Roy Ho’s Blog

“Harper government’s style caught in time warp, McGuinty says”Globe And MailKAREN HOWLETT AND STEVEN CHASE From Wednesday’s Globe and MailFebruary 20, 2008 at 4:26 AM EST

http://www.theglobeandmail.com/servlet/story/RTGAM.20080220.wmcguinty20/BNStory/FrontCanadian federal government thinks Ontario is “lack of vision” and is the one responsible for the sluggish Ontario economy.  Ontario provincial government thinks the federal government’s idea of more tax cuts (business tax cuts) would save the province is “in a time warp”.  Why? 

The federal government is employing the most traditional economic thought that says do nothing is the best government.  And therefore, the best and only tool for affect market behaviour is taxes.   

Ontario government is saying: Not only is business tax cutting not the only tool, but also not the best tool in this case.  Worse yet, it is no longer an effective tool.   

The first question that sets them about is:

Is tax the only tool to improve the economy? 

If taxes were the only tool, then it is the best tool.  So, let’s look at this first.  The government can also make laws to make the market behave in a certain way.  For instance, Chretien made government matching fund to RESP.  And that created a huge investment market for RESP funds.  That is a good example.  Government can purchase more Canadian made low emission buses to drive down the manufacturing costs and therefore to be in an exporting competitive position.  The counter example of this is snow bird.  The aviation/aerospace industry of Canada got killed because the snow had no contracts.  So, government can do things other than taxes. 

The second question:Is tax cutting the best tool?

Depends on the problem and the objective.  Obviously, if the problem is inflation, then cutting taxes would make it worse.  So, what is the problem with the Ontario economy?  Currently, the manufacturing is having problems.  The currency is high.  Well, you cannot help this one and this will continue for quite a while.  Ontario goods are competing against China and India.  Well, that means product upgrade.  In this situation, business tax cuts can help.  And there are other ways to help.   

Many manufacturing owners will have to liquidate their assets in the years to come due to retirement.  New generation of business owners may not set up shop here.  Why: they are immigrants from China and India.  And they are capable of managing their assets overseas.  So, this would undercut the tax effectiveness right away.  “If China/India can produce those goods, why do it here?” they would ask.  If anyone is to manufacture products here, these goods must be higher grade products that they cannot produce in China/India.  High technology is an answer.   

Does Canada have these technologies?  How can Canada develop new technologies?  That is already something Canada or Ontario government can do.  The government does not need to develop the technologies.  The government can create an environment where the brains can get to work on the technology development.  For instance, can patent filed easily?  Does the province/country have strong intellectual property laws?  Is graduate education student friendly? I.e. can students afford to go to graduate school?  Notice that they are the actual assembly workers in technology development in a lot of cases.  If the students have to work to pay for tuition anyway, why not let them have part time jobs available only to the students? And campus jobs for full-time students’ income tax free?   

Does Canada have enough demand for the goods? Even Canada may have tax cuts, there could be no demand for the goods.  To create demand, the tax cuts should be placed on the personal income tax, especially in the form of increasing personal exempt is the most effective way of creating demand across the board.  And the government can reduce the need of welfare if it is to increase personal exempt.   

How can Canada develop more demand overseas?  Flag follows the trade or trade follows the flag?  The government, in international trade as well as in any aspect of its function, is to protect the interests of its citizens.  A do-nothing attitude in international trade is to do nothing to protect the interests of Canadian citizens.  What is the government to do in promoting international trade?  Market Canada.  Canada is brand.  What can one say about a Canadian product?  Or, can anyone name a Canadian product?  A lot of people can name French products, say about the French product.  Have Canadian governments to introduce Canadian firms to new overseas opportunities?  For instance, with all the infrastructure projects going in India and China, which Canadian financial institution participated in their financings? 

Stock exchange (or futures exchange, options exchange, etc) are also important financial infrastructure.  Have governments of Canada tried to promote the Canadian exchanges?  Ever US implemented SOX and other regulations in SEC, banking and other financial industries, doing business in the states is getting more and more expensive.  So expensive that London got more IPO than NYSE in 2006.  Why can’t Canada get a share of that pie?  Canada is definitely cheaper to get listed, close to US, where the main and ultimate market is.   

