidizing more "research" projects on esoteric areas, that probably isn't a good investment.     Nor is a market-distorting investment that follows the last "trend" like more investment in biotech.   Education means at least three quite different sets of objectives: (a) skills broadly diffused through the society ; (b) commercialized projects  like the breakthrough energy-saving light bulb;  (c) this enormous social capital in a society that comes from being scientifically and economically literate.    

Competitiveness goes hand-in-glove with scientific and economic literacy.     Public policy can promote scientific and economic literacy, which means that the tradeoffs that are made in diffusing new technologies and the billions of market decisions made every day will contribute to a greater prosperity rather than counterproductive choices and unintended consequences.    For years, I have proposed that students read John Allen Paulos' Innumeracy and Peter Huber's Galileo's Revenge to show the importance of mathematical, economic, and scientific illiteracy for public policy decisions if these decisions are to enhance productivity and competitiveness.

If Canada set as a goal to be the most scientifically literate economy in the world, the most economically literate economy in the world and the country ranked first in the Transparency International index on honesty and reliability in capital markets, there is little doubt that Canada with its natural endowments would maximize its competitiveness.   

However, there is evidence that we don't perform well on these indices.    In part, this is a result of an educational system which hasn't placed enough emphasis on economic and scientific literacy in the past.   The market corrects and motivated teenagers these days are inclined toward the kind of commercial and scientific skills which lead to productive decision-making.    Political leadership in the 21st Century has to be ahead of these trends.   A society which understands economic tradeoffs and scientific evidence will be more prosperous than a society which doesn't.    Political leadership has to not only promote educational policies which do this, because we need creative generalists as well.   But in terms of social decisions, informed markets are a prerequisite to competitiveness.    If government cannot educate that there is a connection between competitive resource industries and our capacity to invest in next-generation research, then public policies in Canada will, at best, fail, or at worst, be counterproductive.


              2.   The development of an economic skills-set for commercializing technology is critical to the generation of wealth and the new prosperity.   This is a challenge that is not met by new money.   It is met by new skills in the Canadian venture capital community and the creation of organizational cultures in Canadian universities that promote commercialization.    There are extraordinary opportunities open to Canadian universities, science centres and innovative sources to a strategy of commercializing innovation.  A strategy for identifying 50 areas in which scientific work could be aggregated into a model for creating new products in areas like environmental bioremediation, biopesticides could reap enormous commercial benefits.    But the current commercialization model focuses on research and then puts obstacles in the way of commercialization by putting more of an emphasis on cheap capital than on management skills.    Public policy could help by creating alliances with sophisticated venture capital globally and removing the kind of easy capital which adds limited value.  The success of a commercialization strategy depends on being able to attract the best entrepreneurial talent to Canada (or keep it in Canada ) and links it to significant commercial opportunities.

            3.   A small economy like Canada runs into problems in maintaining the skills-upgrades for talent in the key 25-40 career period.    There are many ways that skills can be enhanced:  universities targeted to lifelong education that are connected to global best practices,  programmes designed to ensure that Canadians have sabbaticals which provide access to practitioners in health-care administration or police administration or simply management skills.   This will not happen by accident.   Ensuring the skills-sets of 25-40 year olds are the best in the world:  In order to remain competitive young Canadians have to leave the country to be able to sustain skills at a level commensurate to their competition in Europe and the United States.    A programme of encouraging Canadians to remain in Canada with a commercialization fund available to hundreds of potential young talent would do more to create jobs than any single initiative that can be coordinated by public policy makers.

4. in a global economy, successful governments, whether municipal (city of Vancouver), regional (Catalonia), or national brings to its local entrepreneurs and wealth creators the possibility of global networks.   The Canadian Government developed Team Canada missions as an instrument that was appropriate to an export-and -investment-oriented growth strategy; in the new global economy strategic alliances are critical to the success of national economies.   The Canada-Dubai or Waterloo-Bangalore alliances will be the test of success in the next generation.  A role government can play is in leading globalization.   A map of Canada with links around the world, generating the kind of productive deal networks that are accessible is a radical change of foreign economic policy.   What we need is not trade missions, but linkages with growth-creators and value-investors around the world.   Our Business Schools could do this if removed from a narrower academic framework of operation.

5.   The tax system is a statement of our economic values.  It must ensure that government rewards and supports high-value adding entrepreneurs.       The most important issues are to ensure that the incentive systems exist to reward entrepreneurial risk-taking which will create value-enhancing jobs and opportunities for growth.   It may be too late and too disruptive to move toward a higher consumption tax (20% GST) and a radical cut in capital gains and personal income tax (the Irish model).     But the philosophy underlying the role of the tax system has to reflect the goals we set as a society for our economic performance.   It is ultimately an incentive system as well as a device for generating public revenues.

