Brian Lee Crowley

Ottawa Citizen/Postmedia columns

  • National Post: We’re all Hayekians now May 8, 2012

    In today’s National Post, I write about Nobel Prize-winning economist and philosopher F.A. Hayek and his seminal contributions to our world’s intellectual and policy life. The full column below:

     

    We’re all Hayekians now

    By Brian Lee Crowley, National Post, May 8, 2012

    This year marks the 20th anniversary of the death of Friedrich August Hayek, the Viennese-born Nobel Prize-winning economist and philosopher, who led the intellectual equivalent of the D-Day charge against central planning in the postwar era. His lessons are worth remembering in 2012, especially now that left-wing politicians in France, Greece and elsewhere seem intent on forgetting them.

    Hayek’s great adversary was John Maynard Keynes, whose faith in the ability of government economic planners to “correct” the operation of markets inspired generations of disciples in government and academe. In the long run, Hayek got the better of the argument with Keynes. Indeed, his ideas contributed to the fall of the Berlin Wall, and continue to influence economic thought to this day.

    Hayek and Keynes were punctilious professional colleagues and scholarly rivals. Yet for all the correctness that characterized their relations — Hayek was, for example, Keynes’s guest when the London School of Economics fled the Nazi bombings to the relative safety of Cambridge — the Austrian could not shake a profound distrust of Keynes.A brilliant economist, captivating teacher, witty conversationalist and bon vivant, Keynes seemed to almost everyone who knew him a Renaissance man and one of his country’s most powerful minds. Hayek found Keynes glib and superficial, but it was Keynes’ intellectual dilettantism that most appalled him. When Keynes wrote A Treatise on Money in 1930, Hayek spent a year carefully analyzing it, and then wrote a devastating review. At their next meeting, Hayek was outraged when Keynes airily said that he now agreed with Hayek, having long since changed his mind. Hayek always regretted that this incident led him to neglect replying to Keynes’ next book. By the time Hayek was alive to the danger, it was too late.

    Keynes’ 1936 General Theory of Employment, Interest and Money became the bible of a whole new generation of economists. The Keynesians, as they came to be known, shared Keynes’ own unshakable belief in the ability of clever people, like himself, to smooth out capitalism’s cycles of boom and bust by manipulating the level of demand in a nation’s economy — through, for example, inflationary monetary expansion and public-works programs. Such vigorous actions appealed to a world already in the grips of a devastating depression — far more than the “do-nothing” non-interventionist economics of the likes of Hayek, who counselled letting the economy’s self-corrective mechanisms do their work. To those concerned about the inflationary consequences of his policies, Keynes asserted that inflation was the hallmark of rising civilizations.

    Hayek already had showed how the consistent pursuit of Keynesian policies would, in the long run, produce simultaneous inflation, economic stagnation and unemployment. That long run was reached in the 1970s, when economists had to coin a new word, stagflation, to describe a condition Keynesians always had dismissed as impossible.

    Keynesian ideas nevertheless became policy in Europe and the United States in postwar efforts to transform wartime planning into peacetime social engineering. Intellectuals believed that mastery of our social and economic life lay in their grasp. Deeply troubled, Hayek set out to expose such rational-sounding claims as a form of bait and switch.

    In his 1944 classic, The Road to Serfdom, Hayek warned of the dangers inherent in “national planning.” Although the book temporarily ruined his reputation within academic circles, it earned him popular acclaim.

    Ironically, Keynes liked the book, saying: “Morally and philosophically, I find myself in agreement with virtually the whole of it.” However, he told Hayek that while the dangers described in The Road to Serfdom were well-founded, as long as intelligent and well-meaning people (like themselves) were in charge, they could easily prevent things from getting out of hand. Yet part of Hayek’s argument was precisely that even good people would be corrupted or forced aside by the coercion that is necessary to give central planning even a semblance of success. A few years later, virtually every European country had a ministry of planning, and a British Tory prime minister could proclaim without fear of contradiction, “We’re all Keynesians now.”

    Hayek’s misgivings about both Keynesian-style demand management and overall social planning, as well as his condemnation of the twin scourges of fascism and communism, stemmed from the central understanding that had caused him to abandon his early socialist convictions: The limits to human knowledge and wisdom.

    Hayek’s main point is that all human knowledge, and especially the knowledge available to social planners, is irremediably fragmentary and incomplete. To be successful, planners need what their plans destroy: The signposts offered by freely formed prices reflecting the true state of supply and demand. Only a decentralized system — in which people are free to make the most of opportunities, often known only to themselves, and in which people voluntarily agree to exchange their goods, services and ideas with one another, and in which new information is constantly being discovered and integrated — can achieve the needed co-ordination of all human activity.

    To this knowledge-based critique of central planning, Hayek added another element: What we would call today the problem of the irreducible pluralism of values.

    Postwar planners envisioned an almost universal consensus on society’s peacetime objectives. Hayek saw that people would not submerge their own dreams and aspirations in the tidy plans of well-meaning bureaucrats. Hayek’s concept of the “abstract order” doesn’t require different individuals to agree on common goals, but rather on basic practical rules governing each person’s behaviour as they pursue their private goals.

    Behind the Iron Curtain, Hayek’s ideas, while illegal to publish, were widely influential among opposition intellectuals. He added to his importance in the East by stating clearly how societies based on freely grown institutions manage to have individual freedom and social order coexist, all within a context of prosperity. Samizdat versions of Hayek’s works circulated widely, including readings on cassette tapes.

    When the Berlin Wall fell, many members of the opposition who rushed to fill the power vacuum had been indirect “students” of Hayek’s, especially in those countries that were quickest and most vigorous in moving to a market economy and liberal democracy: Poland, Hungary and Czechoslovakia.

