Wednesday Night #1407 with David Kilgour

Written by  //  February 18, 2009  //  David Kilgour, Reports, Wednesday Nights  //  Comments Off on Wednesday Night #1407 with David Kilgour

T H E  R E P O R T  See photos

In a charming thank-you, one of the first-time guests accurately described the evening as “cheerfully tumultuous”  – and that it was, despite  the  serious nature of most of the topics.

The economy — The precipice of systemic problems exists
There was a time when Business Administration students were taught that the objective of a business was to provide the best product or service possible and the bottom line was the score measuring the degree to which that objective had been achieved.  While the reward for risk takers has always been a function of the risk, in the past, the size of the CEO’s salary was based on the attainment of that objective;  in the Eisenhower era, it never exceeded twenty to thirty times that of employees.  Since the more recent acceptance of the bottom line as the sole measure of success, CEOs’ salaries of up to one hundred times that of employees have not been uncommon.  The change in the definition of success in business has motivated CEOs , shareholders and others alike to allow greed and fear  to motivate the mortgaging of the future for immediate gain.  Although numerous voices were raised in protest of the excesses, little attention was paid until recently.  Meanwhile, we have witnessed every form of venality and stupidity in the financial services. Nonetheless, and despite public perception, we should be aware that there is a large core of individuals within the financial system who are working very hard to ensure a more just and fairer society where people can be productive and human dignity may thrive.
At least one Wednesday Nighter suggests that the origin of obscene overpayment of CEOs  lies in the sports and entertainment fields; that there is a need for new heroes and new values.
Generally, the situation is not good.  The precipice of systemic problems exists at every level.   While we carry on with our daily lives, fundamentally the market is not working. The system is not working.  One Wednesday Nighter advances the theory that the fundamental problem is what might be termed the hypertrophy of financial services, which [should] serve as the lubricant for industry;  about 10 years ago, 10% of all corporate profits in North America were made by the financial services; 2 years ago, the figure was 37% .
Elected and appointed government officials as well as voters were seduced by greed and immediate gain even at the expense of the inevitability of pain at some future point. People acted in ways that were fundamentally wrong (and stupid), deviating from the principles that everyone has been taught – you don’t buy something when you don’t have the money. Individually, we all bent the system and have to take responsibility for being part of the system that said it is easy. That’s wrong. Money is not easy.
What worked in the Great Depression may very well not work here because the manufacturing sector has been exported to countries with lower labor cost and the reduction of interest rates by one half or one percent will do nothing to change the self-inflicted malaise that has descended on the world. In 1933 there was no credit card debt, no mortgage debt, nor sector-wide union agreements. Leaders should be looking at 1973 instead. Political leadership will have to say to the people that there is a new Jones to keep up with – home ownership is not a right, nor a second car, nor the country club. Another view is that China is 1933 and therefore the engine that will drive the rest of the world out of the current crisis.
Conclusion: Inevitably, despite the tinkering, the stimulus will fail and we will ultimately work our way out as we have in the past, smarter and more realistic.

The Bank of Canada is no longer setting rates, it is sending signals.
The current bank rate has been set at an historic low of 1% in order to stimulate the economy and there is talk of reducing it to 0.5% or 0%.  It is likely that the Bank of Canada rate will remain at 1%, sending the message to the population that everything will be alright.  It is the resolve to rebuild and learn from the difficult lessons of the immediate past that will solve the problem.  With a lower dollar and our commodity sector intact although battered, confidence in the future will return.
Canadian banks are doing well [even the New York Times says so The Great Solvent North] and some paying relatively high dividends (10%), which, however, may not prove to be sustainable at the current level. Scotia Bank is particularly interesting because of its expansion to emerging countries with young populations.
Nortel has been cited as an example of greed surpassing reason and  has paid the price of seeing its shares reduced from $120 dollars to the equivalent of nine cents over the period of seven years, but its initiative in building the worldwide fibre optic network has spawned an enormous fibre-optic based electronic industry including the cellular phone network of which millions of people are the beneficiaries.

