Is being pro-business and pro-capitalism the same? Does capitalism generate an unfair distribution of income? Was capitalism responsible for the most recent financial crisis? Dr. Jeffrey Miron at Harvard answers these questions by exposing three common myths of capitalism.
May 19, 2013
May 13, 2013
Anthony Matijas discusses the privately owned organization that controls the majority of beer sales in Ontario:
The Beer Store’s employees will not be going on strike because they are not public sector employees. That may seem obvious to some, but according to an independent survey cited by a government report, 60% of people in Ontario believe The Beer Store to be a state-run entity. No doubt they benefit from the confusion, which may placate customers wondering why they pay so much more for beer than districts such as Quebec and New York state, where beer is sold in corner stores. The Beer Store fosters this ambiguity by designing their stores to be about as welcoming as a Service Ontario outlet.
In fact, the retailer is co-owned by three of Canada’s largest brewers, Molson, Labatt’s, and Sleeman, none of which are entirely Canadian companies. Molson merged with Coors of Denver in 2005, Labatt’s is owned by Anheuser-Busch InBev of Belgium, and Sleeman is owned by Sapporo of Japan. Aside from the LCBO, which enjoys a far more modest market share and generally does not supply restaurants and bars — and microbreweries, which are allowed to sell retail beer only on premises — The Beer Store maintains a government-protected monopoly.
[. . .]
Meanwhile, brewers who aren’t part of the beer cartel must pay what they describe as exorbitant listing prices to have their products placed in Beer Store locations and, once they do, their visibility is generally limited to a coaster-sized listing on the wall, often nowhere near eye-level. Anyone who doesn’t live next door to a Beer Store is likely to pass several billboards for multinational swill on the way and, not frequenting an LCBO, one may not be aware of the many local craft beers available. Those who are near-sighted, and have forgotten their corrective eyewear, may just end up walking out of there with a two-four of Coors Light and a sad look in their eyes.
Revoking Beer Store exceptionalism should be a matter all Ontarians could agree upon, regardless of ideology. A state sponsored monopoly defies the free-market principles of conservatives, while special privileges for multinational corporations should not sit well with supporters of either one of the left-of-centre parties. Furthermore, the largely foreign ownership of Canada’s big breweries means that The Beer Store in no way compliments the economic nationalist tendencies of the NDP.
May 2, 2013
Canada’s Arctic patrol ship design program just a job creation scheme that doesn’t actually create jobs in Canada
The CBC’s Terry Milewski on the Harper government’s much-heralded shipbuilding program which is far more expensive than it needs to be — because of the demand that the work be done in Canada — and yet somehow doesn’t even manage to create Canadian jobs:
Public Works Minister Rona Ambrose and Defence Minister Peter MacKay announced March 7 in Halifax that Ottawa will pay Irving Shipbuilding $288 million just to design — not build — a fleet of new Arctic offshore patrol ships.
Irving will then build the ships under a separate contract.
However, a survey of similar patrol ships bought by other countries shows they paid a fraction of that $288 million to actually build the ships — and paid less than a tenth as much for the design.
In addition, the design of Canada’s new ships is based upon a Norwegian vessel whose design Ottawa has already bought for just $5 million.
The Norwegian ship, the Svalbard, was designed and built for less than $100 million in 2002.
Experts say the design price is normally 10-20 per cent of the total cost of the ships.
But don’t worry … jobs are being created or saved by this major Canadian government project … in Denmark and in the United States:
Another criticism of the project is that much of the design work — in a project meant to create Canadian jobs — is actually going overseas.
Although Irving will manage the design project in Nova Scotia, it has subcontracted the actual production of final blueprints to a Danish firm, OMT. Seventy Danish ship architects will work on those.
The job of designing the systems integration is going to Lockheed Martin and the propulsion system will be designed by General Electric, both U.S. companies.
This is only to be expected, say supporters of the project.
“We’ve been dormant here for better than two decades now. We don’t have the skill sets inside the industry,” said Ken Hansen, editor of the Canadian Naval Review in Dartmouth, N.S.
May 1, 2013
In The Atlantic, Timothy P. Carney gives us a thumbnail sketch of the rise and rise of crony capitalism in the United States since 2004:
The 2005 and 2007 energy bills required drivers to buy ethanol, created a government loan-guarantee program for private sector green-energy projects, and effectively outlawed the traditional incandescent light bulb. Ethanol and the green-energy finance programs are pretty naked corporate welfare. General Electric and the light-bulb industry lobby supported the light-bulb law, which forces consumers to buy higher-profit-margin high-tech bulbs.