    The thanks Hayek received were, at first, cruel and dispiriting. But he ended his life a Nobel laureate, Companion of Honour and intellectual godfather of policies that have transformed Western politics and helped to hasten the collapse of communism.

    Perhaps — just perhaps — there is something to this business about things working themselves out in the long run after all.

    National Post

    Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent, non-partisan public policy think-tank in Ottawa. He is the author of The Man Who Changed Everyone’s Life: The ubiquitous ideas of F.A. Hayek, available at macdonaldlaurier.ca.

     

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  • Ottawa Citizen: Canada, the city May 5, 2012

    In my latest column for the Ottawa Citizen, I write about how “charter cities” could transform the developing world and the vital role Canada can play. The full column below:

     

    Canada, the city

    By Brian Lee Crowley, Ottawa Citizen, May 5, 2012

    After the First World War the question on everyone’s lips was “How are you gonna keep them on the farm after they’ve seen gay Paree?”

    Canadians and Americans from a largely rural and agricultural society had flocked to Europe and not only beat the Kaiser, but also saw some wondrous sights in Paris, London and Berlin, glimpses of a life literally worlds away from rural Saskatchewan or Iowa.

    While they didn’t generally stay in gay Paree, they came home and moved to cities everywhere in North America. At the beginning of the 20th century roughly 90 per cent of Canadians lived in rural Canada, and the rest in cities. By the end of the century the proportions had essentially reversed.

    Our forebears didn’t move just for the bright lights. They moved chiefly because life in the city made them and their children better off. On the farm people have to be more self-sufficient, and do a little bit of a lot of things. In the city there were more kinds of jobs, services, goods and education, so more room for specialization. That shift from the countryside to the city was probably the single biggest factor behind the vast increase in the standard of living we have enjoyed compared to our great-grandparents.

    And of course immigrants to Canada overwhelmingly choose the cities in which to settle for the same reason.

    Canada’s experience is not unique. What is unusual in global terms, however, is how far out in front we and other industrial countries are in the transition to urban living. The rest of the world is working hard to catch up, however.

    Of the seven billion people in the world, only about half of them live in cities. But by 2050, according to the UN, the world’s population will have increased by 2.3 billion, whereas the population of the world’s cities will have increased by 2.6 billion. All of the population increase over the next 40 years will take place in cities, and another 300 million people will move from rural areas to the cities.

    As Paul Romer, one of the world’s leading economists, said in a talk he gave in Ottawa last week, all this means that there is a serious shortage of cities in the world. He points out that much effort is spent trying to tear down the barriers to trade between countries on the grounds that this will increase the world’s wealth by a few percentage points. But you pull more people out of poverty faster by simply moving them from the country to the city.

    Simply moving a worker from a developing country to a developed one like Canada or the U.S. increases their earning power several times over. Moving from chaotic disorganized societies to ones with strong institutions such as functioning infrastructure, police, courts and the rule of law is the most powerful anti-poverty tool there is. But not everyone can change countries.

    The central development challenge of the coming decades, then, will be to help developing countries establish well-functioning cities. Simply moving from rural Mexico to Mexico City or backwoods Philippines to Manila will increase each person’s standard of living, but far less than it might. That’s because these places don’t have those strong institutions that allow people to get the best value out of their skills and abilities.

    For example, for cities to work well, you have to have good infrastructure, things like power, water and transport. But those things require investment, tying up billions of dollars in capital that has to be paid back over many years.

    There’s the rub. Because these societies so often are corrupt, don’t respect contracts and don’t have independent judges to adjudicate disputes fairly, people with the money and expertise don’t want to invest in urban infrastructure in the developing world. Those who do face the constant risk that a Hugo Chavez or a Vladimir Putin will simply take their investment and leave them high and dry.

    It is the poor who pay the costs of such corrupt practices, not just because they have to grease the palm of officials to get things done, but because they have to accept crumbling infrastructure and substandard services at high prices. As a result, says Romer, the citizens of poor countries often end up paying the most for basic goods such as electricity, if they have access to it at all.

    The solution, Romer argues, is not more aid. Instead it is to get countries like Canada to work with developing countries to create local greenfield “charter cities” with the rule of law, trustworthy police, protection for investors and other rules that make cities work. Then let the locals choose where they want to live. Chances are they’ll choose Canada — or at least the life that Canadian-style rules make possible.

    Brian Lee Crowley is managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: macdonaldlaurier.ca.

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  • Ottawa Citizen: The trouble with the Buffett Rule April 21, 2012

    If we as a society want more risk-taking, more investment, and more tax revenues those activities generate, then we are smart to use the tax system to encourage them. The Buffett Rule does the opposite:

    The trouble with the Buffet Rule

    By Brian Lee Crowley, Ottawa Citizen, April 21, 2012

    If you are Rip Van Winkle awakening from 20 years’ slumber, you might not know about the Buffett Rule. But almost everyone else does. Named after billionaire investor Warren Buffett, it would establish a minimum tax rate of 30 per cent on people earning over a million dollars.

    Buffett proposed the rule to remedy what he sees as the inequity of his effective tax rate being lower than his secretary’s, despite her income being, ahem, somewhat lower.

    Is the Buffett Rule a good idea? This is a question that is relevant in Canada as much as in the United States. Tax policy is one of the things that is increasingly marking out the policies of the tax resistant Tories vs. the tax-friendlier NDP and the schizophrenic Liberals.

    On the surface there is something pleasingly simple about the Buffett Rule. Taxes should be based on ability to pay, and people who make a lot of money should pay a bigger share of it than people on low incomes. Hence a rule that sets a high minimum tax for the biggest earners to ensure that they don’t use the tax rules to escape paying their “fair share.”

    The concept of fair shares, however, is itself not simple. The top fifth of U.S. earners earn nearly 55 per cent of the income, but pay nearly 70 per cent of all federal taxes. In other words, the U.S. already has a quite progressive tax system, Mr. Buffett notwithstanding.

