I spent thirty-three years and four months in active military service as a member of this country’s most agile military force, the Marine Corps. I served in all commissioned ranks from Second Lieutenant to Major-General. And during that period, I spent most of my time being a high class muscle-man for Big Business, for Wall Street and for the Bankers. In short, I was a racketeer, a gangster for capitalism.
I suspected I was just part of a racket at the time. Now I am sure of it. Like all the members of the military profession, I never had a thought of my own until I left the service. My mental faculties remained in suspended animation while I obeyed the orders of higher-ups. This is typical with everyone in the military service.
I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902-1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went on its way unmolested.
Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.
Major General Smedley Darlington Butler, USMC (1881–1940), War is a racket, 1935.
January 15, 2014
QotD: Early 20th century American imperialism
December 24, 2013
Indian gold bugs go home
The Indian government has been attempting to restrict the domestic gold market, but there’s a big loophole in the rules that many travellers are taking advantage of while they can:
Faced with curbs on gold imports and crash in international prices leaving it cheaper in other countries, gold houses and smugglers are turning to NRIs to bring in the yellow metal legally after paying duty. Any NRI, who has stayed abroad for more than six months, is allowed to bring in 1kg gold.
It was evident last week when almost every passenger on a flight from Dubai to Calicut was found carrying 1kg of gold, totalling up to 80kg (worth about Rs 24 crore). At Chennai airport, 13 passengers brought the legally permitted quantity of gold in the past one week.
“It’s not illegal. But the 80kg gold that landed in Calicut surprised us. We soon got information that two smugglers in Dubai and their links in Calicut were behind this operation, offering free tickets to several passengers,” said an official. The passengers were mostly Indian labourers in Dubai, used as carriers by people who were otherwise looking at illegal means, he said. “We have started tracing the origin and route of gold after intelligence pointed to the role of smugglers,” he said.
Reports from Kerala said passengers from Dubai have brought more than 1,000kg of gold in the last three weeks. People who pay a duty of Rs 2.7 lakh per kg in Dubai still stand to gain at least Rs 75,000 per kg, owing to the price difference in the two countries. Gold dealers in Kerala say most of this gold goes to jewellery makers in Tamil Nadu and Andhra Pradesh.
August 4, 2013
Ben Klass responds to Bell Canada CEO’s open letter
You begin the “unusual step of writing to all Canadians” (Strange, isn’t it, that “Canada’s Top Communication Company” should find it unusual to communicate with its customers?) with a history lesson, ostensibly in the interest of helping us “understand a critical situation” now facing the wireless industry: the potential entrance of an American company into the Canadian market.
You inform us that, since Parliament granted Bell its charter in 1880, Bell has spent 133 years “investing in delivering world-class communications services to Canadians.” An impressive track record!
You must, however, be aware that Bell’s permission to operate in Canada was initially obtained by agents acting in the interest of the (American) National Bell Telephone Company and that, after securing a favourable charter, three top-level executives from National Bell were appointed to Bell Canada’s board of directors (Babe, 1990, pg 68-69). Or how about how American Bell initially owned 50% of your company, only fully divesting its interest 43 years ago, in 1970 (Winseck, 1998, pg 119)?
Bell began its life in Canada as a branch plant of an American company. (In a strange twist of fate, it’s now a descendant of National Bell Telephone — Verizon — which is contemplating (re)entering the Canadian market.) And they leveraged this relationship to get an early leg up on the competition — using patents owned by its American parent, Bell quickly monopolized the market for Canadian telephone services, a monopoly it used to funnel profits back to the States. (Smythe, 1981, pg 141)
You suggest that “US giants don’t need special help from the Canadian government,” but that’s exactly how Bell got to where it is today!
That’s all ancient history, however, and in the here and now, BCE is a Canadian company who “welcomes any competitor,” so long as they “compete on a level playing field.” Right?
You’re calling on the Federal government to close “loopholes” that are intended to promote competition in your industry — rules that your company has forced the government to create.
Read the whole thing.
August 2, 2013
The self-inflicted wounds of Britain’s post-war auto industry
Dominic Sandbrook contrasts the rise of the German auto industry from the literal rubble of the post-war world with the slow decline of Britain’s once-mighty car makers:
If you want to know why Angela Merkel calls the shots in Europe, Germany’s car factories are a pretty good place to start.
