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Wednesday Night #1321 – Why Mexicans Don't Drink Molson
Written by Diana Thebaud Nicholson // June 27, 2007 // Business, Canada, Economy, Media, People Meta, Public Policy, Reports, Taxation, Trade & Tariffs, Wednesday Nights, Wednesday Nights Meta // 3 Comments
If there ever had been any doubt about Wednesday Night as a microcosm, that doubt was laid to rest this week with the animated presentation of a broad spectrum of conflicting social, political and economic views on a single topic, all expressed in a friendly, amiable manner. The proposed merger of Telus and BCE provided a timely example [Editor’s note: albeit now more likely only a footnote to corporate Canada history]. Is selling BCE good for the country? Bell is not good for consumers today; if in order to retain its Canadian identity, it becomes a larger monopoly, things would surely only get worse.
Canada was developed economically by foreign, albeit colonial investment and has prospered but for any country to be successful, it must also be capable of generating its own development for that time when foreigners lose interest. With increasing prosperity, Canadians have invested abroad but done little to encourage the development of homegrown leaders, CEOs and entrepreneurs in an increasingly global marketplace. Having home-grown international multinationals is Canada’s best defense in a globalized world. The public policy framework (protection) has worked against such development, but there is also a cultural deterrent: Canadian business leaders show little confidence in their own brand(s), and their ability to compete in international markets with a premium product.
Why Mexicans Don’t Drink Molson – an analysis of Canadians’ failure to compete internationally
Although Canadians invest at home and abroad, there are too few Canadian-owned and operated companies producing here and exporting to world markets, and even fewer who are prepared to compete on the world market for quality rather than price. Cirque du Soleil (which has recently announced a new home in Dubai) should serve as the template for what it is possible to achieve with creativity, excellent branding and global vision. Canada’s failure to shine on the international scene is blamed on the cultural makeup of Canadians and poor public policies. It is up to the government to promote a competitive environment rather than protect uncompetitive enterprises solely because they are Canadian. It is acceptable that the government insist on Canadian content in radio and television broadcasts, but not acceptable that it restrict competition between domestic and foreign broadcasters. We do not seem to differentiate between protection and stimulation of culture.
As Canadians, we tend to view ourselves as the epitome of having achieved a balance between quality of life, prosperity, modesty and caring for the less fortunate, as opposed to the United States, the image of unregulated business and opportunity for the wealthy at the expense of the impoverished. The truth of the matter is that although multiculturalism and peaceful coexistence of two official languages is a Canadian achievement, and that the U.S. has been an early leader of the world trend to internationalism, they are only examples and do not represent the entire planet.
Failure to promote the entrepreneurial spirit, and making investment in Canada by creative Canadians difficult, represents the other side of the coin. There is little evidence of an environment that encourages the development of creative, committed business leaders, although such initiatives as Action Canada, a public-private partnership investment in young, highly motivated Canadians who have already begun to demonstrate leadership, are showing encouraging results. One example is a recent Action Canada (AC) project carried out by five young AC Fellows on Unlocking Innovations from Within Canadian Universities – a critique of the relationship of venture investors and university Technology Transfer Offices.
Venture capital – or the lack thereof – is an essential part of the topic of Canadian competitiveness. Too often, small companies with big ideas have been turned away by Canadian investors to find a warm welcome and swift response in the U.S. The biotechnology sector requires particularly deep pockets, as illustrated by the case of Genizon BioSciences , a Québec-based company that is conducting important investigation into the gene pool of The Quebec Founder Population which is relatively undiluted compared with general populations, and therefore making gene discovery easier and less expensive. Although First Round financing came from such Québec institutions as Desjardins, today funding is principally from Sweden and the CEO is British.
The capital gains tax yields relatively little revenue, but has been identified as a deterrent to wealthy families to pass on family-owned enterprises to the next generation, and/or fund cultural and social endeavors such as museums, libraries and foreign aid. While such funding by government has been successful in England, France and in other, mostly European countries, the probability of government-funded cultural institutions being well built within budget in this country is not likely.
Editor’s note: David Mitchell OWN recently forwarded the following May 28 item by the Toronto Star business columnist David Olive on corporate taxation (not to be confused with capital gains, but still pertinent to the discussion) :”What is it that prevents Canada from being one of the best places to headquarter and build a business?” Gwyn Morgan asks in a recent column in a competing newspaper. Well, the biggest impediment, according to the former CEO of Calgary’s EnCana Corp., biggest independent player in the North American oilpatch, is that “Canadian corporate tax policy is simply uncompetitive with other desirable head-office locations.”
Like, for instance, Denmark, home of Carlsberg A/S (2005 corporate tax rate, 5.64 per cent); Belgium, head-office location for InBev SA, world’s biggest brewer (4.03 per cent); Luxembourg, head office of Mittal Arcelor SA, world’s biggest steelmaker (5.49 per cent); Spain, home of two of Europe’s largest banks, which also increasingly dominate South America (4.12 per cent); Australia, home of buyout behemoth Macquarie Bank Ltd. and BHP PLC, world’s biggest mining firm (4.5 per cent); South Korea, head-office location for Hyundai Motor Co. (4.19 per cent); and, of course, Japan, home of Toyota Motor Corp., Honda Motor Co. and Sony Corp. (4.1 per cent).
Oh, you were asking about Canada, home of the Fraser Institute, of which Morgan is a longtime supporter and whose “research” he frequently cites. Canada’s 2005 corporate tax rate was 3.95 percent in the latest OECD survey.