    In thinking through the desirability of the Buffett Rule, you might want to start by asking why Buffett pays a lower tax rate than his secretary. Sure, some tax provisions disproportionately benefit the rich (like mortgage interest deductibility and tax-free municipal bonds) and perhaps should be changed. But his tax rate has more to do with the fact that there are different kinds of income (chiefly wages, dividends and capital gains) and the tax system treats them, well, differently.

    Take dividends. Dividends are the profits distributed to a company’s owners, its stockholders. But before the company can distribute its profits it has to pay corporate income tax.

    In other words the profits, which belong to the shareholders, have already been taxed before they reach their rightful owners. If, once received, they were then subject to the taxpayer’s full personal income tax rate, the effect would be double taxation of the same corporate profits — once in the hands of the company, and once in the hands of the taxpayer to whom they belong.

    Double taxation is unfair and we try hard to avoid it. In Canada, for example, dividend income in the hands of the individual is adjusted to reflect the corporate tax already paid.

    But then if you compare the direct tax bill of an individual who earned $50,000 in dividends and one who earned $50,000 in wages, they’d be different. Hence the superficial appeal of the Buffett Rule. It depends on a demagogic sleight of hand: comparing the tax rate on pre-tax wages vs. the rate on dividends already taxed once.

    Now consider another source of income for the Warren Buffetts of this world: capital gains. Capital gains are taxed at a lower rate than employment income. Again, there are good reasons for this.

    Capital gains are earned when people take risks investing their money. Such risk-taking and innovation play an absolutely central role in our economy. We are constantly lamenting that there aren’t more risk takers and innovators in Canada. But we can’t have it both ways. One of the ways we recognize both the risky nature of such investment, and the hugely useful social role it plays, is by using the tax system to encourage people to use their capital to create investment, jobs and profits. Capital gains are therefore usually taxed at favourable rates compared to employment income.

    There is another reason to tax capital gains relatively lightly. When in 1981 U.S. president Ronald Reagan cut the capital gains tax from 28 to 20 per cent, revenues rose by a third. When he later put the rate back up to 28 per cent, revenues fell from $328 billion to $112 billion. In 1996, Bill Clinton went back down to 20 per cent; investment and revenues again rose handsomely.

    There is nothing unique about this. When you tax something more heavily, you get less of it. If we as a society want more risk-taking, more investment, and more tax revenues those activities generate, then we are smart to use the tax system to encourage them. The Buffett Rule does the opposite. Warren Buffett is therefore only the latest example of someone who understands how to make money, but not the system that allows him to do so. If he invested with the care he gives his tax proposals, his secretary’s income might look good to him.

    Brian Lee Crowley is managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think-tank in Ottawa: (macdonaldlaurier.ca).

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  • Ottawa Citizen: Alberta’s PCs can only be threatened when they drift to the left and Danielle Smith has Albertans ready to throw them out April 9, 2012

    In my latest column for the Ottawa Citizen published on April 7th, I discuss Alberta politics and how Danielle Smith, the ambitious and personable leader of the Wildrose Party who is leading the anti-Tory insurgency, has Albertans ready to throw the Tories out. The full column below:

    The Giant Slayer

    By Brian Lee Crowley, Ottawa Citizen, April 7, 2012

    If the polls hold good until then, the Alberta election due on April 23 is likely to produce that rarest of all political animals: a change of government in Edmonton.

    There have only been four such changes since Sir Wilfrid Laurier carved the province of Alberta (and next door Saskatchewan) out of the western territories in 1905. Like the rest of the west, Albertans were diehard Liberals in the early years. Then in 1921 they had their first romance with a local populist party, turfing the Grits and installing the United Farmers of Alberta in power. Fourteen years later they were swept away in their turn by Social Credit, a party whose most successful premier was Ernest Manning, father of Reform party founder Preston Manning.

    The Socreds were unbeatable until 1971, when Peter Lougheed, a lawyer and former Canadian Football League player, ousted them after a long period spent building the Progressive Conservative Party in the province. The Tories have ruled ever since, with one important qualification.

    By the late 1980s, Albertans were tired of the Tories. Lougheed had retired and was replaced by Don Getty, a man who appeared more interested in golf than governing. Always fiscally conservative, Albertans were increasingly distressed by the Tories’ propensity to run repeated deficits despite rich natural resources revenues. The Liberals, under fiscally tight-fisted Laurence Decore, were suddenly highly competitive, and Don Getty retired rather than face defeat.

    Threatened on their right flank, the Tories were shaken out of their complacent belief that power was theirs by right. Despite the hostility of much of the party establishment, a conservative populist, broadcaster and former Calgary mayor by the name of Ralph Klein electrified the party rank and file with a promise to return to more traditional Alberta values. Albertans got the renewal they sought by regime change within the Tories rather than by kicking them out. Klein renewed the Tories’ dominance, but only by bringing the party closer to Alberta’s conservative mainstream.

    That episode tells us a lot about Alberta politics. In a province dominated by a single party for protracted periods, able people with political ambitions don’t waste their time on unelectable parties. As an immovable fixture on the Alberta scene, the Tories attract many people who in other places would be Liberals or New Democrats. The political centre of gravity of the party is constantly pulled to the left. But that always risks alienating conservative Albertans.

    This conundrum can be solved by periodic leadership contests that permit the emergence of strong conservative figures that renew the party’s bona fides with the electorate, as Klein did. But, in recent years, that leadership process has failed the party badly. First it gave the crown to Ed Stelmach after Klein’s retirement. Ineffectual Stelmach proved a huge disappointment. He alienated the oil and gas industry with an ill-conceived revamping of the provincial royalty regime, and on his watch deficits became the rule, threatening Klein’s signal achievement: the elimination of the province’s net debt.