Then, 2008 saw an avalanche of corporate bailouts: Bear Stearns, AIG, Fannie Mae and Freddie Mac. Then the TARP bailed out all of Wall Street, and later General Motors and Chrysler.
Obama came to power in 2009 and signed an $800 billion stimulus bill supported by the Chamber of Commerce and loaded with goodies for the likes of Google and Solyndra. Obama pushed cap-and-trade with the support of the U.S. Climate Action Partnership, a corporate coalition led by GE, which had set up a business to create and trade greenhouse-gas credits.
In June 2009, Obama signed the Family Smoking Prevention and Tobacco Control Act, a regulatory measure that Philip Morris supported and reportedly helped write — smaller competitors called it the “Marlboro Monopoly Act.” That same month, Wal-Mart, the country’s largest private-sector employer, publicly endorsed the employer mandate in health insurance that became part of Obamacare. The drug lobby wrote significant parts of Obamacare, and the hospital lobby liked the bill enough to file an amicus curiae brief with the Court defending the law from its challenge by states and the small business lobby.
Boeing and the Chamber of Commerce launched a full-court lobbying push in 2011 to save and expand the Export-Import Bank, the government agency Obama loves using to subsidize U.S. Exports — including lots of Boeing jets. In a lesser-known case of regulatory profiteering, Obama hired H&R Block’s CEO to a top position at the IRS, where he crafted new regulations on tax preparers — rules which H&R Block supported and small tax preparers sued to overturn.
April 17, 2013
Timothy Carney explains why the big companies that made ordinary incandescent lightbulbs were among the groups pushing to make those lightbulbs effectively illegal. It’s a classic case of using government power to reduce competition and increase profit margins for certain companies:
Absent barriers to entry, light-bulb profit margins had to stay low. GE could make superior bulbs — soft white, etc. — but people are only willing to pay so much of a premium for those. After all, we’re dealing with light here, which is kind of a commodity.
So, where to find barriers to entry? Maybe higher-tech bulbs? LEDs, CFLs, or other bulbs that offer longer life and greater efficiency. GE, Osram, and Sylvania jumped into those high-tech bulbs, got some patents. R&D expenses, higher manufacturing costs, proprietary information — these created barriers to entry and allowed heftier profit margins.
But what if you made a super-efficient long-life bulb — and nobody wanted it? What if you couldn’t convince consumers that these bulbs were good for them? Well, that’s when you thank your lucky stars that you are GE, with the largest lobbying budget of any company in America.
You “heavily back” legislation that will “effectively outlaw … the traditional incandescent light bulb.” Now all consumers are forced to play in the world where you have greater barriers to entry, and thus bigger profit margins.
The negative consequences here aren’t mere Tea Party concerns about “crony capitalism” or, say, freedom of choice. One cost is the erosion of competition. GE in this case has found a way to divorce profit from the delivery of value – and I call it public-policy profiteering.
Sure, these high-tech bulbs have value. But I think consumers, rather than politicians, should be the ones who determine what value they assign to energy efficiency and longevity. So, through government intervention, capitalism starts to resemble the Marxist caricature of capitalism — Big Businesses making profits while denying consumers what they want.
April 16, 2013
Sean Gabb explains why Thatcher should not be considered in any way “libertarian”:
She started the transformation of this country into a politically correct police state. Her Government behaved with an almost gloating disregard for constitutional norms. She brought in money laundering laws that have now been extended to a general supervision over our financial dealings. She relaxed the conditions for searches and seizure by the police. She increased the numbers and powers of the police. She weakened trial by jury. She weakened the due process protections of the accused. She gave executive agencies the power to fine and punish without due process. She began the first steps towards total criminalisation of gun possession.
She did not cut government spending. Instead, she allowed the conversion of local government and the lower administration into a system of sinecures for the Enemy Class. She allowed political correctness to take hold in local government. When she did oppose this, it involved giving central government powers of supervision and control useful to a future politically correct government. She extended and tightened the laws constraining free speech about race and immigration.
