Quotulatiousness

September 29, 2024

Fleeced: Canadians Versus Their Banks by Andrew Spence

Filed under: Books, Business, Cancon, Economics — Tags: , , , — Nicholas @ 05:00

In the latest SHuSH newsletter, Ken Whyte talks about one of Sutherland House’s most recent publications:

I could write about eight versions of this post based on the many revelations in Andrew Spence’s Fleeced: Canadians Versus Their Banks, the latest edition of Sutherland Quarterly, released this week. I’m going to run with the version most relevant to my fellow publishers and small business people in Canada.

Andrew lays out in aggravating detail how Canadian banks, although chartered by the federal government to facilitate economic activity in the broader economy, do all they can to avoid lending to small and medium businesses, never mind that small and medium businesses employ two-thirds of our private-sector labour force and account for half of Canada’s gross domestic product.

By OECD standards, small businesses in Canada are starved of bank credit, and when they are able to secure a loan, they pay through the nose. The spread between interest rates on loans to small businesses and large businesses in Canada is a whopping 2.48 percent, compared to .42 percent in the US—more than five times higher.

Why? Because Canada’s banks are a tight little oligopoly, impervious to meaningful competition. Their cozy situation allows them to be exceedingly greedy. Their profits and returns to shareholders are wildly beyond those of banks in the US and UK (and, as Andrew demonstrates, their returns from their Canadian operations are far in excess of those from the US market, meaning they screw the home market hardest.)

Our banks never miss an opportunity to impose a new fee, or off-load risk. From their perspective, small business involves too much risk — some of them will inevitably fail. The banks prefer that publishers and dry-cleaners and restaurateurs either finance themselves by pledging their homes, or use their credit cards to cover fluctuations in cash flow or make investments that will help them hire, expand, and grow. And that’s what entrepreneurs do. According to a survey by the Canadian Federation of Independent Business, only one in five respondents accessed a bank loan or line of credit. Half of respondents financed themselves, tapped existing equity and personal lines of credit, and about 30 percent used their high-interest credit cards.

(The banks, incidentally, claim they need to keep credit card rates around 20 percent because their clients are high credit risks when their own data shows the risk is minimal. They simply prefer to gouge customers. To a banker, forcing hundreds of thousands of small businesses to use their credit cards to finance their businesses rather than giving them proper small business loans at reasonable rates is great business.)

By severely rationing credit and making it exceedingly expensive, Canada’s banks siphon off an ungodly share of entrepreneurial profit to themselves while leaving the entrepreneur with all the risk. Their insistence on putting their own profits above service to the Canadian economy is one of the main reasons Canada has such a slow-growing, unproductive economy and a stagnant standard of living.

There is much else in this slim volume to make your blood boil: exorbitant fees on chequing and savings accounts; mutual fund expenses that torpedo investments; ridiculous mortgage restrictions, infuriating customer service …

The “Foundations” essay could apply equally to Canada’s doldrums as it does to Britain

Filed under: Britain, Bureaucracy, Cancon, Economics — Tags: , , , , , — Nicholas @ 04:00

Earlier this week, I linked to the “Foundations” essay by Ben Southwood, Samuel Hughes, and Sam Bowman and it struck me that so much of what they discuss about Britain’s stagnation applied at least as well to Canada. In the National Post, John Ivison concurs:

The “Foundations” essay pointed to moribund GDP per capita growth, among other data points, to make the argument that Britain is standing still economically. (Britain’s economy grew 0.7 per cent a year between 2002 and 2022, Canada’s increased 0.6 per cent a year in the same period, while U.S. output swelled 1.16 per cent a year.)

In relative terms, both countries are getting poorer: in 2002, Canada’s GDP per person was 81 per cent of the U.S.; in 2022, it was 72 per cent. The same figures for the U.K. against the U.S. are 78 per cent in 2002 and, 70 per cent in 2022.

The reason for Britain’s stagnation, the authors argue, is that it has effectively banned investment in transportation, energy and housing — “the foundations it needs to grow.”

Sound familiar?

“The most important economic fact about modern Britain is that it is difficult to build almost anything, anywhere. This prevents investment, increases energy costs and makes it harder for productive economic clusters to expand,” the authors write, saying the result is lower productivity, incomes and tax revenues.

They argued that Britain needs a program of reform with the scale and ambition of the liberalization of the 1980s that focused on cutting taxes, curbing union power and privatizing state-run industries.