    Albertans made their displeasure known and Stelmach barely lasted a term. But his replacement was, judged by traditional Alberta values, no better. Alison Redford, a former United Nations official, brought lots of brains to the job but was another champion of the wing of the party accustomed to seeing government as a means to reward favoured interest groups.

    In the recent provincial budget, as high oil prices fill provincial coffers, the best the new premier could do was to promise to balance the budget in 2013 while spending liberally and drawing down billions in provincial savings to make the deficit appear smaller than it really was. Worst of all, she communicated to Albertans, famously jealous of their individual freedom, that she was a far better judge of what was good for them than they were.

    Albertans therefore look like scratching their once-in-a-generation itch to throw the bums out.

    Danielle Smith, the ambitious and personable leader of the Wildrose Party (the wildrose is Alberta’s provincial flower) who is leading the anti-Tory insurgency, enjoys quite remarkable levels of public esteem. Her approval rating is 56 per cent, while only 32 per cent of Albertans disapprove of her. Premier Redford enjoys a respectable 48 per cent approval rating, but that is almost matched by her 43-per-cent disapproval. That puts Smith in the driver’s seat. The polls are all converging on the same result: a comfortable Wildrose majority.

    Smith’s great accomplishment isn’t her personal popularity, however. It is having taken a marginal party full of loudmouths, troublemakers and cranks and turning it into a credible political vehicle. If, come election day, Albertans still feel that they can trust Smith to run a competent conservative government, she will become an instant national political star and slayer of one of Canada’s longest running political dynasties.

    Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

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  • Ottawa Citizen: Seeking a cure for pipeline madness March 24, 2012

    In today’s Ottawa Citizen, I outline several reforms that would help facilitate a more constructive focus to the National Energy Board’s work while balancing opponents’ rights to be heard with the country’s right to reach informed decisions in a timely manner. The full column is below.

     

    Seeking a cure for pipeline madness

    By Brian Lee Crowley, Ottawa Citizen, March 24, 2012

    What is it about pipelines that makes people take leave of their senses?

    The Great Pipeline Debate of 1956 began a long process of decline for the Liberal Party of Canada when it caused the first chunk of their hitherto solid support to crumble in the west. The redoubtable C.D. Howe imposed closure on the parliamentary debate over the plan to build the Trans Canada Pipeline to Ontario.

    While the controversy that erupted was ostensibly about the government’s arrogance toward Parliament, in reality it arose from deep conflict between the east and the west over how Canada’s energy resources were to be developed. The misjudgments of the Pipeline Debate brought down one of the best federal governments Canada has ever had and stoked the fires of western alienation for 50 years.

    In an election year when “shovel ready” projects should be gold currency to U.S. President Barack Obama, he has caused great confusion and consternation in the energy world on both sides of the border by refusing to approve the Keystone XL pipeline. Keystone, which would transport Alberta oilsands production for refining on the U.S. Gulf Coast, would have put tens of thousands of U.S. workers to work immediately. Instead Obama has preferred to play the green card, hoping that he’ll win more votes by energizing the environmentalist part of his base than he’ll lose by enraging the trade union part.

    Even if he revisits the decision after the election, the damage done to America’s reputation as a sensible energy partner for Canada has been incalculable. When we are their largest source of energy and they are trying to reduce their dependence on dangerous and undesirable energy sources like the Middle East and Venezuela, Canadians might be forgiven for thinking that Americans have a dose of pipeline madness.

    Pipeline madness has reappeared in Canada too. The Northern Gateway proposal that would take oilsands production to the west coast is bogged down in a circus of a regulatory process that may take a decade to reach a conclusion. Thousands of people have signed up to testify, some from as far away as Brazil, the vast majority of them apparently of the view that this pipeline’s construction will mean the end of civilization as we have known it.

    Actually it is the other way around. While no particular project is indispensable, civilization does depend on the development and transport of energy resources to make them available to consumers like us around the world. Pipeline technology is safe, reliable and constantly improving. Moreover, Northern Gateway alone, according to a former chairman of the National Energy Board writing for my institute, would increase Canada’s GDP by $270 billion over 30 years and create over half a million person-years of work.

    Pipelines are clearly to 21st century Canada what railways were to the 19th. Done to the highest standards, the economic benefits vastly outweigh the tiny and completely manageable environmental risks they represent.

    Yet pipelines, although ubiquitous, are little understood and once built, mostly invisible; they can therefore be demonized with relative ease. Their linear nature, snaking across vast distances and therefore crossing many different environments, landscapes, land uses and owners, can easily create a bewildering array of opponents. Some are genuinely concerned about environmental effects, some are looking for a big payday.

    Increasingly, aboriginal people, holders of a vast array of ill-defined rights and claims, are awakening to the power they hold over natural resource development and asking how they can use that power both to protect their environment and bring prosperity to their communities. The regulatory system for approving these projects is groaning under the burden of hearing all of these interests repeat their views at every stage, with opponents’ participation often subsidized by the taxpayer.

    To cure our pipeline madness and clear the regulatory bottleneck, Ottawa should make several vital changes, possibly even in the forthcoming budget. First, it should put in place rules about what should be considered evidence in approval hearings and how it could be heard and adjudicated.

    For efficiency’s sake, the government should also require that objectors having similar viewpoints be grouped together, rather than letting pipeline opponents grind down the public hearing processes by sheer force of numbers rather than by the quality of their evidence and argument.

    Finally the government should be empowered to make findings that proposed projects are in the national interest, and then invite the NEB to undertake hearings on how best to build those projects.

    Taken together, such reforms would give a more constructive focus to the NEB’s work while better balancing opponents’ right to be heard with the country’s right to reach informed decisions in a reasonable time. It might not cure our pipeline madness, but it would certainly make the symptoms more manageable.

    Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think-tank in Ottawa: www.macdonaldlaurier.ca.

    © Copyright (c) The Ottawa Citizen
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  • Ottawa Citizen: Why Canada needn’t fear the EU’s oilsands politics February 25, 2012

    In today’s Ottawa Citizen, I discuss why we shouldn’t care about how the EU will treat oil from Canada’s oilsands. The full column below:

     

    Why Canada needn’t fear the EU’s oilsands politics

    By Brian Lee Crowley, Ottawa Citizen, February 25, 2012

    As the parliament of the European Union was getting ready to vote earlier  this week on how the EU would treat oil from Canada’s oilsands, many Canadians  were on tenterhooks. Would Europe blacken Canada’s eye by adopting the Fuel  Quality Directive, declaring our oil to be “highly polluting”?

    But with all due respect to the Canadians lobbying hard in Brussels, the real  question is why we should care about yet another example of Europe’s penchant  for hypocritical moral panics of the green variety.

    In the event a typically European non-decision was taken: the directive was  neither adopted nor defeated, but passed along to another body made up of  ministers from national governments in Europe. So the matter is unresolved and  more such votes will be held, whether in the EU or the U.S.

    But Canadian hand-wringing about this sort of targeting of our oilsands  production can only be based on ignorance of how world oil markets work.

    Many, for example, seem to believe that a vote by European governments or,  worse still, U.S. states, to stigmatize our oil will damage our ability to sell  it. There is virtually no evidence to support this view.

    My skepticism is not even based on the fact that the EU doesn’t actually buy  any crude or refined products from the oilsands (although that lack of skin in  the game does have a certain comic relief value). Americans do buy from the  oilsands. And yet even if Americans decided they didn’t want the oilsands, it  still wouldn’t matter all that much.

    Oil is a globally traded commodity. A decision by Europe not to buy Canadian  oil is not a decision to consume less oil, but merely not to buy that oil from  Canada. Thus their decision leaves unchanged the total amount of oil consumed in  the world. They have to buy from somebody; it just won’t be Canada.

    The corollary of this is that if we assume that the supply and demand of oil  in the world is in reasonably good balance (which over time it is), a country  now consuming Canadian oil that wants to buy elsewhere must buy oil now being  consumed by someone else. That someone else will therefore be out in the market  looking for oil. And Canada will have excess supply because one of its customers  just took the exit. More: according to the International Energy Agency, world  demand is slated to rise for the foreseeable future, meaning new customers every  day.

    There is huge diversity of both sellers and buyers in global oil markets.  Moreover, even very large suppliers actually produce remarkably small shares of  oil supplies; when the Iran-Iraq War took a major share of both countries’  considerable production off the market, the loss was less than six per cent of  world supply.

    Attempts to isolate suppliers, through economic sanctions, for example, are  notoriously ineffective unless accompanied by physical coercion. And no one is  suggesting that Canada will be subject to a worldwide embargo; if Europe or  America don’t want our oil, there are lots of other countries that will be glad  to buy it at the prevailing world price, including China, Japan, India and more.  As long as the infrastructure exists to bring that oil to market, it can and  will be sold.

    Apparently some Canadian authorities are also worried that European oil  companies, such as Shell, Total and Statoil, might be prevented from investing  in the oilsands. Because of their expertise and integrated worldwide operations,  this would indeed be a pity and a loss to Canada.

    Would they be replaced with other knowledgeable investors keen to produce oil  in a politically stable country with no corruption, competitive taxes, the rule  of law and reasonably sensible courts? Absolutely. Every major oil company has a  huge interest in diversifying its production, in large part to mitigate  political risks such as tax grabs and uncompensated nationalizations.

    Canada’s strengths far outweigh the piffling risk of a few markets being  closed to its oil for obtuse political reasons.

    And just how credible is it that Americans, in particular, will not want our  oil? Every source of oil in the world comes with a unique mix of environmental,  economic and strategic costs and benefits attached. For Americans, Canadian oil  comes from a reliable ally and trading partner with similar values and who will  not spend the money on radical Islam, terrorism-promoting madrassas,  Israel-bashing or human rights abuses. The environmental record of the oilsands  is entirely defensible and constantly improving. The geo-strategic benefits  alone are huge. Despite shortterm wobbles, America will buy our oil.

    Sure, we must combat disinformation about the oilsands. But we must keep our  nerve and not give comfort to self-styled green campaigners by panicking in the  face of their tendentious attacks. In this game Canada has been dealt by far the  strongest hand.

    Brian Lee Crowley is the managing director of the Macdonald-Laurier  Institute, an independent non-partisan public policy think tank in Ottawa:  macdonaldlaurier.ca.

     

    © Copyright (c) The Ottawa Citizen

     

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  • Ottawa Citizen: Subsidizing poorly performing parts of Canada can’t substitute for policy choices that foster prosperity February 11, 2012

    February 11, 2012 – In my latest column for the Ottawa Citizen, I discuss how subsidizing poorly performing parts of Canada is in truth a policy of refusing to make people face the consequences of the poor policy choices they have made over the years. And until we change that, both Canadians and newcomers will continue to head west, and the east’s weight within Confederation will diminish with every passing day, no matter how much we spend on equalization and other transfers.

     

    Canadians vote with their feet

    By Brian Lee Crowley, Ottawa Citizen, February 11, 2012

    No man is an island. What is true of individuals is doubly true of societies. When even in authoritarian societies such as Iran and China, YouTube videos from Tunisia, Britain or Argentina can be viewed the instant they are posted, even the humble and the oppressed know what life is like elsewhere.

    This effortless knowledge of conditions in places half a world away is liberating for the individual, but deeply threatening to societies that people are free to leave. As long as people can “vote with their feet” by moving, underperforming societies, ones with poor standards of living, endemic violence or rampant corruption, cannot easily hold onto their people, especially their most valuable ones.

