Wednesday Night #1356

We welcome two new faces this week, guest experts, who bring knowledge of at least three extremely pertinent topics to the table.
Danny van Gelder will introduce his cousin, Mark Kruger, an economist by training, who serves as Minister Counselor/Head of Section (Economics and Finance) of the Canadian Embassy in Beijing and key link between the Canadian and Chinese Ministries of Finance. Armed with degrees from Colby College (Maine) and U of T, he spent much of his career at the Bank of Canada, where he was an Assistant Chief in the International Department and recently, while on leave from the Bank, was an Advisor to the Executive Director for Canada, Ireland and the Caribbean at the IMF.
Catherine Gillbert is bringing Professor Tudor Johnston, esteemed member of the Montreal Oxford-Cambridge Society (he earned his Ph.D. in Physics Engineering at Cambridge), has taught at the Institut National de la Recherche Scientifique – EMT
(Energy, Materials and Telecommunications) of the Université du Québec since 1973. His current field of research is laser-matter interaction.
We are also very happy that Bert Revenaz is back from Scotland and can give us an update on his new challenge setting up the New York office of The Camco Group
Although topics can always change due to last-minute developments, we of course propose to look at the new Federal Budget to be presented on Tuesday by the not-always-beloved Mr. Flaherty (see last week’s discussion of Income Trusts). Although it is reported that the budget will show a surplus of $13 billion for the fiscal year ending March 31 – $1 billion higher than expected – it seems that he wants the public (taxpayers) expectations to be low – presumably that means slash and burn of wasteful programs like those that target environmental degradation. According to CP, two-thirds of the surplus will be used to pay off the federal debt, while most of the rest will be ploughed into infrastructure projects (that at least is good news). Meantime the IMF has lowered its growth forecast for Canada to 1.8% to reflect the sharp downturn in the United States.
Speaking of the U.S. economy, Alan Greenspan certainly doesn’t like to be in the shadows: there he is on the BBC website “Greenspan negative on US economy” He also predicted that booming oil prices would keep rising and that the US housing market would see more misery before the tide turned. Ben Bernanke must wish for duct tape!
Education is also on the top of our list this week, following Paul Wells’ column “Centres of excellence, or otherwise” and the reactions to it, including our OWN Guy Stanley’s reaction in the Comments box below. We also note the Gazette editorial “Canada needs more grad students if we are to remain competitive” about which Guy says “I think one issue is the amount of capital per student we’re prepared to invest in universities and another is the fee structure…u/g students with 20K in debt on graduation seems excessive and is probably the main reason we don’t have more advanced degrees.”
And there is – always – China. The latest news seems made to order for Mr. Kruger: Tough Talk Fails To Calm Chinese Investors
HONG KONG – Beijing may have to do more to calm its equity markets. Chinese stocks continued their recent freefall Tuesday despite a regulator’s warning to listed companies to stop large new share placements.
Sad news from Africa: Kofi Annan says rival parties in Kenya appear unable to resolve their differences, while a Nigerian court is to rule on whether last year’s presidential election in Nigeria should be re-run because of fraud, and Zimbabwe‘s Robert Mugabe is “confident” of a sixth term.
[Update on Nigeria: February 26, Stratfor reports Nigeria: Yaradua’s Election Upheld
Finally, another gloomy note The World Food Programme issued a stark warning Monday that spiraling food prices have made it much more difficult for it and other aid agencies to battle malnutrition around the world. “We will have a problem in coming months,” said Josette Sheeran, who heads the United Nations agency. “We will have a significant gap if commodity prices remain this high, and we will need an extra half billion dollars just to meet existing assessed needs.”
With voluntary contributions from the world’s wealthy nations, the World Food Program (WFP) feeds 73 million people in 78 countries, less than a 10th of the total number of the world’s undernourished. Its agreed budget for 2008 was $2.9bn (£1.5bn). But with annual food price increases around the world of up to 40% and dramatic hikes in fuel costs, that budget is no longer enough even to maintain current food deliveries.