Her encouragement of enterprise never amounted to more than a liking for big business corporatism. Genuine enterprise was progressively heaped with taxes and regulations that made it hard to do business. Big business, on the other hand, was showered with praise and legal indulgences. Indeed, her privatisation policies were less about introducing competition and choice into public services than in turning public monopolies into corporate monsters pampered by the State with subsidies and favourable regulations — corporate monsters that were expected in return to lavish financial rewards on the political class.
April 4, 2013
Stephen Gordon points out that the “small government” rhetoric from Stephen Harper’s Conservatives is so much hot air:
If asked, the Conservatives will tell you that they favour a smaller government that intervenes sparingly in the functioning of the market, and it’s been pretty well-established that a medium- and long-term goal of the Conservative government has been to reduce the share of Canadian GDP that is taxed and spent by the federal government. But lower taxes and lower levels of spending are not the same thing as a smaller government.
Here are the highlights (sic) of the “Strengthening the Competitiveness of the Manufacturing Sector” section of Chapter 3.2 of the budget plan:
[. . .]
- $920 million to renew the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) for five years, starting on April 1, 2014. Seriously? A
slush fundeconomic development agency for Southern Ontario?
- $200 million for a new Advanced Manufacturing Fund in Ontario for five years, starting on April 1, 2014, funded from the renewed FedDev Ontario. More pork to be distributed to firms that enjoy the favour of the government.
- Building on the success of the National Shipbuilding Procurement Strategy, the Government will better ensure that purchases of military equipment create economic opportunities for Canadians by developing key domestic industrial capabilities to help guide procurement, by promoting export opportunities, and by reforming the current procurement process to improve outcomes. The Conservatives can’t even be bothered to sustain the fiction that government procurement should be aimed at obtaining the best value for the taxpayer. Public money is to be spent where politicians want to see public money being spent.
[. . .]
You don’t need a big government to interfere with markets, or to weaken property rights and the rule of law. The decision to forbid shareholders of Potash Corp from selling their holdings to BHP Billiton didn’t cost the federal government a dime. Nor did instructing banks to not offer lower mortgage rates. And then there’s the example of the government’s preference for the clumsy and heavy hand of regulation over more efficient, market-based approaches to reducing greenhouse gas emissions.
I don’t think it’s quite correct to say that the Conservatives want a smaller government. They seem happy to run a government that is as big and dumb as its predecessors — so long as it’s cheap.
March 29, 2013
H/T to Joey “Accordion Guy” deVilla for the link.
If North American cable-and-internet providers were honest, they’d produce an ad that went like this. Note that there’s some swearing involved, as is often the case with cable-and-internet providers.
March 25, 2013
Strategy Page on the psychological state of Russia:
Westerners are puzzled at the way Russian politicians are growing increasingly hostile to foreigners in general and the West in particular. Then there is the feud going on within the Defense Ministry over whether to import more Western weapons or rely instead on what Russian defense firms produce.
Scrounging up details from Russian media, discussions on the Internet and statements by the many members of the Duma (parliament) with access to the inner circle reveals a rather bizarre (to Westerners, and some Russians) state of affairs. Put simply, most of those currently running Russia really believe that the United States has formed an anti-Russian coalition that is surrounding Russia in preparation for an invasion. The motive behind this plot is the Western need for Russia’s many natural resources. The U.S. has been using pro-democracy and reform minded NGOs (Non-Governmental Organizations) within Russia to cause turmoil and weaken the government and military.
[. . .]
Creating the idea that Russia is surrounded by enemies, led by the old Cold War arch foe America is something older Russians were exposed to most of their lives. It persuades Russians to keep electing Vladimir Putin and his cronies. But a growing number of Russians are noting that there’s no sign of this conspiracy in the West, only bewilderment over what the Russians are saying. Over time, the Putin paranoia program becomes less believable to more Russians. There is growing fear that, rather than face a majority of Russians who don’t believe in the conspiracy, the current rulers will try to turn Russian into a strict police state, without the trappings of Soviet–style communism or any other ism besides the greed of the small ruling class.
March 15, 2013
Here’s where the story starts to get interesting. After 25 years, the Pentagon decided that it was well stocked with C-130s, so President Jimmy Carter’s administration stopped asking Congress for more of them.
Lockheed was in trouble. A few years earlier, the Air Force had started looking into replacing the Hercules with a new medium-sized transport plane that could handle really short runways, and Lockheed wasn’t selected as one of the finalists. Facing bankruptcy due to cost overruns and cancellations of programs, the company squeezed Uncle Sam for a bailout of around $1 billion in loan guarantees and other relief (which was unusual back then, as William Hartung points out his magisterial Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex).