    People move to make themselves better off and to offer a brighter future to their children. Thus is the world a giant social science experiment, in which competing social and political systems vie for the loyalty of their populations.

    And while it may be fashionable to say that no society is better than another, where people are free to move, they make value judgments every day about the superiority and inferiority of societies and their institutions.

    Those that promote human welfare and dignity, that enjoy the rule of law, legal equality, protect property and promote enterprise thrive compared to those where the powerful may exploit the weak without let or hindrance.

    In this competition, Canada is a winner. We bring together in one place almost all the practices, beliefs and institutions that allow people to build a better life for themselves. The immigrants jostling at our door are voting for the superiority of Canada compared to their home countries.

    It is not only countries that are in competition for people, however. Within Canada we are also running such a gigantic social science experiment.

    The latest report from the front line in our domestic battle for that most precious resource – people – is to be found in the recent StatsCan report on Canada’s population. That snapshot tells us that societies west of the Ottawa River are proving more attractive than those to the east.

    That is an unpopular way to describe it, again because it is unfashionable to say that one kind of society is better than another. But when large numbers of people are given a free choice of where to live, and over long periods of time they predominantly choose one place over another, we ought to pay attention.

    Now, for the first time in Canadian history, more people live in the four westernmost provinces of Canada than in the five easternmost. Quebec, which for years was nipping at Ontario’s heels, has been lapped several times; Ontario’s population lead is now about five million people. B.C., with a population of 4.5 million, attracts as many immigrants as Quebec, with a population of eight million.

    Quebec and the Atlantic provinces are not shrinking, but the growth in population to the west far outstrips that to the east. And those populations to the east tend to be older, to work less, to retire earlier, to pay higher taxes, to be more dependent on welfare and EI, to have more civil servants and less private sector activity. The growth rate differential is thus becoming entrenched in favour of places that favour growth and enterprise over big government.

    These facts make many uncomfortable. In typical Canadian fashion the call goes up to compensate poor performers. A classic case was found in a recent oped in the National Post arguing that provinces with higher proportions of old people ought to get higher transfers from Ottawa because seniors consume lots of health care.

    But no one asks why some societies in Canada age more quickly than others (a half-century ago Quebec had one of the youngest populations in Canada), and even less do they inquire whether poor choices by these societies might in fact be at the root of these massive and growing differences in population.

    The fact that some provinces won the natural resource lottery is about as far as most people want to go in understanding the different provincial growth rates, and who could deny that natural resource wealth matters?

    And yet the truth is it is a cop out. The wealthiest societies in the world have no natural resources to speak of (Holland, Taiwan, Israel, Hong Kong, Switzerland come to mind), whereas Nigeria and Mexico and Venezuela have oil galore and dispirited, dysfunctional societies. The world is full of Asian Tiger and post-Communist successes that prove that poverty and decline are not irreversible states. They are almost invariably the bitter fruit of bad policy.

    Subsidizing poorly performing parts of Canada is in truth a policy of refusing to make people face the consequences of the poor policy choices they have made over the years. And until we change that, both Canadians and newcomers will continue to head west, and the east’s weight within Confederation will diminish with every passing day, no matter how much we spend on equalization and other transfers.

    Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: macdonaldlaurier. ca. He is the author of Fearful Symmetry: The Fall and Rise of Canada’s Founding Values.

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  • Ottawa Citizen: Why we don’t just refine the bitumen in Canada January 29, 2012

    In my latest column for the Ottawa Citizen, I discuss why we don’t process the oilsands here at home. Read my full column below:

     

    Why we don’t just refine the bitumen in Canada

    By Brian Lee Crowley, Ottawa Citizen, January 28, 2012

    All across the political spectrum the cry is heard: process the oilsands here at home.

    Bank executives, trade unionists, editorialists and others want us to do all  the work here.

    Who could be against adding value to our resources before we export them?  Where it makes sense and makes the greatest contribution to Canada’s prosperity  we should all be in favour. But the simple calculus of more processing equalling  more jobs and prosperity in Canada is not at all obvious when you dig into  it.

    Canada is a tiny market with a world-scale source of petroleum in a corner of  North America that is far removed from the bulk of oil product consumers and is  facing critical shortages of workers. All of these factors matter in thinking  about how the get the best value out of our petroleum resources.

    A bit of background: we don’t get oil out of the oilsands. We extract a tarry  substance called bitumen.

    That bitumen has to be “upgraded” (i.e. the undesirable bits stripped out) to  make “synthetic” crude. A second step (refining) is then required to transform  the oil into gasoline, diesel, jet fuel and so forth.

    Unlike “conventional” crude, then, refining oilsands output is an expensive  two-step process.

    Moreover not all refineries can handle the upgrading. Oils vary a lot in  their intrinsic qualities (such as sulphur content, for example), and refineries  are designed for the kind of oil they will refine.

    One whose feedstock will be light sweet crude from Saudi Arabia will be quite  different from one built to process tarry crudes from Venezuela or the oilsands  and cannot switch from one to the other without expensive refits.

    In North America as a result of things like increased fuel efficiency,  alternative fuels, changing consumer behaviour, etc., the demand for fuel has  actually levelled off, even as the economy has grown. As a result, North America  now has excess upgrading and refining capacity, particularly on the U.S. Gulf  coast, a capacity designed to process bitumen-like products from Venezuela and  Mexico, from whom the U.S. is buying less and less. So the capacity to process  Canada’s bitumen is already available at no new capital cost, other than the  pipeline to take it there.