6.  Our balkanized capital market has always contributed to underperformance.   This has been somewhat  compensated for by innovative behaviour from large institutional investors,  but the creation of a capital market which is national, capable of innovative financing, and the most honest and well-regulated in a post-Sarbox world is a key part of the new national prosperity initiative.   Canadians have been held back for years by the "balkanized" capital markets.  Some healthy initiatives have come about because of the skills of our institutional investors, the new role accorded CPP, the skill-set of CDP, OTPP.     With the rise of the Alberta economy, the need to ensure that Albertan investment in growth is at the centre of national decision-making is more imperative than ever.  This means more government-government partnerships in economic growth.  As the CPP, CDP and Alberta Treasury start to harmonize their activities around an investment agenda, the governments of Alberta, Quebec and Canada have to start harmonizing their strategies around the theme of accessing global opportunities and creating the preconditions for sustainable prosperity.  The structure of our capital markets remains a significant public policy priority.   The fact that there is no national securities regulator has always impeded Canada's role as a destination for entrepreneurial capital.  The federal government's inclination to discourage provincial agencies from pan-Canadian investment strategies has done collateral damage to the building of competitive sectors.   The structure of our banking system reflects our own ambivalence about how strongly we promote global competitiveness.  A regulated sector emphasizes competitive practices in consumer banking.  As a result, our financial institutions lack the capacity to be global competitors and Canadian businesses lack access to expertise in global investment and investment banking activities.    A strategy for the financial services sector which openly promotes Canadian competitiveness would significantly enhance the prospects of the Canadian economy.

7.   The federal government has to support those areas in which there is a global competitive advantage.    Investing in growth sectors where we have global competitive advantage like environmental industries is the key to sustainable prosperity.   Canadians need to create companies which have global market leadership.  In traditional economic activities, we have to assess all our decisions against a backdrop of growth dynamics in the global economy.   If the Canadian sector is non-competitive, it ceases to be a priority and the economic policy becomes a skills-enhancement policy to match the needs of a globalizing economy.     Managing globalization means that a smaller percentage of the population will be involved in directly wealth-producing activities.  As we move toward a Swiss/Norwegian model, this will work as long as we reinforce the strengths of our resource sector and ensure that investments in skills-enhancement are managed with fiscal discipline.    Public policy should not direct growth strategies, but nor should it create obstacles.  The vision of a Canada where we create the equivalent of Nokia in micro turbines or the equivalent of Bausch in biopesticides is one which builds on the intellectual capital of Canada and creates a distinct competitive advantage in international economic competition.

This applied to the public sector as well. There is nothing wrong with a larger public sector, if that public sector activity is efficient and oriented toward productive activities.  A Canadian police force, capable of ensuring domestic security in Haiti or Kosovo is worth investing in because it develops specialized public sector competences.  A Canadian democratic civil society building project, capable of ensuring well-regulated and well-investigated stock markets in Cairo or Addis Ababa is worth investing in.    A public sector which is intrusive and meddling is something which Canadians have chosen to reject at every opportunity.   Moving forward requires that we recognize the difference between backing competitive activities and creating meddlesome entanglements.

8.   A well-regulated internet is a cornerstone of competitive advantage.  Few countries are better positioned than Canada to do this.      The rise of spam and privacy-intruding internet activities may clog the new information economy.     The internet requires (a) privacy be protected so financial transactions can take place over the web; (b) the internet be policed so that the home (where the internet is most powerful) is protected from unwanted intrusions and the citizen can assure that all that is received in the home is indeed invited;  (c) that privacy is controlled by the receiver.   The balancing of internet use and privacy issues will ensure a competitive advantage to jurisdictions which have invested in a competitive advantage of regulation of the internet.  As a political issue, this has more traction than ever as parents are concerned with web-use, business are concerned with the seaweed of spam and the potential of the web for a variety of innovative activities are called into doubt in this new phase of the evolution of the wired economy.

But above all the new Canadian formula is one which constantly mobilizes resources for the challenges of the 21st Century.      There have to be world-class capacities in Canadian companies and skills development.  All decisions have to be made against a backdrop of what our economy will look like in twenty years.   Do we want a 20% GST and a slash in capital gains taxes and corporate taxes?   What would that make the Canadian economy look like?  Is that kind of Irish model importable? 

The most important items on the next Minister of Finance's desk will be how Canadian capital markets develop the unique competences and efficiencies required to deal Canadian companies into growth in the Dubai to Singapore world,   the Bangalore to Shenzhen world of new value creation, the Helsinki to Cambridge world of technological innovation.    Canadians have long been casual about mobilizing their global resources, networks of Canadian educated Chinese decision-makers, for example.   While Silicon Valley maintains networks through ongoing activities and an extremely active alumnus network, Canadians lack the mechanisms to do this.   What is a government for, if not to ensure that UBC-educated MBAs and McGill-educated engineers who work together in Shanghai also have an ongoing relationship with Canada?    The 20something generation is already doing this by instinct and initiative.    By the time their ideas are the dominant ideas, they will already have made decisions about being part of the global economy that will limit their involvement in Canadian agendas.     Over and over, it is worth repeating, that people will make rational sacrifices of income to participate in the building of Canada.   No one should trade off their own career needs for development and access to world-class practices in order to stay in Canada.    By simply being aware of this challenge, Canadian business and finance can recruit the best in the world to Canada, given our competitive advantages.    The role of the federal government is to say that in the new globally competitive knowledge economy, nothing other than best practices and world standards will be tolerated.    The vision of a well-regulated internet economy, a well-regulated, national innovative capital market and the most scientifically and economically literate society on the planet is attainable.          


October 2006


Liberalism has to rethink its approach social policy issues.  Sound public policy requires that (l)iberals in North America become passionate advocates of "making government work".   The "reinventing government" movement which fueled Clinton in the early 1990s has waned in recent years, leaving conservatism holding the trump cards:  "if government doesn't work, let's reduce it"  becomes a compelling argument.   Liberalism needs to return to results-oriented strategies and move away from the culture of rights-based policies.   Two trends need to be reverse if liberals are to be associated with sound public policy again.  

