Just What is a Corporation: How Hobby Lobby may have Pierced the Corporate Veil

Corporations are people, my friend.

A few weeks back the Supreme Court dealt a largely symbolic blow to President Obama's signature healthcare reform bill by ruling that Hobby Lobby, as a legal person under the law, would have rights granted by the Religious Freedoms Restorations Act (RFRA) infringed by the Affordable Care Act's contraceptive mandate, which stipulated that employers must also cover the cost of contraception for their employees.  While it was definitely a setback for those who are pushing for healthcare reform, the bigger story that came out of the landmark ruling was the many questions it raised.  Between this and Citizens United, corporations increasingly seem like vehicles for those who control them to disregard laws that restrict their ability to unduly influence others.  

Firstly let us examine the "Corporate Veil", which was designed to shield shareholders of a company from personal liability (Hence the "Limited." suffix attached to the name of every corporation).  The foundation of this legal protection is the emphasis of a corporation as a seperate legal entity, independent of its shareholders.  Justice Samuel Alito, in writing the majority opinion, claimed that "allowing Hobby Lobby, Conestoga, and Mardel to assert RFRA claims protects the religious liberty of the Greens and the Hahns."  And yet just how is it that laws applicable solely to their corporate holdings also seemingly affect the Greens and Hahns?  When Hobby Lobby and other so called "religious corporations" were incorporated, their owners did so voluntarily, acknowledging that in exchange for shielding both themselves and their wealth from the company's liabilities, they were relinquishing absolute control over the company (Think Apple firing Steve Jobs), which would then become a legal entity of its own, independent of them.  Since then, David Green, CEO and founder of Hobby Lobby, has amassed a fortune (estimated at $4.5 billion by Forbes) in no small part thanks to the protections that the corporate veil has afforded him, including various tax benefits. David Green willfully and knowingly incorporated his picture frame business, and as a result has reaped the benefits of doing so.  With Hobby Lobby's Supreme Court case he now sought to ignore the legal seperateness of him and Hobby Lobby, for it was now personally convenient for him to do so.

"We're Christians, and we run our business on Christian principles."  That is how David Green describes Hobby Lobby's business model.  Setting aside the veracity of those claims, it's important to note that following "Christian principles" would be impossible in situations where it clashes with law because companies do not have religious freedoms.  The Supreme Court implied this by choosing not to rule on religious protections afforded companies under the First Amendment.  The court however also argued the RFRA stipulated that a person had to comply with a government law that violated their religious beliefs only if it was restrictive in the least possible way (held up under Strict Scrutiny) and that Hobby Lobby, as a person under the law, was protected under this law.  This becomes problematic when one attempts to determine where a corporation's religious beliefs come from.  The Supreme Court seems to believe that companies whose controlling shareholders possess devout religious views determine the religious views, if any, of their company.  

There are many worrying questions that arise from this, not only what constitutes "sincerely held beliefs", for Hobby Lobby engages in a few decidedly "un-Christian" practices, but also is the Corporate Veil maintained even while the religious views of a company and its shareholders are now synonymous?  Can companies now just claim a religious exception to any laws they do not like?  This will no doubt be clarified in the coming year as pending cases in the lower courts are ruled upon, but New York Times editor Dorothy J. Samuels captured the issue perfectly when she wrote "If owners indicate that they are not entirely separate from their corporation-by denying corporation employees' birth control coverage based on their personal religious beliefs-the case could be made in future state-court litigation that they have waived their right to be shielded from responsibility for corporate financial liabilities."  

Over the years the culpability of shareholders for the misdeeds of the corporations they helm has slowly increased, and may this be the final blow?  On the flipside, the current slate of Supreme Court Justices seem determined to hand corporations rights and protections normally only granted to humans without giving much consideration to how the sheer scale of the average corporation gives it a natural advantage in exercising those rights compared to the average American, and the subsequent impact that has.  A single person excercising their religious objection to contraception by refusing to shop at stores who sell it does not have the same outsized impact that a corporation denying its employees access to contraception has.  The recent SCOTUS decisions granting corporations various rights has eroded the seperation between a company and its owners, turning them into little more than vehicles which they can then utilize to influence national discourse.  This is a dangerous precedent and must be addressed quickly, lest the United States continue its trajectory towards what is increasingly looking like a corrupt kleptocracy where those who dictate policy are those who benefit from it the most.  

Russia Is In a Perceptible Decline: Why Crimea Changes Nothing

"Cri-me-a-river."

In my last post I talked about Russian foreign policy (an admittedly mysterious subject) in light of Crimea, and the threat that Russia now posed to other eastern and central European states.  Russia without question is a powerful player in global politics, but do not make the mistake of equating that with a bright outlook for the country at home. 

Putin's approval ratings have hovered north of 80% in the wake of Russia's annexation of Crimea, and has galvanized support for a more strong and assertive foreign policy.  Many analysts have remarked on how Putin has managed to grab the West by the balls, embarrassing the Obama administration by blatantly disregarding them on every issue from Syria to Iran.  Further, Europe's dependence on Russia for gas has crippled any possible sanctions regime for the short term at the very least.  In fact, "Russification"of the Crimean peninsula went ahead with much fanfare earlier this week, drawing a rather tepid response from the international community.