    Now look at Alberta. Far from complacently exporting bitumen, the industry  has been furiously building upgrading capacity. Its ability to produce bitumen,  however, is pulling ahead of its ability to upgrade it. Alberta’s economy is  already red-hot and short something like 150,000 workers today. To meet  Alberta’s ambitious target of upgrading two thirds of the bitumen it produces by  2020 will require the construction of four new upgraders at $10-billion apiece  and require 60,000 person years of labour. That’s in addition to the work to  expand bitumen production.

    To require all bitumen to be upgraded in Alberta would mean lowering Canada’s  standard of living, as we ratcheted back oilsands production to match our  upgrading capacity at a time when the world is hungry for our output and willing  to pay well for it. And that’s just for the upgrading phase, which only gives  you refinable crude.

    A new refinery (as opposed to an upgrader) hasn’t been built in Canada in  decades. In fact the number of refineries has been steadily declining throughout  Canada and the U.S., as uncompetitive facilities get phased out. Four major  North American refineries have closed in the last year. The environmental and  regulatory roadblocks to building a brand new refinery on a new site are such  that the industry believes no such new refining capacity will ever be built in  Canada.

    Existing refineries also have to compete with new refineries being built  elsewhere. In Jamnagar, India, 150,000 workers are today labouring on a  $6-billion refinery that will be world’s largest. They have a supply of workers  and a regulatory environment we cannot duplicate. North America is the target  market for 40 per cent of this refinery’s production.

    Because of our higher construction and other costs, it would likely cost $7  billion to $8 billion to build a new refinery in Canada if you could get  approval to do so. But why would the industry invest billions to build  uncompetitive new capacity that isn’t needed and likely wouldn’t be profitable?  We could upgrade and refine some of our production facilities in the east (at  the Irving refinery in Saint John, for example), but they are already well  supplied by world oil markets, whereas getting large quantities of Alberta crude  to them would be costly for little benefit.

    Forcing investments of billions of dollars in unproductive capacity and  delaying oilsands development won’t improve Canada’s standard of living, but the  reverse. Our current policy of expanding oilsands production while continuing to  build upgrading capacity and using lowcost spare upgrading and refining capacity  wherever it is available gets the best value out of the resource for  Canadians.

    Brian Lee Crowley is the managing director of the Macdonald-Laurier  Institute, an independent non-partisan public policy think tank in Ottawa:  macdonaldlaurier.ca.

    © Copyright (c) The Ottawa Citizen
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  • Ottawa Citizen: The real pipeline debate January 14, 2012

    By Brian Lee Crowley, Ottawa Citizen, January 14, 2012

    The start of hearings about the proposed Northern Gateway pipeline to take Alberta oil to the west coast has been notable mostly for the venomous invective hurled about by the interested parties. Yet beneath the exaggerated charge and counter charge the hawk-eyed can discern the very earliest stages of a national debate that will preoccupy us for the next decade or two.

    Like it or not, Canada’s economic strength has always been closely tied to natural resources. We are abundantly blessed with them, we have great expertise in extracting and processing them, we have one of the world’s great markets for financing them, and we have spent liberally on pipelines and railways and ports to take them to market.

    In return natural resources have generally been kind to us. Growing global demand has driven up the price we get for them while the cost of many imports, such as manufactured goods, has remained stable or fallen. This improvement in what the economists call the terms of trade is a major cause of Canada leading the G7 in terms of income growth in recent years.

    The phenomenal economic development of countries like China and India, with their insatiable appetite for our resources, has broadened markets for what we produce. That doesn’t eliminate the risk of falls in resource prices, but it makes extended declines less likely for the foreseeable future.

    Yet at exactly the moment when resource investment and development, particularly in the west and the north, seem poised to take Canada to unheard of levels of prosperity, we are discovering the weakness of the institutions we have created to manage such growth in the public interest.

    Take the tribunal holding hearings on the Northern Gateway. It is premised on the idea that Canadians favour the development of their resources, but want that development to proceed in accordance with high standards of safety, environmental protection and social responsibility. Technical experts, paid for by the state, subject things like pipeline proposals to searching analysis and criticism, ensuring that they meet our standards before proceeding. In their analysis they are aided by a mandatory public hearing process that is intended to assemble and then critically evaluate, by written and oral cross-examination, factual evidence put forward by proponents and opponents.

    Increasingly, however, a vocal minority sees these regulatory proceedings, not as opportunities to ensure fact-based decision-taking as we develop our resources, but as a place to argue that such development ought not to be allowed at all.

    But that is a political and a moral argument that such agencies are not equipped to deal with. There is a world of difference between the assumption that projects that meet Canada’s technical, environmental and social standards are in the public interest and should proceed, and the assumption that development is somehow in principle undesirable and ought not to be allowed.

    In the first case disagreements about whether projects meet our standards can usually be resolved by science and reason. In the second case we have disagreements over values and beliefs, such as whether a pristine environment ought to trump economic growth and job creation.

    It is not that such disagreements cannot be grappled with in a democratic society. Rather it is that regulatory tribunals are not the place to do so. Conflicts over beliefs and values are properly resolved—indeed can only be resolved—in the political arena. We have to separate the question of whether we want natural resource development from the one about whether specific projects are up to standard.

    The stakes are enormous. Under the current dispensation, thousands of people, some of them apparently inhabiting different continents, can sign up to participate in the Northern Gateway hearings causing enormous delay while manifestly not contributing to the tribunal’s goal of ensuring a reasoned consideration of the project’s merits.

    Such delays themselves are hugely costly to project proponents but are essentially costless to opponents. Capital that could be used putting Canadians to work and developing our resources can be driven out by regulatory uncertainty and long approval delays just as surely as by outright rejection of a project.

    With oil sands production in Alberta set to exceed pipeline capacity within a few short years, blocking new pipeline construction would have the effect of stranding new production and the forgoing of billions of dollars of investment and thousands of new jobs across Canada. Allowing such hijacking of the regulatory process allows a vociferous minority to achieve indirectly what they could not win through legitimate democratic debate: the power to block natural resource development.

