Arrogance of power. Harper edition.

Six weeks after the general election, Canada finds itself in the middle of a political fight triggered by the so-called the government’s report on economic situation. The update. The opposition threatens to bring down the new government and the Liberals and the New Democrats are reportedly in talks about the forming of a coalition government, the first one since 1920.. The stakes are high. Political turmoil in Ottawa is about Canada’s economy and democracy.

One would have to struggle to find an economist who would think the economic outlook as presented by the Conservatives’ government (economic growth, no recession, no deficits) was not made out of thin air. In general, the opposition parties smashed the Update as ideological and totally inappropriate for the current economic situation.

That by itself would be a sufficient reason to vote against the Economic Update. However, the Conservatives’ plan to abolish federal funding for the political parties is equally disturbing. The Conservatives’ leader Stephen Harper used the finance minister Jim Flaherty to perform a populist show that would have it’s place of honour in any wanna-be dictator repertoire. Under the aura of cutting the government expenses, hidden in what was supposed to be a plan to steer Canadian economy through the global financial turmoil, was a direct attack against the main opposition party, the Liberals, an attack lead outside the boundaries of democratic political arena.

The opposition wanted to bring the no-confidence vote to the House of Commons on the coming Monday. Stephen Harper decided to delay the vote by one week and accused the opposition of making backroom deals without the mandate of the Canadians, majority of them, who, according to Mr. Harper gave the conservatives clear mandate to govern the country.

There are few problems with that, though. First of all, the Conservatives didn’t win majority of seats. They didn’t win the majority of Canadian votes. The Conservatives won exactly 37.65% of votes, while the Liberals and the New Democrats got 26.26% and 18.18%. Furthermore, the Bloc Québécois won 9.98%. Overall, it’s 54.42% of the popular vote. The only reason that allowed the Conservatives to form the government is the archaic and undemocratic first-past-the-post election system, a tragic remainder of post-colonial ties with similarly democratically deficient Great Britain.

Digging deeper reveals the abysmal voter turnout – 59.1% making it the lowest in Canadian election history. Many Canadians just didn’t bother. There’s no sense to vote if you know that your vote will be disfranchised, courtesy of the first-past-the-post-system. All this means, that the Harper’s Conservative have the mandate of 22.26% of eligible voters. The Liberals, NDP and the Bloc together have a) more seats in the parliament (163 vs 143), have won more votes (54.42%) and the mandate of 32.16% of all Canadians.

What the opposition is attempting at the moment, is not a backroom deal. It’s serious and legitimate way how to prevent Canada’s slipping into economic and political havoc. By the way, Mr Harper proposed taking power without the election in 2004. Now, Prime Minister Harper did what he could in delaying the no-confidence vote which very likely gave the opposition more time to come up with more concrete plan. Will Harper pay for his political arrogance? He should.

The only problem is that the Bloc Québécois will not be a part of the coalition. But it’s more likely to support NDP-Liberal coalition than anything the Conservatives would propose. Quebec faces the same manufacturing decline as Ontario, and the cultural issues are always negotiable. That would result in one minority government of 143 seats being replaced by another with mere 114. Still, it would work with a silent nod of the Bloc.

And it would inevitable produce better legislation, because if the coalition parties would like to see any law passed, they would have to work harder, throw their respective ideologies away and start coming up with working solutions. Politically much more mature Europe knows how to do it. And one of the first things the new government should do is commission the work on rewriting Canada’s election laws. Canada is no longer a two-party country and it’s election system should reflect that.

(Written for World Business Press Online)

Canadian Economic update triggers election talk

Despite pretty much everybody in Canada and abroad predicting recession and budget deficit, Canadian Government thinks otherwise. The Economic and Fiscal Statement presented in Ottawa on Thursday by Finance Minister Jim Flaherty still predicts growth. The 2008/2009 fiscal year should end up $0.8 billion in black. Prediction for the next two years? $0.1 billion. That’s without guarantees. After all the talk about “technical recession” and shifting attitudes towards deficits this sounds more like government’s reluctance to put the R and D words on paper.