Toronto/Vancouver are good points from North America to fly to a lot of major Asian cities because they take less time in the airport to fly, and they take less flying time to those Asian cities.  And these 2 cities take about 1 hour to reach a lot of North American cities as well.  This is a unique quality to be an institution’s HQ: cut down travel cost between the executives and their highest potential market.  Yet, Canada does not have a lot of HQs. 

Is the Canadian market a competitive market?  Only a competitive market can create competitive products.  How many monopolies or oligopoly markets in Canada?  Airlines, bookstores, landline telephones, cable TV, gas, electricity, intra city transits, cell phones, banks are all either monopolies or oligopolies. 

Media content is another business Canada needs to stress on.  This is one way not only to define a Canadian brand, but also a revenue source.  This is the dark time of the USA brand.  And Canadian media content compete in the English language market.  So, this is the time to be aggressive.  Are there Canadian film-nights in foreign campuses?  Who markets them?  Do Canadian companies how to market them overseas?  Or are they relying on some American content distributors?   

There are a lot of things that can be done.  All of them are not related to business tax cuts.  

http://www.theglobeandmail.com/servlet/story/RTGAM.20080220.wmanley20/BNStory/Afghanistan/home

Why did Manley accept to head Afgan panel chairmanship?  Harper wanted to see the divide in the post Dion Liberal leadership contest.  Manley did not want to participate in the last leadership contest since Martin’s contest was too bitter and it would have been difficult for Manley to unite the whole party anyway.  That open race gave Canada Dion.  If Liberals continue to stay weak, Dion will be out after the coming federal election, whenever that is.  And it is only then could Manley go for a contest.  For that reason, Manley has stayed with his private law practice in Ottawa. 

However, Manley was not out of politics.  He was already preparing for the next round.  He cultivated his clientele properly.  He enlarged his donor base.  He continues to reward his supporters in order to oil/maintain his political machine. 

The fact he accepted the panel chairmanship was an indication that he wants to stays current in the TV box so that voters will not see him as outdated, as voters would see Sheila Copps as outdated, should she choose to run for leadership again next time.  Even today, many people may already find Sheila Copps outdated, but not really so for Manley, although Manley has more white hair than Copps.

Harper “may” make Manley a super envoy means Harper already thinks Manley would accept the position, whether it was communicated between the two is another business.  After all, even if they did not communicate personally fact to face, they had been MP together for a long time.  If they did not know each other that well, there are enough people to serve as the go between.  So, this mutal understanding is immaterial.  The fact remains that there is a great certainty the buyer and the seller have met.  The dealing probably is still on the pending status and not closed.

The next question to ask:

Why would Harper want Manley?  Why wouldn’t he reward some of his allies?

One: maybe Harper prefers fighting Manley, thinking Harper would be in an easier position to beat Liberals if Manley were in charge.  Manley, ideologically, is a little more right than some of the Liberals, especially in the environmental issues.  Manley’s donor base is the traditional Liberal type.  This is a clear advantage to Harper.  An elitest right wing/middlepath party cannot compete against a populist right party because public funding for election has rubbed off the benefit of being financially elitest.  Public funded election is about head counts.  Election without public funding is both head counts and dollar counts.

Two: Harper wants to see a divide after Dion.  Harper wants to see a bitter fight within the Liberals.  Harper may not be too concerned if Manley is a better politican than Harper.  Harper may simply be thinking that the divide would weaken Liberals greatly and make the good Manley (however/what this good is) ineffective. 

Did Harper see Manley vs. Rae? Manley vs. Ignatieff?  Manley vs. Kennedy?

Harper probaly would not have been concerned with Rae.  Time will take care of this problem already, however good Rae is.  Kennedy?  Harper may think the loss of Dion may weaken Kennedy as well since Dion does not represent an interest as much as an ideal (and some Quebec tradition).  Besides, Kennedy means the left would get very crowded and leaving more space to right for Harper to take.  Harper should be fairly comfortable with that.  Harper was probably thinking about Manley vs. Ignatieff or Manley vs. unknown.  Harper wants to strengthen Manley so that there will be a long lasting, bitter, trench warfare among the Liberals for the years, just like Chretein and Martin.