It's easy to imagine that there's a pretty euphoric atmosphere in the Kremlin right about now, and that probably is the case considering that they managed to pull of the annexation of a sovereign territory in the 21st Century without triggering a military response.  But it should not be, for the whole drama over the Crimea has only served to distract Kremlin functionaries from the grim realities that Russia faces from the near to long term.

The median age is buoyed by the 20-35 demographic

Ever since the collapse of the Soviet Union, demographics have not been Russia's friend.  Its population peaked in 1991, and for the next decade saw rapid population decline as emigration, poor healthcare and violence in periphery regions took their toll.  Since then Russia's population has stabilized, and recently even experienced a net increase.  Even so, in coming years Russia will grapple with the same issues that Western countries will face in coming years, exacerbated by large scale emigration as well as poor healthcare and elevated poverty levels compared to the West.  While birth rates have recovered somewhat over the past decade, the median age in the country is 39.4, compared to 29.9 in Kazakhstan.  Already possessing an aging population this is set to worsen due to emigration, especially amongst young people in the country.  Economic collapse in the 1990s saw emigration surge, especially to western European countries  such as Germany and the UK, as well as other countries such as Israel.  A rapid increase in the average Russian income slowed the pace of emigration, and immigration from former Soviet states for the most part offset it.  The numbers are deceiving however.  In a poll conducted last year, nearly half of Russian students indicated a desire to leave the country, citing lack of economic opportunity and disillusionment with the political establishment.  Comparatively, the overwhelming majority of migrants that come from the former Soviet bloc are labourers who lack the academic background of the highly coveted migrants who are currently leaving Russia in droves.

Increasingly iced out, young Russians are looking abroad

 The emigration of the intellectual elite is nothing new to the country, with many prominent Russian liberals such as Sergei Guriyev and Garry Kasparov living in self imposed exile abroad.  What's different this time around are the numbers, having dramatically increased in recent years.  In fact, 2013 saw a 76% increase in political asylum requests compared to 2012, a meteoric rise that should it prove to be more than a statistical anomaly, could have dire consequences for the Russian economy.  The effects of the impending demographic "crash" that many countries have been well documented by academia.  Countries such as Canada, the U.S and large swathes of Europe as well as Japan all grapple with the issue of caring for an increasingly old population while drawing from a constantly shrinking tax base.  Russia, along with Japan is one of the few countries in the world that will most likely face a simultaneously shrinking and aging population, something that countries such as Canada have successfully countered by encouraging students, businessmen and young professionals from around the world (but predominantly Asia) to immigrate.

The economy is controlled by Oligarchs 

Now while the population might marginally decline, but is that the only trend with long term implications for Russia and this supposed decline?  On the surface, Russia's economy actually looks pretty solid.  Unemployment hovers around 5%, foreign debt is relatively low and the recession for the most part left Russia unscathed.  In fact, some might be surprised to know that the United States has a greater percentage of their population living under the poverty line (14.8%) compared to Russia (11.2%).  But this is somewhat of a Potemkin Village, for the Russian economy's structure is fundamentally different from the capitalistic liberal democracies of the west.  When the Soviet Union collapsed, the cash-strapped Russian state  instituted a controversial "Loan for Shares" program that ended up transferring control of SOEs (State Operated Enterprises) from the Russian government to shady nouveau-riche types, often with links to organized crime, who came out of seemingly nowhere to purchase heavily undervalued government assets at bargain basement prices.  Having paid marginal prices to acquire large swathes of Russian industry, this exclusive club of billionaires forged close ties with the Kremlin and through graft and corruption wrested control of the economy from the fledgling free market forces that were just gaining traction in the country.  As a result, Russia is now home to the greatest number of billionaires in the world.   While much noise has been made in the media about the close links between these robber barons and many top politicians, they're not exactly the patriotic type.

Capital flight has plagued the Russian state almost from its inception, with most wealthy Russians stashing their wealth abroad.  One only has to drive through London's most exclusive boroughs need to see the "Iceberg Homes" that many of Russia's ultra-wealthy have erected.  The Crimean invasion caused a spike in capital flight abroad, from $8 billion a month to roughly $70 billion during the first three months of the year.  As a result, the Russian economy is especially sensitive to shifts in the global economy geopolitical shocks, and why the continued decline of the ruble has many economists worried, despite the obvious boon it would be for Russia's large export based economy.  The large scale investments that Putin has unveiled to modernize the military, improve infrastructure and revitalize the economy are already taxing the Kremlin treasury, and a chronic decline in the value of the ruble does not bode well for a Russian economy that remains under the threat of sanctions.