By contrast, Britain’s car industry is a shadow of its former self. We do still make almost one and a half million cars a year, which is good news for thousands of British engineers. But these days, we make them for other people.
The iconic Mini plant at Cowley, for example, is celebrating its centenary this year. It was founded in 1913 by the entrepreneur William Morris as the home for his legendary Morris Oxford.
Today it still makes thousands of cars — but it makes them for BMW.
It’s a similar story at Crewe, the home of another great British icon, Bentley – which actually belongs to Volkswagen.
Half a century ago, let alone when Morris was at his peak, this would have seemed unimaginable. But the sad truth is that Britain’s car firms only have themselves to blame.
Seventy years ago, at the end of World War II, Germany was on its knees. After the fall of Hitler’s empire, its car industry lay in ruins.
In August 1945 the British Army sent a major called Ivan Hirst to take control of the giant Volkswagen plant in Wolfsburg, which had been built under the Nazis to produce ‘people’s cars’ for the German masses.
Ignoring his sceptical superiors, Hirst could see the potential amid the shattered debris of the Wolfsburg factory.
Rebuilding Volkswagen, he thought, would be a step towards rehabilitating Germany as a prosperous, peaceful European ally. And of course he was right.
In the next few years, Hirst restarted production of a car we know today as the Beetle. And from then on, VW was flying.
July 26, 2013
BC Premier highlights antiquated inter-provincial trade rules with wine
The rules governing inter-provincial trade in wine date back to the Prohibition era. BC’s Christy Clark would like to see the rules brought into this century:
British Columbia Premier Christy Clark brought a case of her province’s wine to the heart of Ontario’s vine land.
Clark presented the vintages to her dozen provincial and territorial colleagues in a bid to lower trade barriers.
Even though Ottawa eased interprovincial rules surrounding wine last year, it is still illegal for Ontarians to buy wine in bulk directly from B.C. vineyards.
To get around that, Clark’s six-person entourage brought two bottles apiece to have a full case for the premiers at their annual Council of the Federation gathering.
I linked to an item on this issue by Michael Pinkus earlier this year.
July 21, 2013
Real competition? In our mobile phone market? It’s less likely than you think
Canada’s mobile telephone market is a rigged oligopoly of three major companies and a few minor players. One of the big three, Telus, has opened a new campaign against the federal government’s tentative gestures towards allowing a more competitive mobile phone market for Canadians. Michael Geist has the details:
Yesterday, Telus CEO Darren Entwistle was campaigning at the Globe and Mail and National Post, warning of a “bloodbath” if the government sticks with its commitment to allow for a set-aside of spectrum for new entrants such as Verizon. Telus is concerned that a set-aside would allow Verizon to purchase two of the four available blocks, leaving the big three to fight it out over the remaining two blocks. Telus emphasized its prior investments in arguing for a “level playing field” in the auction.
Yet to borrow Telus’ phrase — “scratch the surface of their arguments and get to the facts” — and it becomes clear the fight is not about level playing fields since new entrants have been at a huge disadvantage for years in Canada. Indeed, even with a spectrum set-aside, there would not be a level playing field as companies such as Telus would have big advantages that include restrictions on foreign ownership for broadcast distribution (thereby blocking Verizon from offering similar bundled services), millions of subscribers locked into long term contracts, far more spectrum than Verizon would own, and its shared network with Bell that has saved both companies millions of dollars.
While the companies frame their arguments around level playing fields, the real goal is simply to keep competition out of the country. For Verizon (or any major new entrants), a spectrum set-aside will be crucial since it is the only way to obtain sufficient spectrum (when combined with the existing spectrum from Wind Mobile and Mobilicity) to establish a viable fourth wireless network that could compete directly with the big three incumbents. If Telus gets their way, the removal of the set-aside would kill the government’s stated goal of a viable fourth carrier since there would be little reason for Verizon to enter the country only to face many of the same disadvantages that has hamstrung the smaller new entrants.