[. . .]
So what did Lockheed do about the fate of the C-130? It bypassed the Pentagon and went straight to Congress. Using a procedure known as a congressional “add-on” — that is, an earmark — Lockheed was able to sell the military another fleet of C-130s that it didn’t want.
To be fair, the Air Force did request some C-130s. Thanks to Senator John McCain, the Government Accountability Office (GAO) did a study of how many more C-130s the Air Force requested between 1978 and 1998. The answer: Five.
How many did Congress add on? Two hundred and fifty-six.
[. . .]
The Air Force’s approach of passing unwanted Herks off to the Air Guard and Reserves worked out nicely for Lockheed. The company allied with Air Guard and reservist advocacy groups to lobby Congress further. In an era of base closures, heavily lobbied governors would use the arrival of new planes to argue for the continuing life of bases in their states. In turn, states and their congressional delegations would fight to get new planes or hang onto existing ones. It was a veritable Lockheed feedback loop. Washington Post reporter Walter Pincus quoted a Pentagon official as seeing C-130 politics as a twist on the old military-industrial complex: “a triangle of the Guard, Lockheed, and politicians.”
The result: the military was often prevented from retiring the oldest Herks, the ones that really needed to be put out to pasture. For example, as Pincus reported, the Joint Chiefs and the Air Force concluded in 1996 that they had 50 more C-130s than they needed, but Congress stymied efforts to retire any of them. One tactic used was to hold nominees hostage: a Kentucky senator repeatedly held up Air Force promotions until four Kentucky Air Guard C-130s were taken off the chopping block.
March 6, 2013
It’s one of the marvels of the Canadian electorate. Show Canadians a special interest group that uses its government-granted privileges to fleece consumers, and they’ll embrace it as a “national champion,” a “uniquely Canadian way of life” or some equally vapid catch-phrase.
This is from the Wikipedia entry for Stockholm Syndrome:
Stockholm syndrome, or capture–bonding, is a psychological phenomenon in which hostages express empathy and sympathy and have positive feelings toward their captors, sometimes to the point of defending them.
What we suffer from is the economic policy equivalent. Call it “Canada Syndrome”: a tendency for consumers to identify with the producer interests that are holding them hostage.
Stephen F. Gordon, “Our Stockholm Syndrome about supply management”, Maclean’s, 2013-03-05
February 26, 2013
Strategy Page talks about the ongoing drama of the Global Hawk UAV and the US Air Force’s attempt to get rid of the weapon:
The U.S. Air Force recently disbanded a Global Hawk UAV squadron. The reserve unit contained 200 personnel and operated an aircraft the air force is getting rid of. This is in spite of political opposition to the move (helped along by the manufacturers many lobbyists).
This all began last year when the U.S. Air Force cancelled all orders for the Block 30 Global Hawk because of reliability issues. This renewed Department of Defense threats to cancel the Global Hawk program entirely. In response Northrop Grumman (the RQ-4 manufacturer) lobbyists made sure that key members of Congress knew where Global Hawk components were being built and how many jobs that added up to. Elected politicians pay attention to that. This move delayed the RQ-4 Block 30 until there was enough political support to convince Congress to order the air force to accept the Block 30 RQ-4s and shut up.
The air force can take some comfort in the fact that Northrop Grumman fixed some of the problems (some of which the manufacturer said don’t exist or didn’t matter). The Block 30 was supposed to be good to go but the air force was not convinced and decided that Block 30 was just more broken promises. Congress was also tired of all the feuding and being caught between Northrup lobbyists and exasperated air force generals. The lobbyists, as is usually the case, eventually won. But the air force is not required to pay for operating the Global Hawks, thus the disbanding of the Global Hawk unit.
February 25, 2013
It’s not addiction to drugs — although we can be sure there’s more than enough of that — it’s addiction to government subsidies, tax credits, and special privileges not available to ordinary businesses:
With campaign season over, you’re not likely to hear stars bringing up taxes at [the] Academy Awards show. But the tax man ought to come out and take a bow anyway. Of the nine “Best Picture” nominees in 2012, for example, five were filmed on location in states where the production company received financial incentives, including The Help (in Mississippi) and Moneyball (in California). Virginia gave $3.5 million to this year’s Oscar-nominated Lincoln.