What's important to consider is that Russia can be cursorily described as a hybrid petro-state and nuclear power, relying on revenues from oil exports to pay for the large (and often corruption riddled) "megaprojects" that have become a hallmark of Russian economic policy in recent years.  It is the largest exporter of oil in the world, and possesses its largest proven natural gas deposits.  While the financial and industrial sectors have sputtered, resource extraction has taken off, providing enough hard currency that allows Russia to maintain an exceptionally low debt as a percentage of the GDP, especially when compared to the U.K (88.7%).  Exporting upwards of 10 million barrels a day, mostly to the rest of Europe, also means that Putin could bring his rivals to the west to their knees with a turn of the spigot, and as a result has been granted an unusual degree of latitude in his geopolitical maneuverings.  But the leverage over his enemies that Putin enjoys may not last.  Many experts predict that an increase in overall production coupled with slowing growth in demand and lower extraction costs will lead to a long term decrease in the cost of oil.  Iraq has added 1 million barrels of production since 2007 and that number is expected to increase.  In response to the Crimean crisis, the United Kingdom had organized meetings seeking to wean Europe off of Russian oil and natural gas. Compounding this, between 1995 and 2005, spending on renewable energy sources (excluding large scale hydro) grew from $10 billion to $30 billion, and that number is only expected to increase as countries increasingly seek clean and sustainable alternatives to pricey fossil fuels.  Some economists disagree that this will put a damper on oil prices however, arguing that in response to lower prices some producers will cut back on production and shelve expansion plans, repeating the cycle of increased prices due to high demand versus low supply.  What they fail to consider is that over the last decade or so the energy landscape has changed dramatically, with some of the biggest energy companies in the world now SOEs such as Sinopec and Indian Oil, whose primary goals are not profit but rather securing long term energy sources for their countries' burgeoning and energy hungry populations.  Such companies would hardly cut production in the face of reduced prices, and in fact might be inclined to ramp it up.  Russia's ability to balance its budget is contingent upon the price of oil remaining at $117.  Should oil prices drop, the Russian economy would be negatively affected, as production is cut and drilling shelved.  Further Ukraine and various other countries which are currently essentially hostage to Russia due to their energy dependence on it will have alternatives not too far away as pipelines from Middle Eastern oil fields through Turkey can deliver oil and gas via Odessa.  Hence, oil may not prove to be as reliable a tool in the future as it has been in the past, both economically and politically.

Dark clouds are gathering over Russia

Russia's dramatic shift in foreign policy has led many political pundits in the West to laud Putin for rebuilding Russia, his grand vision central in revitalizing a country that was viewed by many as a crumbling state, in the throes of chronic decay.  And they may be partially right, for he has energized the electorate and set about reversing the damage that general neglect has rendered upon various parts of the country.  But Putin has hardly addressed some of the biggest issues facing his country, such as the de facto oligarchy, dependence on resource extraction and capital flight.  In fact in some areas Putin has exacerbated problems, presiding over widespread corruption, increasing international isolation and the emigration of Russia's youngest, bright and best in near-unprecedented numbers.  The long term prognosis for Russia looks grim, and annexing Crimea has done little to change that.      

Zero Sum Game: Putin's Imperial Crusade

Russian troops in Crimea

Things have moved very fast in Crimea.  Following the results of a widely condemned referendum in the Crimea where results showed that over 97% of voters chose to secede from Ukraine and instead join the Russian Federation.  While the results were almost immediately disavowed by a large majority of the international community, claiming that the referendum was conducted under intimidation and suppression by both Russian troops and the Crimean (as well as those from other nations) militias loyal to them, that did little to stop Russia from recognizing it.  Since then, Russia has solidified its de facto control of the region, with Ukraine withdrawing its 25,000 troops from the peninsula in an implicit sign that Kyiv recognizes its rather limited ability to assert control over the breakaway region.  The very next day, Russia’s lower house voted in favour of formally annexing it.  With Crimea in the Russian camp for the long term at the very least, what implications does it have for the rest of the former Soviet sphere?

Putin’s obsession with empire building is well documented.  Reasserting control over the former Soviet sphere has been an increasingly prominent policy goal of the Kremlin over the past decade.  But any doubts that remained should have been dispelled by Putin’s March 18th address to Parliament.  Denouncing what he deemed a centuries-long conspiracy by Western powers to suppress Russia, Putin heralded the dawn of a new era of Russian dominance, which was later christened by the Duma the very next day, who voted in favour of annexing the Crimean peninsula.  With its new doctrine of intervention on behalf of ethnic Russians that worked so successfully in the Ukrainian crisis, where will Putin go next?  Many point to Transnistria, a heavily industrialized breakaway region of the ethnic hodgepodge that is Moldova.  In response to the Duma vote to annex Crimea, the Transnistrian Parliament in turn passed a motion  to join the Russian Federation.  Some speculate that Russia may turn to Estonia and Latvia, both countries with substantial Russian populations in hopes of bringing them into its orbit or at the very least carving out Russian exclaves within them.  Regardless of whatever move the Kremlin does make, it’s fairly certain they will not stop with the Crimea.  Despite drawing strong condemnation from the international community and potentially alienating UN ally China, the biggest provocation in recent memory drew little in the way of firm consequences for Russia, and damaging sanctions do not seem likely any time soon.  Europe is heavily reliant upon Russia for energy, and that will not change anytime soon especially as many European countries move away from nuclear energy.  Russian-American trade is so diminutive that sanctions would have a rather limited impact.