On the more positive note, the government wants to guarantee credits flow to both businesses and individuals, decrease corporate taxes, increase no-tax income level, establish new tax-free savings account, there was also a good news for companies’ pension schemes, and a confirmation of plans to invest into infrastructure. The Conservatives’ government is encouraging provinces to replace sales-tax with VAT harmonized with the federal tax and urges them to “achieve their goal of amending the Agreement on Internal Trade by January 1, 2009 so as to achieve “full mobility for all Canadians” by April 1, 2009. This should remove many of the trade barriers and employment certification requirements among the provinces which often makes it easier to do business with the USA than with the neighboring Canadian province and also allow for more foreign investments. Government also states that it is good idea to talk to professional organization that regulate some section of the labour market to let much needed “skilled immigrant workers” into Canada. However, the Report is scarce on details and doesn’t promise any concrete action.

Government spending will be cut, because as the Report says, “we cannot ask Canadians to tighten their belts during tougher times without looking into the mirror”. That would be nice if the new Harper’s government hasn’t increased in size from 31 to 38.

The Report confirmed speculations about a controversial reform of federal financing to political parties. Under current regulations, federal parties receive, among other means, a quarterly subsidy equaling $1.75 per vote they got in the election. This will be eliminated from April 1, 2009. The Conservatives, as the ruling party, say that it will hurt them most. Mathematics says it’s true. However, the Conservative party is the richest one in Canada, while the Liberals are really struggling financially. NDP leader Jack Layton had every reason to accuse Conservatives of “attacking democracy”. Because this is exactly what Harper is doing – he tries to weaken his political opponents financially knowing that the reform will hurt them most.

All Canadian opposition parties declared that they would vote against the government’s update. According to the New Democratic Party, the Update is a “failure” that will not stimulate economy. Bloc Québécois leader Gilles Duceppe declared it wasn’t an economic statement but an “énoncé idéologique”. The Leader of the Opposition, Liberal Party’s Stéphane Dion said that the announcement “leaves Canada ill-prepared to face economic challenges”. Opposition’s NO could result in yet another election. Another option is a coalition government of opposition parties. The buzz is already going around the House of Commons.

(Written for World Business Press Online)

Losing on a technicality

Wrangling about Canadian economy continues with a tempo of a badly directed farce. The opposition has finally woken up and made a belated attempt to attack the Conservatives over their silence about Canada’s public finances. The point is that Prime Minister Stephen Harper knew that the deficit was on the cards and wasn’t straight about it in front of the public during the election campaign. And weeks after. Some call it brilliant politics, others call it lies.

The budget deficit is inevitable, even the Tory-appointed parliamentary budget officer said so. Kevin Page dared to blame the Conservatives for the part of the financial crisis due to the GST reduction in 2007. On the other hand, the Conservatives say that the reduction was the right thing to do and point out to Britain’s package announced on Monday that slashes the VAT by two percent. The difference is in timing. Apparently, Harper got the timing right on elections, but had jumpstarted the GST reduction. The moral of the story? One can run the party’s policies out of ideology, but adopting the same approach for the economy is usually backfires.

The other interesting side of the debate is the R-word. The earlier Bank of Canada’s prediction of a “0% growth” allowed Canada to escape recession. On a technicality. Everything was supposed to be just fine. Now, it appears that Canada will indeed slip into a recession. After the Bank of Canada, even Harper and his finance minister Jim Flaherty admitted it’s likely. However, in what can only be described as a desperate attempt to put a positive spine or a gloomy outlook they talk about a “technical recession”. Apparently, it’s only a classbook definition of a particular state of the economy (two quarters of negative growth equals recession) so everything is OK. And, according to Flaherty, no stimulus “package” is needed.

The opposition has every right to point that out and criticize Harper for his reluctance to be straight with Canadians and call a spade a spade, the only question is why they didn’t do it sooner. Harper now tries to get out on a technicality. However, in the long run, he risks the whole country losing.

(Written for World Business Press Online)

Veni, vidi, … icy

It was supposed to be so simple. Let’s fly off to Washington, go to Senate, paint the grimmest picture we can and then get back to our private corporate jets with some taxpayers’ bailout cash. But the US senators were less than impressed with the performance of the Detroit Three CEOs. The problem was that Messrs. Nardelli, Wagoner and Mulally came to moan instead to discuss the problem and possible solutions.

The Senate did the only responsible thing. “Until they show us a plan, we can’t show them the money,” said the Senate speaker Nancy Pelosi (Democrat). These were harsh words and they came from the party that actually supports the bailout. However, the Senate’s stance is not straightforward. Pelosi actually stole the thunder of a bi-partisan group of Senators who came up with a compromise plan by holding a press-conference just before they were supposed to hold theirs. Still, the compromise plan wasn’t really concrete in terms of outlining conditions under which the loan would be provided.