The Report

In addition to the previously announced new guests, Diana introduced David Waters who has enjoyed a long and fascinating career in journalism, including eleven years at CBC-Montreal as an Executive Producer of Public Affairs programming, four years at the late and lamented Montreal Star as Associate Editor. While the highlights of his career are numerous, the one which proved most pertinent to this evening’s discussion, was the six-year period when he served as a part-time community member of the National Parole Board at the time when there was discussion of reinstating capital punishment.
Marcus Hope, former U.K. Consul General in Montreal, has actively maintained his attachment to Montreal, returning for annual ski trips, visits with his wife Uta and son, Alexander, and participation in Wednesday Night. Since retiring from the Foreign Service, he has become a Magistrate and is soon to be ‘promoted’ to the position of Chair (which means that he sits in the middle of the three magistrates and ‘has to say things’.
February 27 is Jacques Clément’s birthday. His often-deplored absence due to illness since October of last year should soon come to an end as he is now in what appears to be the final stage of convalescence. His fond greeting to his Wednesday Night friends and fans via Diana was acknowledged with a toast drunk to Jacques’ health with good wishes for a speedy recovery and the hope that he will soon again be with us to report in his meticulous fashion on the vagaries of the economy and the actions of the Bank of Canada.

A new member of the OWN
Bertrand Revenaz will be leaving Montreal for greener fields in New York where he will be establishing the office for Camco, which advises companies by ascertaining their carbon dioxide emissions and how to reduce them, and finances projects by using the proceeds from the sale of carbon credits. Camco has clients for the latter part of its operation in Africa, China, Eastern Europe under Kyoto and a number of voluntary market projects in North America.
Bert has been an important contributor to Wednesday Night and has been of incredible support to David and Diana in managing their respective websites. The U.S.A.’s gain is our loss. Wednesday Nighters wish him well and in an extraordinary gesture, inducted him this evening as the sole new member at this time of the Order of Wednesday Night.

Robert Latimer, who has suffered incarceration in excess of that required of a large percentage of murderers, has finally been granted day parole . Our penal system teeters on the balance of punishment and reform and our system of parole, while in theory, dependent on probability of recidivism, in practice demands a clear admission of culpability and remorse, which Latimer was unwilling to provide. In fact, it is very rare that a convicted non-psychopathic murderer ever kills a second time when paroled and the cost to the public of keeping each prisoner is in excess of fifty thousand dollars per year. In effect, the system must balance the probability of reintegration of the prisoner as a productive citizen not only against his or her probability of re-offending, but against the bloodthirsty desire of the public for revenge as well.

China
As this ancient culture rushes into the changing world of the twenty-first century, there is much speculation as to the effect that transformation will have on its politics, affluence and influence. With increasing affluence and widening gaps between wealthy and impoverished Chinese citizens, air quality has deteriorated markedly, largely due to coal fired power energy generation, but also to the huge increase in car ownership. Common world technology would certainly go some way to solve the problem and will, of necessity, be implemented at some point. Meanwhile it is planned to close factories in Beijing for two months prior to the Olympics in order to improve the air quality for international visitors [and one hopes the poor athletes].
China’s economy is expected to continue its rapid growth for at least the next five to ten years. One contributing factor is the move of the younger generation from small, marginal (unmechanized) farms to manufacturing jobs, thus contributing their increased productivity to China’s burgeoning industrial capacity. This increase in productivity does not even take into account the growth of the population.
The gap in affluence between the wealthy and the indigent is widening. The economy is overheating and with rising wages and prices, inflation at 7% is relatively high. The rational western response would be an increase in interest rates, but Chinese policy has been to set their own exchange rate and to maintain a low value for the yuan. Observers believe that this summer’s Olympics are the key factor, as the government strives to avoid any signs of unemployment when the world comes to see the show. But the risk is that the economy continues to overheat and in 2009, stringent measures will be required to counter inflation that could well reach 15% and create a major setback for Hu Jintao’s goal of a Harmonious Society.
Traditionally, Chinese business has been heavily leveraged, magnifying any reversals, but the systemic weaknesses including the unprofitable state-owned enterprises, are much less evident than 5 or 10 years ago.
While the fundamentals look good, as does the medium term, the short-term may be somewhat bumpy.
China as a good global citizen
China has been receiving a great deal of criticism on human rights issues, as well as for its continuing resistance to intervention in Darfur. This goes against the grain of a country that has resisted outside interference (Steven Spielberg’s denunciation of China’s activities in Sudan has deeply offended the authorities), and does not readily accept a proactive role in foreign policy. However, it is to be expected that sooner or later, the Chinese will come to realize that they possess influence in many parts of the world; the question is, what will they chose to do with that influence,- how will they exert it?
It should be remembered that cooperation comes at a price on both the national and corporate level. If there is to be a moral aspect to politics, it cannot be expected to come from a market economy; moral imperatives cannot wait for markets to adjust, so some other form of meaningful intervention (likely technology) working within the economy is required. Some hold that corporations are in the business of making money for their shareholders, while governments are responsible for public policy, international policy and humanitarian issues. Others believe that the trend towards corporate social responsibility entrains an influential corporate morality.