So how do the events of recent weeks affect Moscow’s geopolitical ambitions?  The Russian dominated antithesis to the EU, the Eurasian Union, is set to become reality on New Year’s Day next year, with membership currently consisting of Belarus, Russia and Kazakhstan, with Armenia, Kyrgyzstan and Tajikistan all potentially joining as well.  While Russia’s annexation of Crimea provides it with the framework to take over other so-called “frozen” conflict zones, it also runs the risk of alienating other former Soviet states who may have been eyeing the union with wary interest.  While some states such as Poland and Lithuania voiced their desire to remain outside of any sphere of Russian influence by forging closer ties to NATO and the EU, countries such as Moldova and Armenia that could be compelled to join may look elsewhere, as evidenced by the rather lukewarm statements they issued in response to the annexation vote.  Russia’s newfound aggression is not the spontaneous combustion of a cocktail of nationalistic fervour at home and instability abroad but rather the culmination of a decade’s worth of meticulous planning.  Putin orchestrated various factors to create “the perfect storm” that would enable him to push his foreign policy agenda of restoring Russian domination in the region.   Harnessing the influence that the Russian Orthodox Church wielded over the population  in order to stoke nationalistic sentiments, rebuilding the Russian military as an effective fighting machine with a global reach, and influencing the affairs of other states in the post-Soviet sphere were all elements which enabled what unfolded on the peninsula to happen.  Putin took a calculated risk by invading Crimea, as its capture was an easy sell to the international community due to its traditional history as part of Russia as well as a litmus test of western appetites for Russian provocations.  It could not have hoped for a better result, and now count on the consolidation of Russian interests in the region to accelerate.

The picture does look particularly bleak, but what should the west do?  Sanctions may not be as effective as they have been in Iran (until recently), but the U.S and its allies do have a unique asset in NATO.  While it has seen a decade of general neglect, the 28-member military alliance is maybe the one tool in the U.S’s arsenal that Putin does fear.  When Poland, Latvia and the Czech Republic joined in 1999, Russia was wary of what it perceived to be creeping western influence beginning to encroach upon its own sphere of influence.  The U.S has dispatched naval forces to the Black Sea and a few days ago along with France announced it was sending sending air assets to Poland.  John McCain has stated that he wanted to see military equipment sent to Ukraine, and with leaders of former eastern bloc states becoming increasingly nervous about Russian activities, such a move would be easily defensible.  In fact, it might be prudent as ten day old Russian military exercises have led to a military buildup that NATO’s top commander described as “very, very sizable and very, very ready."  While it is desirable to avoid a “hot war”, it should not be avoided at all costs, lest the dovish policies of blind appeasement that failed spectacularly in the 1930s make a return.  While the situations are in no way parallels, there are some disturbing similarities that offer insight into how a potential conflict could be avoided.  

While on paper NATO countries (excluding the U.S and Canada) spent $269.736 billion on military expenditures and account for a significant chunk of global military spending, this is set to change with cuts to the militaries of most members.  The United States accounts for 70% NATO spending, and with some European members cutting spending up to 40%, it isn’t exactly unusual to hear some of the more fiscally conservative members of Congress complaining about how their European allies have been shoving the burden of defending them increasingly on the United States.  In the meantime, Putin has gone ahead with a vast and sweeping modernization program for the military that is estimated to cost somewhere in the neighbourhood of $770 billion dollars and will oversee the expansion of the air force, navy, special forces and intelligence capabilities.  While there has been some criticism about the realisticness of such an ambitious plan, such as the effect of corruption that is almost synonymous with massive projects in Russia, it nevertheless demonstrates the sincerity of Putin’s pledge to pursue a more aggressive foreign policy.  Hearkening back to 80 years ago, one of the biggest draws of the upstart Nazi Party was its goal of restoring Germany to its former stature as a world power.  While illegal rearmament had begun from almost the moment that the Treaty of Versailles was signed, it was ramped up in the 30s under the direction of Hjalmar Schacht (notably never a member of the Nazi Party and later jailed at Dachau), the Reich Minister of Economics at the time.  Schacht successfully managed to create dummy companies that shielded rearmament efforts from prying Allied eyes.  From a force that was limited to a 100,000 ground army with no tanks, no air force and a navy of just 6 ships with no submarines, it was transformed in short order into a well oiled military machine that 20 years later would roll across Europe in a deadly “lightning war”, or Blitzkrieg.  

Now there are some stark differences in these situations (namely the Treaty of Versailles), but remaining oblivious to the military buildup occurring to the east is not a plausible or realistic plan of action for European countries seeking to avoid conflict.  While placing boots on the ground would be an obvious provocation and carries the risk of spilling over into armed conflict, NATO allies should begin by pledging to immediately provide Ukrainian forces with both arms and training in how to use them, as well as signing contracts for modern naval and air assets that could be paid for at a later date.  Although a UN mandate seems unlikely thanks to Russia’s status as a veto-wielding power in the Security Council, NATO forces should be deployed under its banner nonetheless with the sole purpose of securing the borders and maintaining the territorial integrity of countries who specifically have requested its assistance.  It may be met with protest from countries such as India who seem content to be willfully blind to the realities in the region, but ensuring that current tensions do not spill over into wider conflict demands that a principled stand against a Putin regime that has set its sights on nothing less than restoring the clout its old Soviet empire wielded be taken.  If Ukraine is further divided, it does not bode well for Eastern Europe at large. 