Such state incentives are widespread, and often substantial, but they don’t do much to attract jobs. About $1.5 billion in tax credits and exemptions, grants, waived fees and other financial inducements went to the film industry in 2010, according to data analyzed by the Center on Budget and Policy Priorities. Politicians like to offer this largess because they get photo-ops with celebrities, but the economic payoff is minuscule. George Mason University’s Adam Thierer has called this “a growing cronyism fiasco” and noted that the number of states involved skyrocketed to 45 in 2009 from five in 2002.
In its 2012 study “State Film Studies: Not Much Bang For Too Many Bucks,” the Center on Budget and Policy Priorities found that film-related jobs tend to go to out-of-staters who jet in, then leave. “The revenue generated by economic activity induced by film subsidies,” the study notes, “falls far short of the subsidies’ direct costs to the state. To balance its budget, the state must therefore cut spending or raise revenues elsewhere, dampening the subsidies’ positive economic impact.”
February 21, 2013
It’s a tough world out there. It looks like it’ll be getting tougher for soon-to-be retired US military leaders:
Sources revealed today that a top U.S. Marine General is “extremely hesitant” about plans for his possible retirement, indicating a greater problem with military transition assistance programs.
General John Murphy, the former commander of Fleet Marine Forces-Pacific, is looking toward a future in the private sector, but he says he may have to lower himself to take any position in order to support his family.
“It’s scary out there with the economy the way it is,” said Murphy in a telephone interview with The Duffel Blog. “I’m certainly hoping that I can secure a job as a D.C. lobbyist or a consultant to a defense contractor. But shit, I’m just not sure anymore. I might have to degrade myself and be a military analyst at Fox News just to feed my goddamn kids.”
Murphy’s worries underscore a major problem of assisting military members on their way out of the service. Junior enlisted personnel usually go through a weeklong Transition Assistance Program, or TAP, but the classes for general officers have serious drawbacks.
“The enlisted classes set the guys up for everything. They basically pave the way for them to go college, give them job placement, the whole nine yards,” said Michael Phillips, a counselor with the TAP program. “But for Generals, they need to do a lot of the work on their own. Most of them have to search for at least a few minutes in their rolodex to find a contact at BAE Systems or Lockheed before they have an executive position.”
February 14, 2013
Canada doesn’t really have a defence industry — certainly not in the sense of Britain, France, or the United States. We have some companies which happen to make products of use to the military (armoured vehicles, for example), but our government is not tightly tied to the fortunes of these companies in some sort of maple-flavoured Military-Industrial Complex. Some movers-and-shakers want to change that:
It goes without saying that the proposal to siphon funds to defence contractors is gussied up in industrial-policy jargon. For instance, we’re told how defence industries are “important sources of technological dynamism and innovation [and] leading-edge participants in global value chains.” (Who today isn’t part of a global value chain?) Also in keeping with current industrial-policy trendiness, the government is instructed to be strategically selective in KIC-starting the sector. “KIC,” you see, stands for “Key Industrial Capabilities,” which is what we’re told we should focus on.
But despite the alluring bells and whistles, the message to firms selling to the government is clear: Either pay up or forget about getting the contract. From now on, if the committee gets its way, how you plan to spread the industrial booty around the Canadian economy will weigh directly in the balance with how your product performs. The new fighter jet doesn’t accelerate quickly enough to elude missiles? Well, never mind that, it comes with a new plant in Mississauga. Shells pierce the new tank’s armour? Too bad. But the innovation spinoffs for Thunder Bay are just too good to pass up.
You might think that interpretation extreme. Surely safety for our soldiers and value-for-money for our taxpayers come first. But what else could be meant by the recommendation that bidders specify the industrial benefits they’re offering as part of their bid itself, rather than as an add-on after the performance characteristics of their product or service have won them the contract?
Suppose that instead of causing defence contracts to be inflated with offsets for Canadian industry, this committee consisting of a high-tech CEO, a former chief of staff at national defence, an IP specialist in a defence company, a retired general and Paul Martin’s one-time policy guru recommended levying a 5% tax on all government defence purchases and using the revenues thus generated to subsidize Canadian defence contractors?
I sent the original Globe and Mail URL to Jon saying, “The very last thing Canada should be attempting is to use government money to build a ‘defence industry’. Let the military buy what they need on the open market — regardless of country of origin — at market prices. The fetish to have a domestic defence industry is pure crony capitalism clothed in a “patriotic” fig leaf.”