Detroit Three CEOs are supposed to be back in Washington on December 2. The bailout was put on ice. Literally.

Naturally, Detroit said it would be more than happy to provide further details and come up with a plan. The question is why the Detroit Three didn’t come to Congress with one. Another thing, US car manufacturers were not really good in making plans. But it’s getting increasingly serious and the Detroit surely realizes that getting money this time will not be easy. Apparently, the Senate is willing to risk the future of the three automakers to force them, for once, to behave according to the circumstances.

The latest development continues to raise serious concern in Canada. September wholesale trade rebounded mainly due to increased performance of the automotive sector. The demise of the Detroit Three production plan could send Canada directly into depression.

There is a great deal of political will to help the Detroit Three which is, at the moment, the most important thing to bear in mind. But while the Detroit CEOs will be drawing out the plans, the Congress and the White House must decide where they’d take $25 billion Detroit’s asking for. From the $700 billion Wall Street package? Or will they dip further into taxpayers’ money?

(Written for World Business Press Online)

Deficit Speech from the Throne

As expected, Governor General Michaëlle Jean’s Speech from the Throne was about Canadian economy and rather grim outlook it faced and hard decisions that were to be made. The speech was, of course, written by Canadian Prime Minister, Stephen Harper and its content was hardly surprising.

The speech contained that much feared word – deficit. Canada had it coming and Harper’s government has been gradually easing in Queen’s offshore subjects to the fact that Canada’s budget would end up in red. On October 22, Ontario announced it would run a $500 million dollar deficit in 2008/2009. The province got slammed from every political quarter of Canada with only the wise men of economics warned that it would not be such a bad thing especially during times of general economic downturn and/or recession. But that was a problem. Harper’s government couldn’t say the country was facing downturn and recession since the Conservatives based their campaign on “everything’s OK” slogan.

Two days after Ontario announcement came the August $1.7 billion dollar federal budget deficit which kick started Jim Flaherty’s (Canadian finance minister) one-week long Great Copernican Shift during which he renounced his no-deficit mantra and adopted more realistic approach – trying to run a surplus no matter what might lead to a long term damage. Even Bank of Canada played its role in the policy of denial. After a 0.4% contraction, it predicted a “0% growth” for the next one. In other words, Canada was suppose to avoid recession. Politically and verbally. A 0% growth can as well be a 0% contraction, the only thing is how would you sell it.

The Throne Speech warned about the necessity of deficits and labeled them as an instrument to protect Canada during economic crisis. Coordinated or not, Bank of Canada governor Mark Carney said, in London, UK, that the situation is worse than the Bank predicted just a month ago and hinted at further reduction of interest rate cuts. “Recession is possible,” said Carney.

In all fairness, neither Harper or Carney could have predicted what would happen in one month time. Neither could opposition leaders. However, budgets and the related decisions are not created overnight, neither are budget deficits. The Conservatives had, of course, one very good reason to keep quiet about the deficit – the federal election held on October 14. They had no economic plan to offer for different economic circumstances during the campaign. The means that kept their momentum fueled, such as high oil prices and perceived Canadian immunity, gone, the Conservative government will really face “hard decisions”.

(Written for World Business Press Online)

Detroit sinks further

The US Congress met on Monday to discuss the bail-out plan for the Detroit Three. The discussion stalled, which wasn’t surprising given the transitional period between the two US administration. In other words, given the fact that it’s a lame-duck Congress that’s trying to do “something”. Who supports the bailout and who doesn’t is little bit irrelevant now although, in general, it’s Democrats who are “for” and Republicans who are “not so sure”. There are, of course, exceptions in both camps. The problem seems to be that the members of Congress are not 100% sure how to do the bailout. And reward the spectacular failure.

The idea of bailout is not going down very well with European union and the Commission president, Jose Manuel Barroso said that the EU would be could raise the question at the World Trade Organization. Speaking of Europe, three credit insurance companies that control 80% of world’s credit insurance market and that happened to be European, Euler Hermes, Atradius and Coface, removed cover from General Motors and Ford suppliers. Financial Times reminded that same steps led to the demise of many other companies in Europe, manufacturers, suppliers and construction firms.