Bill S-7 & What it Means for the NDP

Earlier this week it was discovered that the RCMP had foiled a plot in which two individuals had planned to destroy a New York bound VIA train across the border.  In light of this revelation, the Harper government moved to introduce a bill in parliament that it was said would assist law enforcement officials unearth and disrupt such plots.  WIth nerves still raw following the Boston Marathon bombing and the ensuing manhunt, it’s no surprise this controversial piece of legislation was....controversial.  The Liberals, who had actually passed an earlier incarnation a decade earlier in response to the 9/11 attacks, wholeheartedly supported this Conservative bill.  This of course, led to the NDP landing the sole dissenting role.  While there are genuine concerns with Bill S-7, and very valid criticisms, there has also been very saddening politicking and partisanship on the NDP’s part, with some MPs making very dubious arguments, namely that Prime Minister John Diefenbaker would have “rolled in his grave” should he have known his own party was proposing such a law.  

While many point to the general deterioration in the NDP’s political capital, hastened by an ill-advised move to the centre, defections, and Thomas Mulcair’s generally abrasive attitude as reasons for a decline in its electoral fortunes, I’d say it’s just the petty, dumb, unhelpful and small-minded criticisms and comments that we’ve seen their MPs make in recent months. (Not to mention some pretty dumb policy wonks as well.)

In the last election, they won 103 seats, with 59 of those in Quebec.  Many heralded this “Orange Wave” as the beginning of an NDP resurgence that could down the road lead them to the PMO.  In reality, this shift to their party by Quebecers was generally fuelled by discontent with the Bloc, who had done a terrible job in Parliament pushing both a rather leftist agenda, and soft sovereignty.  First one must realize that what happened in Quebec was very similar to what nearly happened in the last Albertan elections, with the upstart and markedly more likeable Wildrose Party, a carbon copy of the ruling Conservatives minus the social conservatism, nearly capitalized on general discontent with the job the incumbents were doing.  The untested Wildrose did not really put anything too radical on the table, such as a comprehensive (and realistic) plan to diversify the economy.  Instead what happened was that they won seats and took on opposition status in legislature by doing what the NDP did; making themselves into a conduit by which the people could express dissatisfaction with the status quo.  When the people are satisfied, their electoral fortunes will fall.  When things aren’t going so great, it will rise.  The thing is, people who stumbled into the NDP fold looking for change in 2011 are increasingly shifting their support back to the Liberals, who emerged from a disastrous period in which they contemplated merging with the NDP.  With a young, charismatic leader, powerful political organizing machine and polls that say they are making headway across the country, Harper knows his greatest threat lies not with the Official Opposition, but with the party he decimated two year ago.  

But Stephen Harper doesn’t have much to worry about.  The Liberals’ upswing has generally been fuelled by NDP voters who are returning to the party they fled in droves.  The recent BOC economic outlook for the next two years was more optimistic than even Mr. Flaherty’s own prediction, and if they hold true, Canada is in a position to return to be back in the black by 2015, which is the current target, and an election year.  Jim Flaherty has said he is contemplating introducing income splitting should he eliminate the deficit on schedule.  Although this would cost roughly $1.5 billion, implementing something so politically popular going into an election would make it toxic for any party to try and repeal it.

The NDP rode a wave of discontent to (almost) the top.  And now that same wave will bring them back down to earth.  In an attempt to keep the voters they wooed in 2011, they dropped the most overtly socialist sections of their party manifesto, moving to the centre left, traditionally Liberal territory.  People who vote centre-left would much rather trust the party that’s been doing it for over a century, especially now that it’s found its mojo again.  Bloc voters, generally very leftist (explains the absence of a Conservative Party provincially and general scarcity of Conservative MPs from the province) and a significant chunk of the seats they lost in the last election should return.  Combined with a lack of anything that would compel the populace to vote NDP, there isn’t really anywhere for them to go except down.  FIPA notwithstanding, the Conservatives generally have pulled the right strings with regards to foreign policy, and when there is some unforced error that does come to light, the NDP sound like a bunch of whining teenagers, content to complain and just point blame instead of working towards a genuine solution, something that should be the hallmark of any opposition party.

The African Enigma: Aid (Part 1)

Africa is a perplexing case study for even the most seasoned economist.  Home to over a billion people, and tremendous growth in recent years (Ethiopia posted GDP growth upwards of 11% in 2012),the continent is also home to its fair share of troubles.  The birthplace of humanity is now it's laggard, subjected to centuries of harsh colonialism that has left the continent drenched in blood to this very day.  There is, however, change afoot.  Opportunities abundant, in this multiple-part series, we'll delve into just what Africa presents investors with.