The Obama-Harper meeting
To their great disappointment, Canada’s parliamentarians will not be present for this first visit by the new President. As Parliament is in recess, there will be no formal address to our elected representatives. On the other hand, the working nature of the trip precludes the time-consuming photo-op events of a state visit.  Meantime, there is much curiosity as to what subjects will be discussed between the President Obama and Prime Minister Harper. Conjecture is that the environment (possibly aiming for a North American -ex Mexico – cap & trade system) will be major topic. For the first time, Canada and the United States are jointly seriously considering the hitherto hidden costs of human activities, including the real cost of creating carbon emissions.  It is likely that in the very near future, carbon credits will be bought and sold on stock markets in Canada and the United States, ultimately leading to a reduction in carbon emission being rewarded with lower production costs.  Afghanistan will surely be a major topic as will Free Trade, including the problems of transborder transportation (the ‘thickening” of the border)  while the revolution of rising expectations and the fragmentation of NATO will be avoided. Although little will likely be accomplished in this one meeting, aside from the all-important tone setting for future relations, it is Obama as an inspiration to Canadian young people – many of whom are apathetic or cynical about political action – that is especially encouraging.

Sudan and Darfur
The problems started after General Omar al-Bashir seized power in Sudan and proclaimed jihad against the non-Muslim South. Subsequently the janjaweed were recruited, armed and have, since 2003, slaughtered over half a million people, while up to 2.5 million have been displaced. The difference between the jihad in the South and what has happened in Darfur is that in the latter case, the victims are black Muslims and deemed to be Africans by the Arab Muslims of the North. A graphic personal account of the conflict is Tears of the desert.  Events in Darfur which clearly constitute genocide have been reported periodically but ignored by the family of nations for reasons that seem irrational in terms of the stated aims of the international community.  Meanwhile, despite the many advances made by the United Nations, a very large lacuna exists in the realm of the weight of national self-interest in matters of worldwide human interest. China, which obtains cheap oil from Sudan,  has blocked every effort at the UN to stop the slaughter. The Bush government did nothing. It is to hoped that President Obama’s interest will be a factor leading to the end of this genocide. Canada’s government, despite the efforts of such individuals as General Dallaire, David Kilgour and Beryl Wajsman,  has taken no strong stand on the issue – it is suggested that Canadian parlementarians should forcefully pursue it at the regular meetings with their European colleagues.
Al Jazeera reports that Khartoum and the Darfur rebel group Justice and Equality Movement (JEM) are close to agreeing a “trust building and good intentions” document. Meanwhile the ICC is rumored to be about to issue a warrant for the arrest of Sudan’s President al-Bashir. [Update, Feb. 23: the Herald Tribune states that the ICC will issue a ruling on the Bashir warrant on March 4] Despite the incredible advances in world history made by the United Nations, a very large lacuna exists in the realm of the weight of national self-interest in matters of worldwide human interest.  The ability of single nations or groups of nations to lead this world body to make irrational decisions or to avoid human catastrophes constitutes a significant disrespect for morality.

Iran has been described as the most dangerous country in the world.   Founded in 1965 the People’s Mojahedin Organization of Iran (PMOI), originally a leftist party formed in opposition to the absolutist regime of Shah Mohammad Reza Pahlavi,  considered a terrorist organization, has become a moderate democratic group, working for the democratization of Iran.  Having changed their original philosophy (although perhaps unwisely maintaining mujahadeen, or ‘holy war’, as part of their name), this organization is now headquartered at Camp Ashraf, Iraq but spread out in various countries.  Because of its past, PMOI members have not been welcomed in many countries of the world and would be immediately executed on returning to Iran.  It seeks to be de-listed as a terrorist organization, a goal that has been achieved at the level of the European Union, but Canada and the U.S. have not acted. As in the case of Darfur, the people must be the motor for policy change, making their views known (most effectively in writing) to the government, members of Parliament and any other influential voices..
[ Update 24 February: IRAN: RESPONSIBLE AMERICAN, EUROPEAN AND CANADIAN CHOICES by Hon. David Kilgour, Co-Chair of Canadian Friends of a Democratic Iran : Successive governments in Washington, Europe, and Ottawa have regrettably sought to weaken and de-legitimize the People’s Mujehadin Organization of Iran (PMOI/MEK), despite it being the largest opposition movement among the Iranian people. The PMOI seeks the rule of law, separation of religion and government, a nuclear-free Iran, equal rights for women and all religious and ethnocultural minorities, normalized relations with all governments and representative democracy for Iranians.]