(i) Liberals have become more comfortable with right-based arguments than with the claim that they can improve the world of their citizens with innovative public policies:     One of the dangers  inherent in "rights-based" arguments is that they suggest that the intention of the policy maker is more important than the results that are accomplished..   Rights should be trumps, vetoes, to be deployed carefully.  In social policy discussions, where specific objectives are aimed at, they can be counterproductive.

(ii) North American liberalism has tended to confuse policy goals with policy instruments.  Goals are constant.  Instruments should be changing constantly.   In the 1990s much of the talent in North American society gravitated towards the private sector and market oriented decision-making .  The private sector encourages people to constantly reassess strategies and the means of implementing them.  In liberal public policy circles, however, the implementation and the goal too often became confused.   In the U.S. , "busing" and "affirmative action" are frequently cited as reasons that middle class Americans have abandoned "liberalism".  In Canada , (l)iberals became concerned with establishing rights to x or y , which sounds good, but fails to deal with how public policies actually deliver specific results.   The ideology of "no two-tier healthcare" preempted a discussion of how to improve the quality of Canadian health-care.

When these process-oriented intellectual trends  were translated into public policy by well-intentioned liberals, they  produced inefficiencies that conservatives could attack.  In a world of multi-casting,  shifting social alliances, brand new social networks,  fast-changing market trends and consumer preferences, liberals appeared intransigent and obsolete .  Now is the time to reinvent liberalism as being about innovation, inventing improved public policy,  targeting results.  In this world, any public policy which fails to include the word "targeted" starts with a design flaw, no matter how noble its objective. Nowhere is this lack of interest in managerial effectiveness and results-oriented public policy more evident than in the discussion of early childhood education and the related but distinct issue of child-care in Canada .  

In  a democratic society:  the use of public policy to promote upward mobility is both adrenalin and vitamin.    Since Reagan,  upward mobility as a social objective and a criterion to assess the dynamism of a democratic civic culture has been appropriated by the heirs  of Reaganomics.  The challenge for   "liberals" and "market-oriented social democrats" is to reclaim the cause of upward mobility and to abandon public policy instruments which have become important only for reasons of nostalgia.   

Promoting upward mobility is the desired objective of a democratic public policy (as opposed to preserving a clan advantage or advancing a special interest group or expanding the scope of long-established bureaucracies).  In the last two decades in North American politics, proponents of state-assisted social policy have fallen into two traps:

(i)                           the trap of universality or egalitarian public policies based on rights, assuming that policies can  be designed to meet  the needs of a child living in poverty without access to a stable community structure and a city family with a single parent at the same time it is meeting the needs of a middle class exurban family looking for value-added early childhood education;

(ii)                          the trap of forgetting that upward mobility is a social good for            everyone, creating in crude economic categories "new consumers", in socio-economic categories citizens who contribute to civic life and in community security terms greater social inclusion.  

Conservatives and "neo-conservatives" took advantage of these tendencies.    They benefited from innovations like social entrepreneurship, which can be targeted to specific goals and creates standards of accountability and reversibility or mid-course correcting because it is a market-based policy instrument.   Conservatives came up with customized policy instruments, like vouchers, which argued for cost-effectiveness.  Most importantly, they understood that the ultimate objective of state-backed social policies was to promote upward mobility, to harness the energy of people not yet in a position n to earn and create wealth.  Market-complementary policy instruments of the kind associated with the Bill and Melinda Gates Foundation were often labeled conservative, even though their advocates and their objectives considered themselves to be liberal or social democratic in philosophy.

Social policies should be about facilitating upward mobility, not about penalizing the successful or creating one-size-fits-all public policies that are guaranteed to be conspicuously wasteful.    Liberal policy instruments should be targeted and results-oriented rather than ideological and nostalgic.    Successful (l)iberal  parties will reclaim the banner of promoting upward mobility and there is no better place to start that than with the public policy debate on early childhood education and the appropriate role for public policy in this arena.

            Child-care debate is about a number of ideologies - about proving that state programs worked.    The commentary by Nobel laureate James J. Heckman in January 10th, 2006 Wall Street Journal cited below shows the complex nature of modern political debates:

                It is a rare public policy initiative that promotes fairness and social justice and, at the same time, promotes productivity in the economy and in society at large. Investing in disadvantaged young children is such a policy. The traditional argument for providing enriched environments for disadvantaged young children is based on considerations of fairness and social justice. But another argument can be made that complements and strengthens the first one. It is based on economic efficiency, and it is more compelling than the equity argument, in part because the gains from such investment can be quantified-and they are large...

                Important operational details of investment programs for disadvantaged children remain to be determined. Children from advantaged environments, by and large, receive substantial early investment, while children from disadvantaged environments more often do not. There is little basis for providing universal programs at zero cost, although some advocate such a policy. While there is a strong case for public support for funding interventions in the early childhood of disadvantaged children, there is no reason for the interventions to be conducted in public centers. Vouchers that can be used in privately run programs would promote competition and efficiency in the provision of early enrichment programs. They would allow parents to choose the venues and values offered in the programs that enrich their child's earliest years.

            Why do liberals want always to come up with one-size-fits-all policies which expand the size of bureaucracies and may or may not be effective or efficient in producing the stated objectives?      The dilemma confronting common sensical Canadians trying to come to grips with their current political choices is one between a conservative philosophy which is not interested in finding innovative and effective public policies and a (l)iberal agenda which   uses outdated and inefficient public policy instruments in the pursuit of noble objectives.