Agricultural Products Marketing Boards
Marketing Boards guarantee a comfortable lifestyle for quota holders but capital gains tax discourages the succession of capital from one generation to the next. Farm production quotas are sold, the intergenerational accumulation of wealth, discouraged, in the long term, to the detriment of the farm community. Australia and New Zealand have eliminated the system by buying out quota holders and eliminating protection for these producers. In the short term, the farmers suffered, but the elimination of the protective mantle necessitated a more aggressive, creative entrepreneurial approach, ultimately leading to higher income and the development of a lucrative, expanding export market.
[Editor’s Note: A timely editorial Feds find a cheesy way to rip off consumers in the Gazette of July 3 underlines the detrimental effect of agricultural (dairy) subsidies on the farm sector and on consumer prices: ” [The effect of] the Canadian Food Inspection Agency’s plan to change the regulations about production of different cheeses in Canada… is to prop up even higher the prices Canadians must pay for dairy products”]
Footnotes to the evening’s exchange
It is claimed that a more regulated government provides greater equality in economics, that the countries that have the greatest economic equality are the ones with the least freedom.
The type of electoral system is determinant of income distribution. Countries with proportional representation have the lowest income.
We attempt to reconcile irreconcilable differences, disparity, between high and low income, but how do you accumulate adequate pools of money to act as an incentive to business? There is some social inequality that is deserved and some that is undeserved. How can you replace revenue from income and capital gains taxes? The answer is higher consumer taxes, a more logical, productive source of government revenue.
We have been in the longest bull market in history, having started its upward trend in October 2002, but when everybody thinks they missed the market, the market tops out and this is currently beginning to happen. Earnings are spectacular and there are still a lot of values around, but there is growing concern that the top is “minutes” away. Cautious managers are taking money off the table, believing that this is a time for preservation of capital. We can expect one more rally creating an opportunity for sale followed by a short sharp shock during October and November of this year, after which the market will continue to rise for the next year and a half to two years.
In the longer term, those less convinced of the virtues of unbridled world competition are concerned about the repeated changes in the historical fortunes of China and reflect on a possible collapse of that economy in the near or mid-term. They also reflect on the possible effect of climate change and the draconian measures that must be introduced to combat it, on the unbridled growth of the world economy, leaving the gap between the wealthy and the impoverished incalculably wider. Finally, as members of an aging population that owns its own homes will find that the value of pensions has declined, they will sell those homes, reducing their assets and their quality of life, while at the same time placing more demands on the healthcare system.
The exceptional diversity of opinion in the room is best illustrated by the verbatim quotes below.
- The fact it’s an all-Canadian deal does not make it a good thing, because Canadian companies can screw Canadians as easily as international companies can. Look at our banks – they don’t charge ATM fees in the U.S. because they have to compete; they charge Canadians because they don’t have to compete
- The government’s job should be fomenting a business environment, not concentrating on foreign ownership and regulations
- The essence of Canada is our social order (subsidized education, culture, medicine) and that requires higher taxation
- I don’t think globalization will last – our society is rapidly reaching a Tower of Babel
- If you have to subsidize culture, it’s not worth having
- I think we are over-regulated in education, in public health, in all sectors except the economy where we are under-regulated
- Why do people fail to make the link between having a strong economy and being able to afford the things you want (education, healthcare, social programs), for which you need a strong tax base
- What would it take for Canadians to rise up and demand the change that in policies that would be required – there is no perceived crisis in an economy that is performing well
- The amount of investment by Canadian companies in the U.S. is just about the same as the amount invested by U.S. companies in Canada (proportionate to the size of the economy)
- With the amount of multinational investment, the concept of corporate ownership by American or Canadian companies is becoming less relevant
- What kind of environment is Canada creating to foster Canadian business leaders?
- What is lacking is long-term vision which current industrial policy doesn’t encourage
- We must ensure that in each generation we expropriate a considerable proportion of acquired wealth in order to preserve equality
- Think of what would have happened had the Americans or Japanese interests bought Northern Telecom six years ago – there would have been a national outcry. In retrospect, wouldn’t it have been great to see Nortel in someone else’s hands?
- Stalinism and Maoism have failed; Communism has never yet been tried
- Stimulation versus protectionism
- Investors are demanding corporate social responsibility – environment, healthcare, support for culture … and corporations are responding, whether or not they are Canadian
This Wednesday we have a very special guest: Andrea Mandel-Campbell, author of Why Mexicans Don’t Drink Molson: Rescuing Canadian Companies From the Suds of Global Obscurity, which has been stirring up a lot of media excitement since its appearance. In it she examines why Canadian companies have failed to compete on a world stage and why they must,- a topic not unfamiliar to many around the Wednesday Night table.
Andrea, who will be introduced to Wednesday Night by Sean Silcoff, is a business and financial journalist specializing in international markets and global competitiveness. She spent ten years in Latin America, writing for prestigious newspapers such as The Miami Herald, The San Francisco Examiner, The Dallas Morning News, The Christian Science Monitor and The Globe and Mail. She returned to Canada about 5 years ago and has been a feature writer for the National Post.
We hope that among other topics, we will have a chance to debate the merits of the proposed Telus takeover of BCE that Jay Bryan refers to as an “all-Canadian Frankenstein” , and last week’s sale of the Winnipeg Commodity Exchange.
For an advance look at her thinking, do listen to her interview with CBC’s Michael Enwright and her Q&A with listeners
Relevant link for tonight’s topics: How Bell scuttled Telus’s bid