“This time we must focus on making it easier to invest in homes, labs, railways, roads, bridges, interconnectors and nuclear reactors,” they write.

That’s a difficult proposition for politicians who are able to resist anything except the temptation to use resources for immediate electoral gratification, rather than investing for a time after they have left office.

Both Canada and Britain are laggards when it comes to investment in infrastructure. While China spent more than five per cent of its GDP on roads, bridges and other infrastructure in 2021, Canada invested just 0.5 per cent (down from 1.3 per cent in 2010) and the U.K. 0.9 per cent.

But the lack of dynamism is not simply political expediency. Rather, it is motivated by an indifference, even a hostility, toward building critical infrastructure.

The Foundations report noted that Britain has not built a reservoir for 30 years, yet faces chronic water shortages in the east of England. Its environmental agency has blocked new development on the basis that it could only be supplied with water by draining environmentally valuable chalk streams. The result is that England’s innovation hub, Cambridge, is barred from expanding, which threatens to strangle the country’s life-sciences industry.

Similar impulses are at work in Canada. Federal Environment Minister Steven Guilbeault said in February that Ottawa would stop investing in new road infrastructure — a position he later clarified to say meant the federal government would not fund large projects like a highway tunnel connecting Quebec City and Levis, Que.

That same sentiment is reflected in the federal Liberal government’s Impact Assessment Act, passed in 2019, which slowed the pace and increased the cost of major project approvals.

On the housing front, a generation of activists emerged who were intent on preventing urban sprawl yet were also opposed to building mid-rise buildings of the kind that eased housing pressures in continental Europe. Constraints on approval are a major contributor to the 3.5-million-unit housing gap because supply has not kept pace with demand.

The consequence of Canada’s regulatory sclerosis is what business veteran Paul Deegan and former clerk of the Privy Council Kevin Lynch in an FP Comment article earlier this year referred to as “an insidious stealth tax on Canadian jobs and growth“.

Taking each of the “foundations” in turn, the depth of the problem becomes clearer — but so do the solutions.

Yankee Go Home!

Filed under: Europe, Military, USA — Tags: , , , , — Nicholas @ 03:00

There’s a major war in continental Europe that might further embroil the NATO alliance in hot combat, so it’s the perfect time for … pulling the US military out of Europe and letting the European NATO allies handle their own defence needs, right?

“Finland flag raising at NATO Headquarters 4 April 2023” by UK Government Picture by Rory Arnold / No 10 Downing Street is licensed under CC BY 2.0 .

For decades, U.S. policy toward Europe stayed the same: Washington anchored itself to the continent via NATO and acted as the region’s main security provider while the European members of NATO accepted U.S. leadership. Today, however, much of the Republican Party has departed from this consensus, opting instead for a policy summed up by Donald Trump’s comments on “delinquent” NATO countries: “If they’re not going to pay, we’re not going to protect.” In other words, the United States may remain committed to Europe, but only if European states pay up. Democrats, for their part, have dug in deeper in response to this shift. President Joe Biden has affirmed the “sacred” Democratic commitment to European defense and trumpeted the admission of Finland and Sweden to NATO as a great achievement of his administration. Kamala Harris has signaled no departure from Biden’s position as the presumptive Democratic presidential nominee.

A debate about the U.S. role in Europe is long overdue, but both sides have wrongly defined the issues and interests at play. In fact, the United States has the same cardinal interest in Europe today that it has had since at least the early 1900s: keeping the continent’s economic and military power divided. In practice, pursuing this goal has meant preventing the emergence of a European hegemon. Unlike the continent in the mid-twentieth century, however, Europe today lacks a candidate for hegemony and, thanks in part to the success of U.S. efforts after 1945 to rebuild and restore prosperity to Western Europe, another hegemonic threat is unlikely to emerge.

The United States should recognize that it has achieved its main goal in Europe. Having successfully ensured that no country can dominate the continent, it should embrace a new approach to the region. Under a revised strategy, the United States would reduce its military presence on the continent, Europeanize NATO, and hand principal responsibility for European security back to its rightful owners: the Europeans.

A Fine Balance

For more than 100 years, the United States has had one enduring national interest in Europe: keeping the continent’s economic and military power split among multiple states by preventing the emergence of a European hegemon that sought to consolidate that power for itself.