            There should be little debate that  compensatory early childhood education is one of the most productive involvements of public policy in increasing prosperity and fairness simultaneously.    The most effective Canadian public policy is one which creates a national mission in ensuring this kind of  "early childhood" compensatory care.  A Kids-in-Need initiative would efficiently marshal public resources and create the kind of policy interventions which are likely to provide children with the assistance required to lead lives that they choose.  As Heckman writes, the "operational details" or "policy instruments" remains the subject of a tactical debate, based solely on the answer to the question "what works best?" and on no ideological preconception.

             (L)iberal public policies have  tended to focus  too much on bureaucratic strategies .     This gives (C)onservative strategists an enormous tactical advantage because they can focus on targeted results..when they choose to address these issues.    (L)iberals think it is enough to say "we are trying" whether the issue is health care, early childhood education or the regulation of toxic substances.      More strangely, (l)iberals seem to miss the idealism and social commitment of middle-class Canadians who want to invest in  their own high quality and customized child care, but who would be willing to endorse effective public policies which ensured that kids in need were reached by government programmes.   The bizarre idea that one needs a one-size-fits-all, "universal" social programme labeled as a "right" for Canadians to buy in is simply not a fair assessment of the social policy sophistication of Canadian citizens.

            The child-care debate is a good opportunity for Canadian (l)iberals to show that they can escape this trap and come up with a results-oriented liberalism, not a set of policies based on a mantra-like invocation of the "basic tenets of liberalism".       Effective policies are not written on a piece of paper, but come about as a result of building coalitions of social entrepreneurs and community activists,  using new technologies such as the internet to organize the energies of a productive and caring society.    The child-care debate is a good opportunity for Canadian (l)iberals to design new policy instruments that can reach those in need of complementary early-childhood education rather than rely on old policy instruments that create expensive and inefficient bureaucracies.  There are many experimental social investment policy instruments which aim to complement market forces: e.g. investing in educational financing of students, the so-called "tuition mortgage",  privatizing social assistance and mentoring functions,  producing valuable social capital through organizing the educational skills of non-credentialed immigrants.   All of these are the kind of result-oriented, targeted public policies which need to be identified with an effective liberalism, a government made ready to act at internet speed.     Liberals should be focusing on Kids-in-Need, not one-size-fits all programmes.   In doing so, we will contribute to an international debate about social policy which looks for different instruments to achieve our aspirations in an internet age where social networking and instant messaging have provided many more rivers to the sea than our parents knew existed, let alone knew how to navigate.   It will restore the vision of upward social mobility and educating new creators of wealth as the fundamental test of a responsible liberal social policy. 

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April 27, 2006

Canada and Asia Rising

Thinking About New Strategies for Sustainable Prosperity


Jim de Wilde

April 2006



            Good politics and good public policy comes when there is a fit between leadership teams and the national projects that are the "great priorities" of the day.   Bad politics comes about (among other reasons) when there is no such fit.  

In Canada, the task of providing a competitiveness framework for a post-Free Trade environment and a series of national initiatives for a post-Meech Lake environment made the Martin coalition of 1990 a good fit for the times, the times being 1990.   The Mulroney agenda of 1984 was to provide an economic rationale for Canadian federalism.   Environments change, agenda priorities change and the Canadian political process is still catching up.   

In 2006 the immediate national agenda is:

 (a)  fixing the economics of fiscal federalism and recasting the "fiscal imbalance" debate as one about ensuring that intergovernmental transfers of revenue enhance productive investment; 

(b) establishing the credibility of the national government as a manager; 

(c)  restoring the credibility of the federal government in Quebec and representing innovative wealth-creating western Canadian interests in national economic decision-making.  

 If the Harper coalition successfully addresses these "great priorities" of 2006, he will be judged a successful Prime Minister and Canadians will be better off.  

Until this agenda is addressed successfully, other agendas will and should remain on the backburner.   The disappointment of the last decade has been the attempt of many often well-intentioned politicians to put various carts before the horse.         No Canadian government can fix health care unless it understands that access to health care and universality are not the same thing in a world where outside of emergency rooms there are many different approaches and tiers to health care.    The agenda must fit the time.  The strategy must fit the capacities.

           In this environment, Liberals in Canada must establish their own credibility on the next generation of "great priorities".     In effect, they need to hope that a grateful public will turn to them   saying that we have, in effect, new priorities now and Harper's team is not the right team for those priorities.   That is healthy politics.

This means that Liberals have to assume that the Harper coalition will be successful on its agenda.  Any other strategy is both irresponsible and certain to fail in electoral terms as a popular Harper deflects the demands for sovereignty in Quebec and brings western Canadian growth economics into national decision-making.  

            Liberals need to think about the next generation of issues and develop a better answer to the question: "what can we do better than the Conservatives" than we have offered to date.      One of the possible themes that a new Liberal coalition could articulate that is a post-Harper agenda is one that tries to prepare Canada for the new global economy, where India and China    drive global growth and transform the characteristics of global competitiveness.

This agenda that can only be implemented after Harper succeeds in renewing Canadian political institutions.   The faster he succeeds, the more quickly impatient Liberals will get a chance to show that they know how to govern effectively and innovatively this time.   Canada has to be prepared for an era in which the United States will no longer be the major engine of global economic growth and in which civil activity will no longer be one-dimensional, but will combine all the complex allegiances of living in an interconnected world. 