Meanwhile, Detroit is sinking deeper and deeper. General Motors is challenging Hollywood releasing two please-save-us videos on its YouTube channel warning about dire consequences the Detroit collapse would have on the US economy. GM is really in a position of a person with credit card debts twice the annual income who’s selling a microwave to get some extra cash. General Motors announced selling its remaining share in Suzuki for $230 million, which, at its current cash burning rate should prolong the agony by few days. As a small consolation, Opel/Vauxhall Insignia, the new flagship of GM’s European operation won the European Car of the Year title. The only question is why this car is not on sale in the USA either as a Saturn (it already sells re-badged Opels) or a Buick, as Insignia is marketed as Buick Regal in China. Getrag, transmission manufacturer, has filed for Chapter 11 after Chrysler pulled out from the joint project of dual-clutch factory.

To sum up, it is getting increasingly difficult for anyone covering events concerning the Detroit Three to find appropriate words. We are running out of the synonyms for “bad” and “very bad”.

(Written for World Business Press Online)

Ignatieff for … the Liberal Party leader

Following a disappointing defeat in the October general election, Liberal Party’s leader Stephane Dion announced that he would step down at the next convention. During the campaign, Dion was impersonation of a reluctant leader and unfortunately he played the role of university professor way too often. Whether this was intentional or unavoidable, is up for a discussion. His less then perfect command of English contributed to the overall non-political image.

In its quest for the new leader that would reverse their fortunes, the Liberal party must find someone who will be a direct opposite of Stephen Harper. The Conservatives’ leader Stephan Harper is in many ways politically perfect – impersonal, ideology driven leader, a populist here and there, but generally sterilely average without a long term vision for the country.

Liberals have to choose a leader that will be able to unite the party. This often leads to electing a person who’s sufficiently weak to absorb individual fractions’ influences. Obviously, this is a method that may work for a while but in the long run A) it only delays inevitable disintegration of the party, and B) it is the worst way to provide party with a leader capable of challenging political opponents during the next election and leading Canada.

After Michael Ignatieff announced on Thursday that he would run for the Liberal party leadership, the party got exactly what it needed. Ignatieff’s career and life are most impressive. His international experience shouldn’t be treated as suspicious and nobody should question whether he’s a real Canadian.

Ignatieff is an accomplished historian, journalist, writer and politician, in any order, which makes him perfectly suitable for leading not just the Liberal Party, but Canada as well. In the recent days, amidst international effort to stop or at least slow down the recession, Canada has become a role model for the sound economy. Canadian leader without ideological ballast and international credibility will be the one who the world will surely listen to.

(Written for World Business Press Online)

To B or not to B?

Pop into any discussion thread on any North America based automotive website these days and you will almost certainly come across a heated and very long debate centered around “to B. or not to B.” B, obviously, stands for bail-out.

The topic is huge in the United states, the home of the brave, etc. and the land of what used to be known as the Big Three. Chrysler was the main feature on the radar screens of those paying attention about two weeks ago, but since the merger talks with General Motors stalled, it was left out in the cold. To die, apparently. Now, all eyes are on General Motors that’s burning its cash resources faster than Saturn V launcher burned the fuel while propelling Apollo to the Moon. Most analyst agree that at this rate it will be over soon and the only way predictions differ is whether GM would last until Christmas or until the end of the year.

Some suggested that automakers should be included in the $700 billion Wall Street bail-out package but not many people in the current Bush’s and in the upcoming Obama’s administration are keen on the idea. However… House of Representatives’ speaker Nancy Pelosi, prompted by the fact that GM stocks fell on its 65-year low on Tuesday, called for a quick vote and bipartisan effort to save the US car industry. This may well be necessary since GM cannot wait until the transition of power is over (inauguration will take place on January 20) and Bush administration is basically a lame duck. Furthermore on the “however” note, various sources suggested that Obama administration will appoint a “car czar” to oversee any federal help to the Detroit Three.

North of The Border, home to many car assembly plants, Canadian government is said to be contemplating some form of “transformational” aid, but a bail-out is apparently not an option even though there are thousands jobs at stake in Ottawa and Quebec. Still, it’s nothing compared to several millions – estimates depend on who do you talk to. Speaking of Canada, former Canadian auto workers’ union boss Buzz Hargrove said (again) that the biggest long term problem are imports and the best long term solution is to do something about imports. Well, it’s 2008 not 1978 and this is still his way of thinking, that its a miracle the Detroit Three are still in the business of making cars. Another point, most of Hondas and Toyotas are not imports, they are made in the USA or in Canada, fact acknowledged by American-only Nascar that allowed Toyota to compete. Most damage was done by poor management and poor product line ups. They were loosing market share to Toyota and Honda before the credit crunch, ignoring what others didn’t.