World food production
The impact of rising oil prices and consequent rising cost of food on the ability of the World Food Programme of the United Nations to feed the millions of starving or under-nourished is dramatic. UN programs are funded in U.S. dollars, therefore the declining value of the dollar has also played a part in the shortfall.
Our economist reminds us that in the long term as prices for food rise, farmers will revert to cultivation of food crops and there will eventually be a glut of corn, beef, and other staples. However, if oil prices continue to rise, there will be rising transportation costs that do not fill the farmers’ pockets.

Oil and Biofuel
The continuing dependence of the global economy on petroleum should be cause for concern. There are those who blame the managed marketing of petroleum for the sharp increase in fuel prices, others point to the necessity of price as a method of rationing and conservation. Still, the rising price of petroleum appears to have had little effect on its consumption.
Ireland has increased use of biofuel, largely by subsidizing its manufacture. While there can be little argument against the conversion of waste, such as sawdust, bark, corn husks, into biofuel, the diversion of agricultural lands to crops for the manufacture of biofuel is of great concern because of the consequences for food production for an increasing population. ( It is reported that 25‰ of US corn production will go to ethanol this year
More background
Governments are subsidizing biofuel production in order to obtain a quick fix whereas the real need is to develop new technologies that will favour development of biofuels that are not based on food products. An article in the current edition of Harper’s Magazine “The next bubble: Priming the markets for tomorrow’s big crash” forecasts that the next bubble will be “alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water.”

Our dependence on information technologies
Our dependence on technology to an extent unknown and hitherto unrecognized makes the world increasingly vulnerable to potential technical anarchy caused by a large range of miscreants ranging from cyberfreaks to terrorists. This has spawned a new industry of risk management experts to develop virtual security systems for information technology managers. It is estimated that 90, 000 Information Technologists will be required in Canada over the next three to five years, vastly surpassing Canadian universities’ capacity to produce them.

The U.S. economy
In the United States, the concern remains over the economy and the availability of sufficient funding to pay for future Social Security and Medicare. In effect, when the time comes to pay the bill, the money will be there but the value of the dollar will suffer as a result. It is likely that tax rates will rise in the United States as they continue to fall in Canada. [This comparison serves to underline the felicitous state of Canada’s economy.]
There is some concern about China’s role in the maintenance of the North American economy. Its continued purchase of U.S. Treasury bills has tempered the downturn in the U.S. economy and one must wonder how long that policy will continue.

The Canadian Federal budget
While making a number of good points, the meagre amounts committed to individual programs make each totally ineffectual. Further, a basic error is the shortsightedness of paying down the debt, while infrastructure is crumbling, ignoring the consequences of having to borrow the money later for infrastructure renewal. All of which suggests that the Conservative government is not adopting a role of moral leadership identified earlier as appropriate for government.

U.S. Presidential race
As the race for the presidency continues, the observer must learn to separate the statements of convenience from those of conviction. The surprising statements by the two Democratic presidential candidates on the possible demise of NAFTA might best be considered, like the abortion issue in the previous election, as falling within the context of Ohio state politics and highly unlikely to be carried through by an elected president of any political stripe.
Barack Obama has been likened to John F. Kennedy, set to bring youth to the White House; others view him as more like the Pied Piper, leading the United States over the cliff. Had J.F.K. lived to complete his first term (or terms) in office, would he have been able to survive his country’s involvement in Viet Nam or other possible misguided policies of his ‘Whiz Kids” that his early demise prevented from seeing the light of day.
Although currently outshone by the Democratic candidates, John McCain might be elected and conceivably could be the next Ronald Reagan. In this event, the proceedings of [a Democrat-controlled] Senate would ensure sufficient debate to temper any radical change in the direction of the nation’s business.