            In the past year, India and China competed for ownership of a Calgary-based oil company which had commercialized Kazakhstan 's petroleum resources.   No Canadians bid on the assets, even though the company had been created by Canadian entrepreneurial and financial skills.

            In the past three weeks, Malaysia entered into a Gulf Venture Capital Association to invest the petroleum revenue heritage of the Persian Gulf countries.  No Canadians were involved.


            The rise of China and India and the new hubs in Asia    has become a commonplace of international economic discussions in the last year, when some kind of   tipping point was apparently reached.   Perhaps future historians will view this as correlating to the period when China started being an exporter of acquisition capital with the attempt to purchase Unocal.     

            Canada has been underrepresented in the global economy as these trends became tides. In large part, this is because our approach to the new Asian-driven global economy has been so tentative   in its approach.   At another level it is because of the built-in confusion as to whether Canada is a global player (with global assets and perspectives) or a resource economy satisfied to fulfill its mission of selling assets to foreign investors and subsidizing domestic projects including social programmes.     This tension runs through Canadian political history and the debate about our role in an Asian-led global economy is just a new costume for an old play. 

At one level, the debate about globalization is simply this familiar debate about productivity and competitiveness,    made slightly more urgent by dramatically changing circumstances, which always require a period of self-examination.   In a global economy, those communities which fail to appreciate and cultivate their unique competences and qualities will be destined to decline.      The productivity/competitiveness debate is extraordinarily important, and Canadians are not alone in having neglected it for the last decade.    But the rise of Asia is more than simply another excuse to lecture people about losing weight and getting into shape, in the manner of the U.S. FTA   debate.   The global economy of Asia Rising is a new and different economic environment, with many new issues:   state-backed financial players acting in open capital markets, new centers of innovation and science that are unknown to conventional radar screens,   different patterns of economic production and consumption than the industrial model of Stuttgart and Manchester or the high tech model of Palo Alto and Espoo. 

At this new level, the debate about globalization is about a race to build the best networks, whether they are Dutch Banks or U.S. engineering schools because these will be the cornerstone of the successful strategies in a global economy.  It is in this regard that Canadian institutions have been particularly slow.

  In the U.S. and Europe , the hope is that the old centres of economic growth will become wealth-managers with "creative" industries.  This is one model, which describes aspects of the New York economy and the wealth-creation of Los Angeles , London , Silicon Valley , as well as in Paris , Oslo , Amsterdam and Zurich .   In the smaller economies,    national wealth managers   continue to invest globally and employ highly educated Swiss, Dutch and Norwegians in international development activities (environmental project management financed by governments and international agencies).   This is one possible model for the future, but as Bangalore and Shanghai become both investment centres and centres of creative business,    Chinese and Indian creative talents will develop exportable products.  As they do, this model for competitiveness and full use of national talent may have a limited shelf-life.  But    it is a model and   it reflects some strategic debate within these national boardrooms and cabinets.  As this model for competitiveness declines in practicality, new ones will emerge.   The importance is to focus on how to play the global economic game competitively.

            In Canada , we have too often tended to view the new Asia as merely a "selling opportunity", where we can sell more furniture, or bathroom fixtures, or resources.  That too is fine insofar as it goes and it does suggest a strategy of export-led growth which may be relevant to Canada , Finland , northern Italy as a means of staking out a prosperous role in the global economy.     But is requires a finely-tuned, disciplined, specialized and productivity-oriented domestic economy to sustain it.  These policies    have not been at the cornerstone of national-decision making in Canada for the last decade.

  In other parts of the world, Asia is viewed   as an investment opportunity. This   requires backing strong national champions with head office capacities, like Nokia and Norsk Hydro or having highly sophisticated international financial actors like the Swiss or Dutch banks.  In Canada , we have not tended to develop our domestic global investing skills.     Our capital markets and financial services sector strategy has conspicuously failed to address the issue of how we develop this kind of investing capability in Calgary , Montreal , Vancouver or Toronto .

               The next generation of Canadian decision-makers and deal-makers are the ones thinking about Canada-China , Canada - India , and, almost as importantly, Canada -the new hubs.  (In smaller rapid-growth markets, e.g. South Korea , Singapore , Malaysia , Dubai Canadians have some advantages of positioning).   This next generation of entrepreneurial Canadians   will define this new pattern of investment with or without the backing of established institutions.  But they will be strengthened if they can mobilize the boardrooms of banks, and the federal and provincial bureaucracies.  Canada will muddle through on the global stage   as a petrocurrency and an energy superpower, whose natural resources insure that we cannot be completed ignored.    This is not an adequate strategy for the kind of society and economy most Canadians want to build.

            Why has our foreign policy proven to be so non-strategic in embracing globalization?  Why aren't we involved in the future areas of wealth management in a more direct manner?  Why isn't every high school in Canada satellite linked to a high school in India, China and one of the new hub companies so that a couple of hours a day can be involved in strategic networking (Winnipeg-Nanjing, Winnipeg-Penang, Winnipeg-Hyderabad), so that Canadians start their careers and adventures with a competitive advantage?   Why are we not building a UBC-McGill-UofT network to rival Stanford or MIT in organizing its Asia-based alumni?   There are many reasons for this, but in part it is because Canada has  so few international thinkers who understand business, and , in parallel, because of the continental imperative of business in the last three decades, comparatively few high-quality business people who really understand international politics.    The characteristics of the new oil patch and the multilingual new Canadian entrepreneurs who are coming of age now give us a dramatic opportunity to change this.