[…]
Make no mistake: the Telus lobbying campaign will be joined by Bell and Rogers as the three companies spend millions of dollars in advertising and lobbying to keep the Canadian market free from much needed competition (the Wire Report reports that ten board members each from Telus and BCE have registered to lobby the government on spectrum). The government has insisted that it will do whatever is necessary to ensure greater competition and consumer choice in the wireless sector. The potential Verizon entry into Canada — undoubtedly conditioned on a spectrum set-aside — is precisely what is needed. In this case, sticking with its policy by siding with consumers and greater competition has the dual advantage of being both good policy and good politics.
July 19, 2013
Protectionist law from 1920 strangling economies of Hawaii and Puerto Rico
Keli’i Akina wants the US government to amend or (better) repeal the 1920 Jones Act:
What’s the best way to destroy the economy of an island or largely coastal region? From the Peloponnesian War to the 1960s confrontation between Cuba and the United States, the answer has been to impose an embargo. In effect, that’s what the United States has been doing for decades to its non-contiguous regions such as Hawaii and Puerto Rico as well as Alaska and much of the East and West Coasts. The culprit in this economically self-defeating practice is a little-understood federal statute called the Jones Act. The 1920 maritime cabotage law specifies that ships carrying cargo between two American ports must: 1) be built in the United States, 2) be 75% owned by U.S. citizens, 3) be largely manned by a United States citizen crew, and 4) fly the United States’ flag.
In 2012, the Federal Reserve Board of New York issued a warning to the federal government that, unless Puerto Rico is granted an exemption from these Jones Act rules, its economy would likely tank. Following suit, the World Bank released a statement announcing that it will cut back its financing of projects in Puerto Rico and begin encouraging investors to look to Jamaica as a new international shipping hub. Puerto Rico’s legislature, governor, and resident commissioner in Congress have voiced loud objections. They join a growing chorus of outrage which includes Alaska, whose legislature has passed a law (Sec. 44.19.035) requiring the governor lobby Congress for reprieve from the Jones Act.
The Jones Act creates an artificial scarcity of ships due to the inefficiency and the extraordinary cost of U.S. ship construction, driving up cargo costs and limiting domestic commerce. Through World War II the United States was a leading producer of merchant ships. Today we build less than one percent of the world’s deep draft tonnage, and the ships produced domestically for the commercial market come at a hefty price.
May 26, 2013
May 6, 2013
A Canadian criminal innovation – cheese smuggling
The CBC reports on a breathtaking news item … imported mozzarella cheese is being removed from the clutches of the supply management system, which will reduce prices by a significant amount:
Pizza lovers could soon be paying less for their favourite pies.
A ruling made this week by the Canadian Dairy Commission could soon allow Canadian restaurants to buy deeply discounted mozzarella cheese.
The commission changed the rules used to classify mozzarella cheese, putting the milk product in its own class and essentially removing it from supply-management pricing. Before the ruling, the price for mozzarella cheese in Canada was artificially high when compared to the world market.
The new class, to take effect June 1, is expected to result in lower costs for Canadian-made mozzarella for restaurants that prepare and cook pizzas on site.
Bob Abumeeiz, who owns Arcata Pizzeria in Windsor, Ont., said the ruling could drop the price of a large pizza by as much as 10 per cent.
Oh, and the cheese smuggling?
High prices are part of the reason some pizzeria owners were turning to contraband cheese, smuggled into Canada from the U.S.
Last fall CBC News learned three men, including one current and one former police officer from the Niagara Falls area, were charged in connection with an international cheese-smuggling network.
The men are accused of smuggling caseloads of cheap cheese from the U.S. to sell to Canadian pizzerias and restaurants.
April 16, 2013
Six political talking points on international trade that are myths
In Maclean’s, Stephen Gordon collects six of the most common myths politicians use to justify trade distorting policies:
1) Exports are good. Not true; exports are the costs we pay for engaging in international trade. Diverting domestic productive resources to producing more things for foreigners doesn’t increase our standards of living.
2) Imports are bad. This is point one restated: imports are the benefits from trade. The reason we engage in international trade is to obtain goods and services more cheaply than we can produce them for ourselves.