 T H E  I N V I T A T I O N

With David Kilgour
And who better than the co-author of Uneasy Neighbo(u)rs to be with us on the eve of President Obama’s first visit to Ottawa? Especially one who is an Albertan, economist and [former] politician? Thus, we may anticipate a parallel agenda to that of the 5-hour working visit in Ottawa on Thursday, covering the world economy, respective stimulus  measures, NAFTA and WTO versus protectionism, clean energy versus dirty tar sands and possibly Afghanistan/Pakistan. It would be nice if Mr. Harper could listen to Mr. Obama’s thoughts on investing in science and technology. We are happy to hear Mr. Prentice say that Canada and the U.S. “share common principles on environment and climate change” – this would mean that Canada’s position has shifted away from sharing the principles of the Bush administration? Presumably there will be no time for the Arctic at this meeting. Will they touch on some of the recent developments in foreign policy and global affairs? The new U.S. message on China; the results of the referendum in Venezuela (Chavez to rule for ‘decades’); the political stalemate in Israel and the Palestinian question.
What we do want to know is whether PM Harper will present the new President with the Labradoodle puppy offered by the Winnipeg humane society. Now, that is important.

Fortunately, unlike the session in Ottawa, we do not have to give out an agreed-to-beforehand communiqué in which we appear to resolve all our policy differences. We also enjoy the liberty of wandering off-agenda (with the Chair’s permission). And, as there are no staffers to brief the participants in Wednesday Night, we do offer some suggested reading below.

Not that David’s interests are limited to Canada-U.S. relations. He ranges over the globe as an apostle of human rights His broad interests are traced on his website and indicated by, among others, his recent splendid speech on Leadership at Queen’s; his speech on HUMAN DIGNITY AND RELIGIOUS RIGHTS to the Canadian Jewish Law Students Association; CHALLENGES AND OPPORTUNITIES FACING AFRICA to the Conference on Building Peace and Global Solidarity; and his piece in the Middle East Times with Robert Murray on (R2P) Global Responsibility and the Shortfall of International Policy.

David is also a hands-on, knowledgeable investor with a keen interest in the economy and the market, so we anticipate a continuation of the exchanges of the past weeks on banks, markets, pensions, hedge funds, emerging markets and stimuli. And we fully expect our economists to have read and analysed the entire stimulus package and to have picked up on all the oddities such as (we love this!) the section on page 14 that makes sure no money goes directly to Illinois Gov. Rod Blagojevich.

David will be introducing two new guests, Robina Dhindsa and Katherine Borlongan, Executive Director of Reporters without borders Canada.

For your reading pleasure

Canada-U.S. post 2008 elections

IRPP’s Policy Options (February issue) as usual is content-rich on the new Obama administration and the economy

Obama and Harper should get along very well
They are close in age, and geography gives them common interests (we are not so sure that is all it takes)

U.S., Canada share common principles on environment, climate change: Prentice  But will they heed the warnings regarding plans to use the Great Lakes as an emergency water supply because the lakes are only renewing themselves by about one per cent per year?
Marc Garneau: Current budget has major weaknesses “I am particularly concerned with the government’s failure to provide new funding to Genome Canada and the three Research Granting Councils in this Budget.”  Meantime the America Association for the Advancement of Science was meeting this weekend in Chicago (where President Obama as spending the weekend – coincidence?)
Bouncing Baby Bailout
Here’s a magic bullet to save our tanking economy – let’s continue to leverage the future by pre-emptively tapping into our children’s future earnings.
You Can’t Fool Gold
US ‘keen to strengthen Asia ties’
In Israel AP opines that the electoral gridlock may offer a unique opportunity for outgoing PM Ehud Olmert to negotiate without political constraints. The Economist believes that President Obama may solve the problem.
Venezuelans have voted to lift limits on terms in office for elected officials, allowing President Hugo Chavez to stand for re-election. BBC
East v West in the battle for press freedom
Politicians and others build ever more elaborate “spin” machinery to overcome what they see as the press’s knee-jerk tendency to rubbish their best efforts. But by and large, they accept that journalists are merely doing their job. In East Asia, however, the press is judged by very different standards; iconoclasm tends to be seen not as a virtue, but a sin, or sometimes a crime. Heren’s advice sounds outrageous: smug and unwarranted.

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