Take a look at global GDP growth in 2012, and you may notice that the biggest movers were African. (Not always in the good way, South Sudan's infantile economy contracted a whopping 55%)  Libya's recovering economy, subjected to a damaging civil war in 2011, experienced 121.9% growth last year, and war-torn Sierra Leone posted a 21.3% increase in GDP.  Now just what do these numbers mean?

  Observing, and ultimately forecasting economic data about Africa is an exercise in economics, but one must also take into account various geo-political factors, history, and tribal allegiances that still play such an important role in day-to-day African life today.  It's mainly been a lack of understanding of this (as well as the lingering traumatic aftermath of colonial rule) that has caused Africa to remain "the final frontier" of economic development.  Why has African development over the last 60 years generally been sluggish at best?

From the establishment of JFK's Peace Corps in the early 60s, most Western attempts at development of Africa revolved around a smaller, grassroots humanitarian effort.  This is great when faced with sudden disasters, (man made or otherwise) such as wars, famine or floods, where immediate short term help is required.  The problem arises when either 1) this short term aid becomes extended into an annual event which donor countries end up budgeting for, or 2) the projects become so large/unsustainable that they turn into "white elephants", accomplishing nothing while just wasting everyone's money.  For a great example of this we turn to 1970s Tanzania.

In 1976, President Julius Nyerere, despite horrible stewardship of the economy (By the time he left office in 1985, Tanzania was one of the largest recipients of foreign aid in the world, and a substantial portion of it's budget was funded by foreign donor states), he made significant strides in healthcare and education, mostly by way of his pledges to make both accessible to every Tanzanian.  In a bid to help Nyerere out with his education plan, the World Bank thought they could kill two birds with one stone by building a pulp refinery that could create paper upon which textbooks could then be printed, in essence creating a new industry, and making the education reforms instituted by the government beneficial in the short term as well.  All fine and well on paper, but the reality was much different in that the suits back in Washington chose to overlook one key detail; The Tanzanians had no idea whatsoever about how to run such a plant.  The one thing that might have provided the greatest long term benefit, funding for training and education programs, was not even budgeted for in the project, for fear of the project being deemed too costly by executives across the Atlantic.  To make a long story short, the project blew up in their faces, and Tanzania was left paying the bills for this disastrous exercise in aid that for some reason it seems nobody (except maybe the Chinese) learnt from.

So just what needs to be done?  In Canada, when the CIDA, the Canadian government's aid agency, was rolled into the Foreign Affairs department, people were outraged, with German media conglomerate Deutsche Wells bemoaning the "top down control" the Harper government maintained on just about every aspect of Canadian domestic and foreign policy, and how it would negatively impact people desperately in need of aid.  Despite the perceived negative reaction by certain news outlets, this may have been the smartest thing done by a developed country when it comes to foreign development in decades.  By tying foreign aid to Canada's foreign affairs and trade department, it'll ensure that Canadian aid dollars are spent more effectively, where they can do the most good.   In announcing the move, the government touted aligning our aid and foreign development policy with trade and foreign policy goals would slash bureaucracy, reduce administrative costs and mean that the agency would now be better placed to provide long term development assistance to places that require it, more so than continued food aid, or large sums of cash that often end up unaccounted for.  Countries such as Myanmar, Afghanistan, Nigeria, Egypt and Indonesia are countries that require help, whether through expanded guest worker programs, loans, grants or training.  Coincidentally these countries that Canada has determined present potential trade partners, with explosive growth opportunities.  Some people say that this signals the onset of a new type of foreign aid policy, one where the government is motivated by profit.  To those people, I propose a question; Is there anything inherently wrong with making a profit, so long as it doesn't overtake administering aid as the primary goal?  Now of course these same people will clamour that commercial interests would surely do just that, but a legislative framework, something lacking before, is soon to be put in place, which should allay those fears.  

800 million people have been lifted out of poverty globally since 1990.  The amount of people without access to clean drinking water halved.  Great progress has been made in the fight to eradicate global poverty.  What is interesting to note about these statistics, however, is that very little, if any, of this can attributed to the billions of dollars poured into countries over the same period.  rather, trade liberalization, wider proliferation of development loans, and greater availability of productivity-enhancing technologies.  Government aid agencies must retool and refocus on ensuring that these enablers of progress are within reach of countries that need them.  It is only then when the world can once and for all end rampant poverty, and move toward a new era of shared, sustainable prosperity.

Lose the Countdown: Why the talk about the "Fiscal Cliff" is overblown

One only has to look at CNBC or CNN to see these apocalyptic "Countdown to the Fiscal Cliff" timelines that pretty much distort the picture.  What should have been a simple re-adjustment of fiscal goals in light of economic conditions has suddenly turned into a giant proverbial partisan volleyball game, with the President and Democratic Senate pitted against the Republican-filled house, lobbing the ball of public opinion into the others' corner.  Last night's dramatic finish saw the Senate passed an emergency set of laws to sort of delay the fiscal cliff and soften the landing should they go over. There wasn't much anyone could do except sit close to their T.V and pray that Speaker Boehner would cut the brinkmanship and actually work towards avoiding plunging the United States into what could be a long and protracted recession, and an extended period of slow growth that could put a cap on the economy for years.  But the vital thing to keep in mind here is that this whole circus is a MANUFACTURED crisis, and really is only a a question because of the partisan bickering of both houses in the wonderful Bicameral system the United States has been blessed with.  What should have been a simple fiscal decision to stagger spending cuts and lower taxes has been hijacked by ideology and a certain pledge named after the always charming Grover Norquist.    