3) Trade deficits are bad. I went though this at length in this post: noting that a country has a trade deficit (or, more properly, a current account deficit) is the same thing as noting that domestic investment is larger than domestic savings. It’s not obvious why this is necessarily a bad thing.
4) Trade deficits are a sign of a slowing economy. The Canadian trade balance is generally counter-cyclical: falling during expansions and rising during recessions. A trade deficit is standard fare for Canadian expansions, not something to get concerned about.
5) Liberalized trade increases employment. Again, this is point one restated. Liberalized trade may increase the number of workers in certain export-oriented sectors. But the effect on total employment in the economy is zero.
6) Liberalized trade reduces employment. Again, this is point two restated. Liberalized trade may reduce the number of workers in certain sectors vulnerable to foreign competition. But the effect on total employment in the economy is still zero.
March 25, 2013
Budget Day was also apparently opposite day
In Maclean’s, Stephen Gordon give props to the spinmeisters in the employ of the federal government:
Full credit to the government’s communications strategists: they managed to produce budget-day headlines that said the exact opposite of what was in the budget.
The first thing I read on the morning of budget day was the National Post story about cutting tariffs on hockey gear. There was also a matching A1 story in the Globe and Mail and I walked to the budget lockup in a cheerful mood. Even though the numbers involved were tiny, I couldn’t help but feel encouraged about how the measure was being marketed. Almost without exception, trade liberalisation is presented as a concession to the demands of foreign exporters, but the real gains from trade are those obtained from being able to purchase cheaper imports. These gains can be obtained by reducing tariffs unilaterally – the most famous example is the repeal of the the UK Corn Laws in 1849. There was no drawn-out process of negotiations with corn (wheat) exporters in other countries: the UK government simply eliminated tariffs so that the population could have cheaper food. The morning headlines led me to believe that our government was going to implement a unilateral tariff reduction for the simplest and best reason: because it increased consumers’ purchasing power.
I was wrong, of course. Yes, there were those 37 tariff reductions, but there was also the measure to ‘modernize’ Canada’s General Preferential Tariff (GPT) regime by ‘graduating’ 72 countries from the GPT; imports from these countries will now face higher tariffs. Mike Moffatt estimates that those 37 tariff reductions will be accompanied by 1290 tariff increases. [. . .]
So instead of a unilateral reduction in tariffs, the government is planning a unilateral increase. This is not how a pro-trade government behaves.
What are politics of #bdgt13 tariffs? Possibilities: CPC thinks a) no one would notice b) big gains from Orchardites c) only ‘experts’ care.
— Kevin Milligan (@kevinmilligan) March 25, 2013
March 10, 2013
March 6, 2013
QotD: Canada Syndrome
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 14, 2013
Crony capitalists make pitch for industrial policy in defence purchases
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.”
February 11, 2013
Senate report calls for tariff cuts
In the Financial Post, Terence Corcoran looks at the good and not-so-good aspects of a recent Senate report on the reasons Canadians pay so much more for goods than Americans (even when the goods are identical and the currencies are trading at par):
Retail prices in Canada, seemingly across the board, are higher. Even with the Canadian dollar at par, the price of everything from running shoes to televisions and Chevy Camaros to books is said to be above U.S prices. One bank report once put the Canada-U.S. price gap at 20%.
Somebody’s gotta do something, everybody agrees. Enter the Senate committee with one of the most hard-nosed, market-driven overviews of how and why Canadians pay more for goods at retail. The report dodges and fudges some key issues, especially farm product supply management, which was seen by the committee and the retail industry as too politically hot to handle.
[. . .]
Even in this, however, the committee pulls its first punch. The recommendation to “review” such tariffs — watery phrasing in itself — also suggests “keeping in mind the impact on domestic manufacturing.” Sorry, folks, but you can’t have it both ways. Tariffs are protectionist devices for manufacturers that consumers pay for. If you want to reduce the price to consumers, the $3.9-billion in protection for manufacturers has to go. End of discussion.
What makes The Canada-USA Price Gap even more valuable is its compact insights into the many causes of higher retail prices in Canada. The economy is a complicated and often unfathomable series of market and price relationships beyond the power and even understanding of policy makers. The report recognizes that fact time and again.