Meanwhile, the “too big to fail” argument is fading away as it becomes clear that no matter what will happen (something will happen), the Detroit Three simply cannot emerge back in the same form and shape. And even most of those discussing the situation on automotive sites such as Autoblog or mainstream media sites (Globe & Mail) are against a direct bail-out. America had enough.

(Written for World Business Press Online)

Road building always works

When in crisis, build a road. Or a railway. German leadership knew that and embarked on an extensive road and autobahn building program in the late 1920s. It gave, directly on indirectly, jobs to tens of thousands Germans in times of the Great Depression and very tough post-war years.

Fast forward to 2008 Canada. Infrastructure is built but it’s aged and needs to be repaired. Furthermore, the economy is trying to brace itself for the impact of global financial meltdown, budget deficit is apparently unavoidable and economy is slowing down, manufacturing industry, heavily dependent on the US market is threatened with further job losses. The government talks about tax cuts and contemplates ways of jobs creation.

The Federation of Canadian Municipalities added its input to the save-the-economy debate. Canada is not an exception when it comes to wrangling among the federal government, provincial governments and municipalities. The federal government needs to be persuaded.

The FCM commissioned a study (conducted by Informetrica Ltd.) comparing the impact of $1 billion worth of tax cuts with a $1 billion investment into the infrastructure. The study shows that even a $2 billion tax cut wouldn’t create more jobs than $1 billion spent for upgrading and refurbishing roads, bridges and water systems. Another interesting result is that spending $1 billion on infrastructure would boost economy by 0.13% and create more than 11,000 jobs.

Luckily, the Building Canada Fund has almost a $3 billion leftover from the 2007-2008 budget. The FCM proposes to free these funds and pour them into the economy. Obviously, bearing in mind the constant fight between local and federal governments, municipalities do have their own agenda. But they do have a point. With a dollar coming from both municipal and provincial level for every federal dollar, infrastructure investment would be worth more than $8 billion. Whether this would create projected 100,000 jobs is up for a discussion but refurbishing Canadian infrastructure would be a long term investment covering, hopefully, short term crisis needs. Both economic and infrastructural, for example, highway between Ottawa and Montreal is in desperately desolate condition. Fortunately, the federal government seems to be getting on board. We’ll see some serious wrangling over the investment allocation…

(Written for World Business Press Online)

Obama’s Campaign 2.0

Demographics of the US presidential election results clearly show that Barack Obama managed to attract 66% of 18-29 year old and 68% of first time voters. There is almost certainly a significant overlap between these two groups and while there were multiple reasons why their members flocked to polling stations on Tuesday, one thing is certain. Call for turnout, call for change wouldn’t have the impact they had if it hadn’t been been for a clever and inventive use of modern communication technologies.

These days, car manufacturers introduce their upcoming models in PC and console games. Barack Obama doesn’t make cars but his campaign cleverly placed the “Early Voting Has Begun” ad into Burnout Paradise game – Electronic Arts, the game’s developer, accepted it as any other credible political ad. It didn’t have to get the policy message across, the important thing was that the kid who first spotted the ad gave his message a burnout start and set it speeding all over the Internet. Which very likely led many other kids saying “yeah, this Barack guy must be cool”.

Playing on the similar tune, Obama’s campaign released a motivational YouTube ad featuring a couch and a game controller. Opposable Thumbs, arstechnica.com‘s gaming offshoot, noted that until now, if computer gaming was referred to during a campaign, it was almost in a negative way. Only a day before voting, a new video ad came up, targeting technology sector. And there was, of course, an iPhone application Obama ’08 developed by a group of enthusiasts available for free via iTunes App Store. Barack Obama’s online presence was so ominous that even spammers abused his name six times more often than McCain’s.

John McCain and his proud admission that he can’t use the Internet and e-mails (with Sarah Palin’s e-mail fiasco) didn’t send a positive message to those portions of society that proved to be the decisive force, whether in the voting itself or in the mobilization efforts. Of course, Internet literacy and related issues were not important for the republican electorate, but that’s separate issue.

By grasping the opportunities of the new media political marketing, Barack Obama managed to create a user generated campaign, going by the Web 2.0 pattern, a Campaign 2.0. Yes, his team set up the agenda, the framework and provided the means. But the rest, he placed into his supporters’ hands and moved political campaigning to a completely new plane, the one which is totally appropriate for the 21^st century policies and for the 21^st century, post-bipolar world, way of leading a superpower.

(Written for World Business Press Online)