    The “right to be heard” is an important one, but it has to be made compatible with the right of Canadians to see their resources developed thoughtfully and responsibly. Achieving that balance has just rocketed to the top of the national agenda.

    Brian Lee Crowley is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.

    © Copyright (c) The Ottawa Citizen

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  • Financial Post: NAFTA is really about running a single integrated economy December 14, 2011

    December 14, 2011 – In today’s Financial Post, I discuss how North America is a deeply integrated, cross-border economy whose most important feature is not free trade in finished goods. It is our ability to make things together and then sell them to each other and the rest of the world. An excerpt below:

    On Dec. 7, Stephen Harper and Barack Obama announced their “Beyond the Border” initiative to respond to exactly these practical realities at the border. The intentions are good, but the language is vague and tentative and a U.S. election year is not a propitious moment to advance the idea of more economic openness. But at least the Americans are now committed to an agreement in principle that points in the right direction. It is now our responsibility to make sure we move from pretty words to a workable border regime. Our continental competitiveness and prosperity depend on it.

    The op-ed is based on my November 15th Commentary published by the Macdonald-Laurier Institute. The full op-ed is copied below.

     

    It isn’t about trade

    NAFTA really about running a single integrated economy

    By Brian Lee Crowley, Financial Post, December 14, 2011

    What is NAFTA really about?

    That might seem a silly question. NAFTA is about trade, right? It is the North American Free Trade Agreement after all.

    But what if it is not really mainly about trade at all? Thinking chiefly in terms of trade might actually obscure the real point.

    Unfortunately when many people think about trade, they think of it in old-fashioned terms. Each country has its own self-contained economy. And in each economy, that country’s workers make goods and services. Those finished products are then sold to other countries, which make different goods and services in their own little self-contained economy. Japan makes cars. France makes wine. They trade wine for cars.

    That is emphatically not what happens for the most part in North America.  What we have is not three countries and three economies trading finished products with each other. We have a single economy shared by two countries, Canada and the United States (and increasingly a third, Mexico). We have a single economy awkwardly cross-cut by inefficient and obstructive national borders.

    The implication of this one-economy-but-three-countries view is that NAFTA is not (despite its name) chiefly about trading finished goods between separate national economies. It is about managing a highly integrated continental economy in which Canadians and Americans work together to make things. NAFTA should really be called the North American Integrated Production Agreement (NAIPA).

    Canadians and Americans do not trade with each other as the French and the Japanese do. We make things together and then sell them to each other and the rest of the world. That is why, for example, about two-fifths of the vast “trade” between our two countries takes place within individual companies. They move goods from one plant to another at different stages of production, and those plants are spread about in both Canada and the United States.

    Let me make this eminently practical. I have in my hand a drawing of a rear wheel assembly used in North American auto production. In this drawing every part contained in the assembly has been flagged to show the country in which it was produced. Roughly half the parts were made in Canada, the other half in the United States.

    Take one look at that drawing (which is quite typical — it could have been made of any other assembly that goes into cars made in North America) and you realize there is no American or Canadian auto industry. There is a North American auto industry. And dig into each one of those individual parts, and you will find chemicals, metals, castings, coatings and other products from plants in jurisdictions throughout the continent. It is not just the auto industry but the entire continental production process that is increasingly integrated.

    The business community got this long ago. NAFTA did not create economic integration in North America. The business community did that over many decades, in response to strategic and economic imperatives. NAFTA was a crude and belated effort to create a legal and institutional framework for an economic relationship that had outgrown national institutions.

    If you want to see what North America looks like from the point of view of business, have a look at a map of the continent depicting, say, oil production, pipelines, the rail network or truck traffic. In each case I defy you to spot the border in the business decisions that have shaped these maps. The economic energy of North America surges in all directions, and is increasingly unconstrained by considerations of political jurisdiction—unless, of course, jurisdictions forcefully intrude, as in the case of, say, the Keystone XL pipeline or “Buy America.”

    There’s the rub. Politicians respond only to national voters, and so live in a closed political system. Alas, that closed polity is superimposed on an open economy. Government policies that result cannot truly encompass the interests of North Americans, but only of Americans and Canadians separately. Hence we get border thickening in the post-9/11 world and post-recession protectionism in the United States. Canadians’ vulnerability is that we live in another country, but not another economy.

    National policy mismatches inevitably show up at the border. An inefficient border is an annoyance in a trading bloc. But in a production bloc, it is disastrous.

    To understand why, think again about the rear-wheel assembly. It required that parts be brought across the border in different directions and at different stages of production. The car industry says a North American car crosses the border five or six times in the course of its production — likely an underestimate. A thick border causes our integrated production process to stumble every time the border must be crossed. We lose time and efficiency.

    By contrast, a foreign car exported to North America enters our territory only once. Since the car is already made, our border controls don’t disrupt production. Our own production crosses the border innumerable times. Every inefficient or obstructive contact there is in effect a tax that our international competitors do not pay.

    North Americans are in this together, building a relationship that is virtually without precedent for its breadth and depth. In thinking about what comes “after NAFTA” we must be capable of the effort of imagination to create institutions that can overcome the political divisions that scar our economic efforts while preserving our national sovereignty.

    On Dec. 7, Stephen Harper and Barack Obama announced their “Beyond the Border” initiative to respond to exactly these practical realities at the border. The intentions are good, but the language is vague and tentative and a U.S. election year is not a propitious moment to advance the idea of more economic openness. But at least the Americans are now committed to an agreement in principle that points in the right direction. It is now our responsibility to make sure we move from pretty words to a workable border regime. Our continental competitiveness and prosperity depend on it.

    Financial Post
    Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an Ottawa-based think-tank.

     

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