            That is the longterm, an image of Canada as the nucleus of many networks designed to achieve global innovation, connected to deal-makers and people creating new sources of value around the world.    It is an image which is, of course, not uniquely Canadian.  At Norsk Hydro and at Nestle, in the government of Slovenia and the municipal government of Rio , the desire to be connected globally is part of the next wave of competitiveness and aspirations of the post-Yahoo generation of global citizens.   That is why there is a global race to build the best networks and to use them most effectively.


            While we are waiting for the next generation of Canadians educated in that Winnipeg high school to assume leadership, we need to make sure that we are doing several things:

1.      We are organizing our strategic knowledge of China and India through pooling of talent.  We cannot create an instant Canadian Intel, but our knowledge-base can provide a framework to develop specific strategies, like helping Chinese entrepreneurs commercialize their knowledge of Chinese medicine or new Chinese energy technologies.

2.      The global economy is about deals, not strategies, and we need to ensure that we have a network of dealmakers connected to the new sources of deals.  It is essential to have a Canadian presence in Malaysia , Dubai , Bangalore , where the structure of a new democratic capital market investment pattern MAY be taking place.

3.      In approaching China and India as markets or as sources as investment, Canada 's competitive advantage is as good as the quality of its networks.  Networks provide access to deal-flow; networks provide information and validation of the partners that we are dealing with.

4.      Canada 's core advantage in Asian markets is that we can contribute to their aspirations of the Indian, Chinese markets to develop a democratic capitalism without being a serious rival as the United States is, or a country with colonial histories as the Europeans are.

5.      Canada also builds on the many informal networks in the current global economy, where remittances from workers in Canada are more important than government foreign aid and where the knowledge base about Vietnam among Vietnamese-Canadians, for example, is itself a core strategic asset of Canadian businesses.

            From these advantages, a Canadian strategy can emerge.   Above all, we need to realize that this is a new and different business environment.   We cannot presume that our prosperity will consist primarily of building high-quality coffee and doughnut restaurants to serve autoworkers in southwest Ontario .   Nor can we assume that a public economy that recycles petrodollars and resource rents into less efficient manufacturing companies provides an economic framework for 21st Century Canadian prosperity.   By approaching the Indian and Chinese markets as complex "networks" of regional interests and 21st Century economic models, Canadians can assure themselves of a stake in a new global prosperity.   It is also a new way of forcing us to think through our economic strengths and compensate for our past deficiencies of strategy.

            At the end of the day, Canada 's prosperity will depend on our capacity to be a wealthy knowledge-based economy with unique intellectual capital.   The immediate "great priorities" are to fix our broken national institutions, so that we can emerge from the dry dock ready to go wherever we want to go.  The next "great priorities" will be the productivity agenda (*).   With a disciplined domestic productivity agenda met, we will be ready to assume a larger economic role in the global economy, one which gives our children's generation greater control of their destiny. 

 (*)  A cornerstone of this productivity agenda will be the race to become the first country with a post-internet view of education, which understands that there is more knowledge to be organized than there is knowledge which needs to be generated.   Our educational system needs to be revolutionized for the internet age, where knowledge needs to be validated and diffused, something quite different from the self-appointed roles of so-called "research" universities.  (See Kelvin Ogilvie's excellent report and suggestion for an innovative proposal for Atlantic Canadian universities on this point.)  Canada needs to have incentives that encourage speed for the commercialization of our knowledge-base and emphasizes the kind of productivity that defines a knowledge economy, a capacity to move people quickly to new areas of economic activity, a confidence that comes from an economy in which we can share a prosperity and close down inefficient sectors rapidly, and above all, an appreciation of entrepreneurship, both in terms of the incentives of the tax system and in terms of the culture and value-system we articulate .  


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March 22, 2006:  

The Post-Petroleum Global Economy and Alberta 's Unique Competitive Advantage

Jim de Wilde

March 2006



            There are major competitiveness challenges to Canada today:  how public policies facilitate innovation and, as a byproduct, productivity;   how we create national capital markets which contribute to efficient and visionary economic decision-making; and how Canada assists Calgary in becoming the economic center of innovative deal-making as the global energy system is restructured.   This is the key to longterm global competitiveness and anyone concerned with our national performance and prosperity needs to answer how they plan to implement this goal.

            One of my first entries into national public policy discussions was in 1982 to oppose the federal government's proposed legislation (Bill  S-31) which would have limited the investment and acquisition activities of provincial crown agencies.  While it was directed at Quebec's  Caisse de Depot (now CDP), it seemed to me at the time a huge mistake to restrict the economic role of provinces if their activity created more efficient national capital market activity, which should have been the federal government's primary objective.   Twenty-five years later, in a very different political environment, we confront the same questions about how we want provincial "capacities" to engage in national economic decision-making.    Nowhere is this more important than in the current fiscal discussions of federalism and the strategic discussion of the management of Alberta 's economic legacy.

Let us just assume that we knew that we would end our current level of supply of hydrocarbon based fuels on March 17, 2106.     The current debates about how to invest in energy supply would, of course, be unaffected.    The immediate concerns driving the search for a market-driven approach to energy would still be affected tomorrow morning by (i) our concern over the investing power through global capital markets of the Saudi Royal family and President Chavez; (ii) the quality of life given the urban atmosphere in Shenzhen and Beijing as viewed by the increasingly relevant consumer preferences of middle class Chinese citizens.

