Thursday, September 07, 2006

Oilsands, military procurement & the IMF

With all of the well-written commentaries in the Canadian news today, I cannot fight the urge to play the role of messenger.
First, Financial Post contributor Terence Corcoran commends Alberta's out-going premier, Ralph Klein, for allowing the markets to play their role throughout the oil boom. Klein did so despite on-going pressure from "Klein growth critics" (as Corcoran calls them) who have frequently called for government intervention and the artificial redistribution of oil profits. Here is an excerpt from his wonderfully accurate piece (unfortunately, none of The Financial Post articles have links at this time, but perhaps I'll add the links as they become available):

Why would Mr. Klein, ending a spectacular political career in the midst of a great economic expansion, cave in to the idea that the expansion was not only a mistake, but his mistake? Not much of an economic theorist or principled thinker himself, Mr. Klein seems to have abandoned the populist/commonsense view of things that made him such a political success. He instead has allowed his opponents and critics to define his record, set his legacy.
Mr. Klein may well have been swayed by frequent recent criticisms from Peter Lougheed, former premier and now ancient statesman who has come out of his lair to issue goofy pronouncements on the Alberta economy. In an interview with L. Ian MacDonald, editor of Policy Options magazine at the Institute for Research on Public
Policy, Mr. Lougheed harrumphed the he would have "managed" the growth and the economy much more effectively. Among other things, Mr. Lougheed called for limits on oilsands development. "What's the hurry? Why not build one plant at a time? I hope the new government in Alberta will reassess this and come to the conclusion that the mess, and I call it a mess, that is Fort McMurray and the tarsands will be revisited."
Ever the government activist wolf in Conservative sheep's clothing, Mr. Lougheed would have the province act as central planner, managing and directing resource development, housing, infrastructure, schools, labour force flows and everything else. The government needs a "plan," and Mr. Klein failed to have one.
Natural gas should be sold on the market, he says, not used to develop oilsands projects. The oilsands and other resources are "owned" by the people of Alberta, and the current royalty arrangements are depriving Albertans of full profit return on that "ownership."
He seemed to be implying that capital cost overruns in building plants are being used by the oil industry to avoid paying royalties.
Along with others, Mr. Lougheed sees all the natural economic benefits of a major economic boom, including rising local prices for housing and labour, as economic curses.
"Inflationary," said Mr. Lougheed. "The cost of living and the cost of houses is higher than it should be." Should be? Under what circumstances? The market reason for higher wages and prices is to attract workers and investment to supply what is needed to meet rising demand. Ireland went through a similar price experience during the 1990s, a product of Ireland's economic rebound. Prices rise because demand is good, and supply of housing and whatever follows in time. What Mr. Lougheed seems to want is $75 oil that feeds all the money to government so it can plan and supply what the economy needs when the government thinks it should be needed.
Most of the other Klein growth critics are political opportunists, mayors with schemes and inadequacies of their own, opposition critics and the usual band of statists who see all opportunity as a crisis in need of government intervention. Alberta may indeed be struggling with labour shortages, rising prices and inadequate social services and infrastructure. But isn't that how the West was won?

Another good commentary comes from Martin Lawrence in The Globe and Mail. Lawrence shines some light on military procurement issues, which have been getting surprisingly little attention. Here's an excerpt:

If there are bureaucrats needed to check huge Defence Department spending outlays, they are not to be found. This year a staggering $13-billion in new military aircraft contracts are being, or have been, awarded without serious competitive bidding. It marks the biggest military bonanza since the Second World War days of munitions minister C.D. Howe.
Defenders say the sole-sourcing is needed to save time and will result in contracts that benefit the Canadian economy, offsetting any losses that may stem from the non-competitive process.
Critics say the sole-sourcing is costing taxpayers a fortune — up to $2-billion in unnecessary costs, and that no one is raising a peep about it.

Thirdly, The Financial Post has a commentary by Gordon Brown, Chancellor of the Exchequer (once again, no link at this time).
Brown explains his two major proposals to the IMF: the proposition to expand international trade by making improvements to infrastructure (such as transportation); and the proposition to encourage agricultural barriers imposed by developed countries. Here is an excerpt of Brown speaking on agriculture:

Developed-country agriculture remains the barrier, and here too we can make progress in Singapore.
The truth is that Europe could and should now go considerably beyond its initial offer of a 39% cut in agricultural tariffs. It even could go beyond the 51% now mooted. Similarly, the United States could and should go beyond a 53% cut in trade-distorting domestic support for its farmers.
Brazil could and should go beyond its pledge to reduce tariffs on industrial goods to a maximum of 30%, with India responding on services.

It is one of the great ironies that the greatest damage to globalization today is not being inflicted by the demonstrations and running protests that have marked trade negotiations over the years. The wound is self-inflicted, caused by our failure, as the world's wealthiest countries, beneficiaries of globalization, to agree to trade liberalization.

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