To understand the Fiscal cliff one must roughly understand the economy.  A rough but easy way to look at it would be to visualize the economy as a bucket, with taps injecting water, or economic activity into the economy, and drains, leaking economic activity out of it.  The "injections" would basically include investments, exports, consumer spending and the golden ticket in our case, government spending.  On the flip side, there's savings, imports, and the other key word, taxes.  In biology they teach you about an ecosystem's "carrying capacity", or just how much a population it can hold.  Well the economy works in a similar way.  There's an equilibrium where economic growth is sustainable and that is where fiscal and monetary policy combined come together to strive for this equilibrium.  The "Fiscal Cliff"  has the potential to be a destabilizing force in the economy because now government injections in the economy because what it would've done was hiked taxes, "draining" more economic activity, and lowered government "injections" into the economy moving the economy below the desired equilibrium.  But in economics everything is related, and  this would have the effect of curtailing business investment as profits are squeezed which would spin-off into other business sectors that rely on corporate investment which would cause layoffs reducing consumer spending as purchasing power declines, etc.  As you can see, the ripple effect could have serious effect on the economy that Ben Bernanke and the Fed would be pretty much useless to try and stop, considering the huge balance sheet it's accumulated through previous stimulus measures.

So things seem pretty dire judging from the economics of it all, and as a result CNN wouldn't be too far off the money with that countdown to the cliff would they?  Nope.  Congress had the option, not to mention the time to deal with this all the way back since they, characteristically like the 112th Congress, they agreed to raise the debt ceiling in yet another 11th hour deal.  And keeping with the indicators, Congress did not disappoint.  They had about a year and a half to talk about an important issue that would effect possibly millions of Americans.  Instead they resorted to a policy of brinkmanship, confrontational showdowns and concocted dumb rules they ended up breaking anyways like the unrealistic "Boehner Rule".  Not to mention making pledges that then held them hostage to the whims of one very partisan group, something that runs against the very nature of democracy itself.  Those countdowns served no purpose other than to panic political pundits and the general public, and maybe expose just how gridlocked Congress is.

At midnight when the ball dropped in Times Square there wasn't a magic switch that went off that all of a sudden plunged the United States into a recession and wiped out trillions of dollars from the global economy.  Only when businesses and people would be forced into paying more taxes and the government tap squeaked shut would we have seen any substantial real reaction.  That would've given Congress about a month to hammer out a deal. The important thing to note is that they should not have needed a month, as this was something that could have been solved by the time the Republican caucuses were taking place.  Things that had been politicized heavily such as a tax hike on the top 2% and defense and medicare spending held up negotiations and negotiations are still ongoing as the relatively over hyped sequesters, which don't cut spending but decrease projected increases in spending and find savings through "inefficiencies".  The deficit is still projected to increase by a large amount, although this is a good start.  It's been more than a decade since America has seen a surplus, and years of fiscal irresponsibility and financial imprudence have taken their toll on the country.  Of course markets may have dropped should Congress have failed to reach an agreement by the time markets had opened on the 2nd, but that's controlled by two of the worst  human emotions:  Fear and Greed.  The stock market cannot be used as a barometer of the health of the economy immediately following an event of mass economic hysteria.  Last night the Nasdaq Futures index was up around 400 points, an indicator of the bull market that took hold today.  And yet the American and global economy are not in much of a safer position now than they were 72 hours ago.  So CNN, lose the hysterical pundits and doomsday clocks, because sure catastrophe is fully possible, but this isn't the Dark Knight Rises.  There's no nuclear bomb sitting in the back of a truck with a timer saying when it's going to go off.   

Why CNOOC wants Nexen

Ever since the CNOOC deal for Canadian oil company Nexen has come to light, debate has raged on about selling the company.  While most of the arguments have been based on a distrust of the Chinese government, as well as a state owned company owning highly coveted Canadian resources, I looked into the economic reasons as to why it would be bad not only for Canada but every oil producing nation in the world.

Firstly, let me say the point that a CNOOC purchase would be a security threat to North America is moot.  An oil producing company, employing Canadians, with the majority of it's executive positions in Canada, filled by Canadians, would pose not much of a threat to Canada, and with Nexen likely to axe all operations in the U.S, that problem is solved.