            For a decade now, it has been imperative that investors in Montreal and Toronto calculate how Canadian capital markets play in the global capital market led new development of energy.  But the key North American center of the new global energy economy is Calgary .   The challenge of investing in the new global economy is to figure out from a position of oil wealth how to transform the regional capital markets and how to play in the global energy markets.   Only Norway and Alberta show that they have an understanding of these issues. With the recent creation of the Gulf venture Capital fund, Dubai , Bahrain and Malaysia show that they too are developing an infrastructure of diversification.   Right now, however,  the primary effect of   petro-investing has been to redirect capital market activities in Russia , Nigeria , Venezuela , and Saudi Arabia   and create pockets of accumulated capital to be disbursed , at best, erratically

            The challenge for Alberta capital markets is that they need to simultaneously:

(i)                           fulfill the Lougheed project of diversifying the domestic investment capability in knowledge industries, medical technologies, alternative energy capacities; 

(ii)                           play whatever role is deemed appropriate by Alberta decision-makers in the development of efficient national capital markets, through either (a) rejecting the S-31 logic and actively restructuring domestic Canadian industries and facilitating Canada's global competitiveness,  (b) becoming a Zurich-style wealth management center with a consolidated expertise in ensuring an appropriate return on Alberta's petro-wealth,  (c) becoming a model like Investors Group in Sweden which acquires strategic assets which work to the benefit of head offices in Calgary,  like Shaw and Telus; and

(iii)                         Develop a global cluster of energy  investing capacities which become the private market epicenter of global oil and energy diversification activities.

            Alberta is well on the way to fulfilling the Lougheed project.  It has the capacity through oil and gas financing activities in to link globally either as an acquisition target or using petro-revenues as acquisition capital to fulfill the role of a global center of capital markets.    The challenge for the Alberta Treasury in the Harper era is to choose what role to play in  the Canadian national capital markets .


            In the evolving global economy, the capacity to do deals in India or Dubai is one thing which distinguishes major players from  other corporate entities whose capacity is limited to a regional role.  Calgary is already positioned to the driver of a number of deals in this maturing global economy.    Like Norsk Hydro and Nokia, Calgary institutions  can be  players in Shenzhen or Dubai .    This, in and of itself makes its role different than the role played by a regional stock exchange like the Toronto stock exchange whose current role has to be redesigned to meet these new global and national conditions.     

            In the emerging global capital markets, petro-capital remains an elusive concept to articulate.    The development of a network of petrodollar-financed crony capitalism and thinly disguised state capital has confused and confounded much of the analysis of contemporary investment decision-making.    The  case studies of Dubai Ports and the Chinese acquisitions  using state-owned companies  (the proposed Noranda deal, the actual petroKazakhstan deal)  have created a very different dynamic in the current round of globalization.   In the first globalization round of 1990-1997, globalization meant the opening of domestic capital markets to foreign investors, almost always American or European.  Sometimes the phenomenon was funds investing in Peruvian equities.  Sometimes the phenomenon was the "cashing out" of domestic enterprises on the Karachi or Cairo exchanges.  Sometimes the phenomenon was the entry of funds into rapid-growth markets like Malaysia or Thailand , the tigers of their day.    In the next round of globalization, 2003-20xx, the process has been reversed.  Capital formed as oil capital and capital that has become part of the state apparatus of China , Russia , Venezuela , Saudi Arabia or Dubai now has the potential to make acquisitions in the "mature" markets, purchasing Pacific and Orient, Petrokazakhstan, and making bids on Noranda.       In this new capital market, it is essential to understand the power of oil-denominated acquisition capital and the potential for its financial role beyond the oil and gas sector.   It is this world that  the new Calgary and Canadian  financial markets are entering and needs to shape.

            As a non-Albertan whose only interest is as a Canadian who wants to see nationally beneficial economic policies develop over the next decade, let me make a tentative suggestion as to how the diversification debate  and the development of a Canadian capital market capable of strategic global capital market activity could take place.   ( I think the comparisons of Alberta , Norway and Dubai should become one of the "core curriculum" points of Canadian B-Schools,  not just Alberta 's B-Schools but let us leave that discussion for another occasion.)

            In managing a public portfolio based on a resource economy, disciplined and strategic investors have to balance at least five demands:

(a)    the inevitable tendency  to cross-subsidize current needs;

(b)   the imperative to create a passive diversified portfolio to generate income and diversify risk;

(c)    the imperative to purchase cultural and diversified economic benefits;

(d)   the strategic objectives which require leveraging the competences which give rise to the wealth in order to invest globally;

(e)    The building of strategic alliances to ensure that collateral objectives are met consistent with the strategic priorities of the government.

The first demand (a) will always be a reality and the test of fiscal management is the extent to which this demand is met responsibly.   The second demand (b) is what pension and endowment funds do all the time and requires skilled fund managers.  The strategic question is what percentage of the fund is allocated to (b).   Diversification strategies (c) require discipline as much as  (a).  However, there are growth-oriented private equity and alternative investment instruments which have shown a capacity to identify venture capital funds which could be backed on the condition that a certain percentage of the equity disbursed is located in Alberta ventures.    It is in (d) and (e) that Alberta 's strategies have national, continental and global implications and possibilities.     Alberta investment in growth opportunities globally already happened.  