In World War I and World War II, Washington went to war to stop Germany from dominating Europe. NATO, founded in 1949, was designed to foreclose the possibility that a single country could take over the continent. As Secretary of State Dean Acheson remarked that year, the two world wars “taught us that the control of Europe by a single aggressive, unfriendly power would constitute an intolerable threat to the national security of the United States.”

U.S. support for NATO was a reasonable move at a time when the Soviet Union was threatening to overrun the continent, wartime memories were fresh, and Germany’s future was unclear. Yet even back then, Washington’s goal was not to take permanent responsibility for European security. Instead, NATO was intended as a temporary expedient to protect Western European states as they recovered from World War II, facilitate Western European efforts to balance Soviet power, and integrate West Germany into a counter-Soviet coalition that would also help civilize German power. In 1951, as the supreme Allied commander in Europe, Dwight Eisenhower noted, “If in ten years, all American troops stationed in Europe for national defense purposes have not been returned to the United States, then this whole project will have failed.”

To that end, Presidents Harry Truman and Eisenhower tried to pull together a “Third Force” of European power by encouraging France, the United Kingdom, West Germany, and other Western European states to combine their political, economic, and military resources against the Soviet Union. Once formed, this Third Force would relieve the United States of the duty to serve as Europe’s first line of defense. Only as it became clear in the late 1950s and early 1960s that Western European states worried as much about Germany as they worried about the Soviet Union did the United States reluctantly accept a more enduring role in the alliance.

This Bridge Should Have Been Closed Years Before It Collapsed

Filed under: Government, Technology, USA — Tags: , , , , — Nicholas @ 02:00

Practical Engineering
Published Jun 18, 2024

Why Fern Hollow Bridge collapsed.

This is a crazy case study of how common sense can fall through the cracks of strained budgets and rigid oversight from federal, state, and city staff. And the lessons that came out of it aren’t just relevant to people who work on bridges. It’s a story of how numerous small mistakes by individuals can collectively lead to a tragedy.
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QotD: Pyrrhus, King of Epirus

Filed under: Europe, History, Military, Quotations — Tags: , , , , — Nicholas @ 01:00

Last time, we sought to assess some of the assumed weaknesses of the Hellenistic phalanx in facing rough terrain and horse archer-centered armies and concluded, fundamentally, that the Hellenistic military system was one that fundamentally worked in a wide variety of environments and against a wide range of opponents.

This week, we’re going to look at Rome’s first experience of that military system, delivered at the hands of Pyrrhus, King of Epirus (r. 297-272). The Pyrrhic Wars (280-275) are always a sticking point in these discussions, because they fit so incongruously with the rest. From 214 to 148, Rome will fight four “Macedonian Wars” and one “Syrian War” and utterly demolish every major Hellenistic army it encounters, winning every single major pitched battle and most of them profoundly lopsidedly. Yet Pyrrhus, fighting the Romans some 65 years earlier manages to defeat Roman armies twice and fight a third to a messy draw, a remarkably better battle record than any other Hellenistic monarch will come anywhere close to achieving. At the same time, Pyrrhus, quite famously, fails to get anywhere with his victories, taking losses he can ill-afford each time (thus the notion of a “Pyrrhic victory”), while the Roman armies he fights are never entirely destroyed either.

So we’re going to take a more in-depth look at the Pyrrhic Wars, going year-by-year through the campaigns and the three major battles at Heraclea (280), Ausculum (279) and Beneventum (275) and try to see both how Pyrrhus gets a much better result than effectively everyone else with a Hellenistic army and also why it isn’t enough to actually defeat the Romans (or the Carthaginians, who he also fights). As I noted last time, I am going to lean a bit in this reconstruction on P.A. Kent, A History of the Pyrrhic War (2020), which does an admirable job of untangling our deeply tangled and honestly quite rubbish sources for this important conflict.

Believe it or not, we are actually going to believe Plutarch in a fair bit of this. So, you know, brace yourself for that.

Now, Pyrrhus’ campaigns wouldn’t have been possible, as we’ll note, without financial support from Ptolemy II Philadelphus, Antigonus II Gonatus and Ptolemy Keraunos. So, as always, if you want to help me raise an Epirote army to invade Italy (NATO really complicates this plan, as compared to the third century, I’ll admit), you can support this project on Patreon.

Bret Devereaux, “Collections: Phalanx’s Twilight, Legion’s Triumph, Part IIIb: Pyrrhus”, A Collection of Unmitigated Pedantry, 2024-03-08.

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