Now firstly, CNOOC is aiming for Nexen because China has a voracious appetite for resources.  In the immediate short term, the oil sands are means to meet China's growing need for energy to keep pace with it's economy which has grown at an astonishing rate over the past 20 years.  The primary argument from proponents of the deal has been that when south of the border growth is a measly 1-2% annually, and increasing calls for more protectionist policies are being heard across the country, the future lies across the ocean in  Asia, and Prime Minister Stephen Harper, despite a belated start, has taken these calls to heart.  China is now a priority for trade with Canada, along with India, the European Union and South America.  Initially this has consisted primarily of Chinese injections of capital into Canadian companies, primarily in the resource sectors.  Recently, however, there has been a flurry of acquisitions of projects and entire companies, not just in Canada, such as the McKay River oil sands project and Talisman Energy by state-owned Chinese firms.  Nexen is the biggest oil company yet that the Chinese government wishes to acquire, and it is a major player in the Athabasca oil sands, a title that is the cause of all the debate surrounding the potential sale of the company.

With all that said, this is all the public line, what everyone is being told.  Chinese capital, through Chinese companies, will create jobs because they will fund infrastructure to ship resources out of the country to Asia. Now the one glaring hole in all of this is that Nexen has two primary projects in the Alberta Oil Sands, the Long Lake and Horn River projects.  After this what is left to be done?  Nothing in the Gulf of Mexico seeing there is no appetite for Chinese investment in the U.S, at least when it comes to resources.  The answer is at home.  The proven reserves in all of Nexen's current projects equates to a measly 6% of proven oil reserves within China.

Now this is why the CNOOC, and by extension the Chinese Government need Nexen.  China already has one of the largest middle classes in the world, and their ranks are due to be vastly increased as more and more Chinese are lifted out of poverty and into a consumer class with voracious appetite for cars, consumer electronics and generally things that require power.  In a world with more people competing for rapidly dwindling resources, it's only natural that China would move to secure plentiful energy supplies in stable regions where acquisition would face little risk of expropriation (Argentina and the Repsol fiasco) or disruption (Syria, South and North Sudan).  All of this is great, but not many countries (stable ones at least) are not so willing to give up energy assets they view as strategically important, and China would prefer to keep money at home if possible, and this is where the domestic reserves come into play.  Large shale gas fields, sizable offshore reserves, and oil in the north of the country all account for what is a sizable energy play in China, in the hands of what essentially is a government backed oligopoly between three state owned company.  Now the Chinese have little if any experience in extraction of resources, while that seems to be an age-honoured tradition in Alberta, so who better to learn from?  Essentially the game plan is to buy an under performing Canadian company with projects that will be able to satisfy China's short-term energy needs while providing domestic companies such as  CNOOC but also Sinopec and China National Petroleum Corp. the expertise that they require to extract China's vast resources.  While yes, CNOOC has promised to keep it's current staffing numbers as well as expand jobs at the head office, which will remain in Calgary, not to mention list stocks on the TSX, is that really of net benefit to Canada?  That's all arbitrary stuff that while yes important, are things prerequisite to getting the deal approved by shareholders, plus a healthy premium of course.  Compare all this to what we are giving away, and then all of the offerings pale in comparison to the potential loss.

 Now don't think for one second I'm saying that Nexen as a company is of strategic value to Canada, but what it does enable China to do once it is out of our hands is not to great benefit to us.  Sure, they'll be exporting the oil produced by Nexen in the Oil Sands to China, but not for long, maybe even as short as 10 years.  proponents of the deal argue that the exporting of oil will create jobs, but will they increase Nexen's levels of investment in the Canadian market? No, they've promised to maintain current levels, all because they can afford to do so, despite it not really being in their long term interests.  And where does all this profit go?  Straight into the coffers of China's Energy Ministry, from which it will be put into their sizable war chest to fund their acquisition spree, and the development of domestic reserves so that China will not depend on countries like us for oil.  That is like saying Wal-Mart opening up shop in India is for the net benefit of the majority of India.  Yes, it's good business for the suppliers, real estate developers and other retailers set to benefit from the droves of people streaming into these new Wal-Mart anchored shopping malls, but the multitude of small business owners that India is home to suffer, and the benefit to consumers is negligible considering how cheap most consumer products in the country are already.  Back to Nexen, one must notice that the loudest proponents of the deal are the ones who will walk away with fatter wallets after or soon after the transaction is completed, including shareholders, executives, and other oil companies who view this case as being the signal to open the floodgates when it comes to foreign investment in our Oil Sands.  What I'm concerned is that will Canadians be ensured access at a reasonable price to their own resources?  Will Canadian values be maintained and respected?  Will this deal be beneficial to the average Canadian?

These are questions we must leave to the federal government to decide, and I'm not too sure either as to whether it will get passed or not.  What I do think we should do is this;  If this was our water we were selling, under these very same conditions and promises, would it be good for us?  In a world reliant on fossil fuels, and one where we will probably depend on it for years to come, it is essential we do exactly what the Chinese are doing and ensure we have a reliable supply to fossil fuels while we work on solutions and alternatives which are beneficial to everyone.  And this doesn't only mean we protect our oil reserves and ensure they remain in Canadian hands, we ensure the necessary infrastructure is in place to refine, ship and distribute it.  Whatever the government decides, I hope it's in the interests of EVERY Canadian and not jsut a select few people.