From Hurricane Hydrocarbons to companies exploring off-shore oil in India , Calgary 's "cluster" or hub of competences has always been able to generate entrepreneurial activities focused on global opportunities.   In terms of oil and gas and energy sectors, the question is whether there is an advantage to designing funds which leverage energy management expertise to seek out growth opportunities and position Calgary as being the hub or switchboard of global energy investing.   This is a difficult decision to make. First, the political decision has to be made as to how much value should be placed on creating efficient Canadian strategic alliances in energy.  A second decision is how much value should be attached to creating continental alliances.   However, if the goal is to become more a driver of international energy markets, investment decisions have to be made in a manner which has a hand in a number of games.   A syndicate of Norsk Hydro, Hydro Quebec and Alberta Treasury on investing in Indian energy management capabilities could conceivable make sense.   Similarly, emerging partnerships between China and India in areas like Kazakhstan , of which Calgary decision-makers have firsthand experience suggest another possible pattern of deals with local competences in energy investment banking developing to lead such future deals.

For Albertans, the choices involve a calculation of how capital market strategies and legacy investment strategies should have an impact on federal-provincial relations.  I am frequently criticized for ignoring the federal character of Canada in some of these policy discussions.   I plead guilty with qualifications.   I tend to focus on those things which can be done to create win-win situations within the federal power.   But there is also another consideration:  I believe since the discussion in the early 1980s around S-31   that a cornerstone of future Canadian federalism lay with the economic powers of the provinces, the CDP and the Alberta Heritage Fund,  or, at that time, a potentially privatized Manitoba Hydro, Ontario Hydro or Nova Scotia Power.   I also believed that these kinds of economic players would find ways to create win-win deals in the marketplace creating greater national unity and also a more efficiently operating capital market.   I continue to believe this.     The challenge to Albertans is how much they want to use their capital market power to affect this outcome.  Put differently, how much of the legacy investment should be invested in creating interprovincial efficiencies, exploring opportunities in other jurisdictions, in working with the federal government as an economic partner rather than a jurisdictional antagonist or rival?  

If asked, my contributions to the Alberta debate would be that diversification and global networks come first and that this can be done in a manner compatible with a national reversal-of-the-spirti-of-S31 strategy.    The alternative seems to me to be both lost opportunities and inevitable political complications.    Needless to say, this is one of the most significant capital market debates in Canada right now.


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July 22, 2005       


Roger Gibbins and Canada West


On the theme of new approaches to Canadian politics, the political scientist Roger Gibbins has been writing some of the most essential and interesting analysis of the next stage in Canadian politics.   His National Post piece of July 13, 2005 , put the arguments for a new Alberta approach to national politics cogently and innovatively.    The  dynamic Alberta entrepreneurial community has always wanted to be  engaged in  national politics.   Just as the entrepreneurial Quebec community in the 1980s found a role in national politics, their equivalence in Alberta has been seeking a role in national politics for a while.   It is fascinating for a non-Albertan to see the similariarity of logic Gibbins uses to that of the most effective Quebec federalists.  Sovereignty is viable,  a "firewall" or radical decentralization  is a strategic option, but filled with negative unintended consequences and opportunity costs.    What is best is for these new sources of energy for find a role in the national process.  For this to happen, there has to be an interest in other Canadian provinces in making this new coalition work.   Those supporting a growth and competitiveness agenda in Ontario and Quebec must now articulate their willingness to support Albertans who share a similar vision and develop a strategy to bypass the out-of-date assumptions which have held back Canadian federalism the last decade.    The "buying in" of Alberta has to be an opportunity to participate in the kind of national decision-making which makes politics relevant:  a national energy grid that creates win-win economic restructuring opportunities; a strategic approach to new energy sources that builds national critical mass with Calgary's expertise; an approach to foreign policy that recognizes that Canada is an energy superpower and creates a leadership role for Canadian politics in the restructuring of the global oil market and the development of emerging market oil resources.   This is quite different from the quicksand of another debate about institutional reform of the kind that has hampered Canadian growth and innovation for decades.    A national public policy that is built on the needs and skills of all of Canada is a prerequisite to a Canadian strategy for global competitiveness.   That starts in Calgary and a good place to start is for non-Albertans to engage the discussions launched by Gibbins and his colleagues at the Canada West Foundation, and ensure that they are read by the next generation of Canadian decision-makers who are correctly bored to tears and highly skeptical of institutional discussions.

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June 4, 2005:

Canada-China energy relations: the geostrategic issue of the early 21st Century:

The Wall Street Journal ( reported May 31 ("Boom in Alberta Oil Sands Fuels Pipeline Dreams" by Tamsin Carlisle) that the Alberta Oil Sands development is gearing up with new pipeline projects to facilitate the movement of to the Pacific Coast. Geostrategic decisions are being made for Canadian foreign policy by the manner in which Canadian energy companies negotiate with China. The structure of Canada-China relations in 2015 will reflect the networks being established today, in terms of infrastructure being built to facilitate Pacific Coast exports, in terms of the growth of Canadian oil services companies, in terms of Chinese ownership and investment in Canadian oil production companies. Canada is an energy superpower, and the strength of the national economy and the Canadian dollar reflects that directly. The good news is that the strategic savvy of the Canadian oil community is structuring a very positive story line. The less good news is that the importance of this as a national opportunity is still less than front page news in Ottawa. For Central Canadians climbing a political learning curve, the reports available from , the essential piece by ARC Director of Research, Peter Tertzakian in the Globe and Simon Romero's reporting for the New York Times in December 2004 are important starting points.

Petroleum News: 

Peter Tertzakian: 

Simon Romero 

Last Updated ( Monday, 04 July 2005 )