State of the Province…
On Tuesday, President Barack Obama delivered his first “State of the Union” message.

It was a clear statement on the state of the country, the state of the economy and a clear declaration of his intent moving forward. In Ottawa, we have a government more interested in crime punishment than the economy or where Canada is headed.

In late January, Premier Shawn Graham delivered his annual “state of the province” address. He acknowledged the economic crisis and charted a path forward in terms of investment and stimulus. He reminded us as well that New Brunswick continues to build its foundation for self-sufficiency in spite of our economic challenges.

A column published this week by Constantine Passaris, Professor and Chair of the Department of Economics at the University of New Brunswick argues convincingly that New Brunswick needs to stay the course with respect to its self-sufficiency agenda. He reminds us that a province with historically high unemployment levels and personal income levels well below the national average is foolish to rely on the vagaries of Equalization payments from Ottawa for its well-being.

He also reminds us that the Graham government is the first New Brunswick government to embrace the reality that you cannot build a prosperous future by relying on federal transfer payments.

Mr. Obama talks about turning a crisis into opportunity, about creating new jobs in a greener environment, about enrolling millions of Americans in healthcare programs and investing in education to make the country more competitive.

The federal government in Canada has promised to help stimulate the Canadian economy and may even jumpstart the process by sidestepping traditional approval procedures to speed up the distribution of stimulus dollars. That could be a slippery slope.

Some of the stimulus money will find its way to New Brunswick so let’s dream a little bit! Assume we could access enough money to convert economic crisis into opportunity. One of the building blocks for self-sufficiency is energy.

What if we added high-speed transportation to the mix?

Imagine a New Brunswick with a high-speed rail system that would make it possible for people in Campbellton to commute daily to work in Moncton or make it possible for people in Edmundston to work in Saint John.

Imagine a high speed rail system that would make it convenient for everyone in the province to use one airport, an airport that would provide frequent service between New Brunswick and its major markets. Imagine a high speed rail system that would make it viable for people in Moncton, Saint John and Fredericton to work in any one of these cities without having to uproot their families.

Imagine high speed rail freight lines that would travel in a straight line from Moncton to Edmundston and from Moncton (via Saint John) to St. Stephen, lines that could carry the trucks and containers that move our products to and from central Canada and the United States.

Imagine the jobs that would be created during construction but more important, imagine how much more efficient our economy would become, how much easier it would be to attract new workers to the province, how much safer our highways would become and how much cleaner our air would be if all those trucks and cars were taken off the road.

A high speed rail network would facilitate the establishment of business and industrial clusters, medical clusters, education, research and innovation clusters. The benefits of clusters are found in economies of scale, technology transfers and the availability of human capital.

As organizations physically congregate in a region, spillovers of knowledge, people and technology occur. These spillovers lead to increased productivity and reduced costs. Savings are generated by the availability of specialized inputs such as information and technology or business services.

As workers are drawn to a region with multiple employment opportunities, firms benefit by having access to a large and appropriate group of potential employees. The existence of a labor pool, if tied to technical or vocational training facilities, can raise worker skill levels and reduce the transaction costs associated with employee searches.

Clustering is the principle behind the Saint John energy hub. There is no reason it could not be applied to the province as a whole. We have the technology. We have the communications infrastructure; all we need is a 21st century transportation system. Will we acquire it anytime soon? Not likely but it’s fun to dream about it.

Sadly, the imperative of most governments is damage control, not ideals or dreams or ennobling challenges but tactics of survival.

We have a premier with a vision. It’s not perfect and there have been more than a couple of stumbles but he should be encouraged to continue on the road to self-sufficiency.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com

The warmth and excitement of our welcome for President Barack Obama this week, underlines how estranged Canada had become from the United States over the last seven or eight years.

Mr. Obama’s substantive performance at Thursday’s press conference in Ottawa reminded us of his cool and intelligence. He was well briefed and sensitive to Canadian interests even though he nearly replaced Ottawa with “Iowa”.

The imagery was most interesting. Obama was relaxed, smiling and very much in control.

Harper seemed anxious, trying to please, attempting to make a good impression. Michael Ignatieff appeared tongue-tied in his photo-op with Obama. Only Governor General Michaëlle Jean seemed relaxed in the President’s company.

Obama’s discussion with the Prime Minister touched on a number of points from Afghanistan to the U.S./Canada border, to the carbon footprints of U.S. coal and the Alberta oil-sands, to trade and border security. They talked about the auto industry and the respective economic stimulus packages of the two countries, Canada’s concerns about “Buy American” provisions in the U.S. package and the U.S. financial industry.

On the matter of border security, Mr. Harper made it very clear that U.S. security is as important to Canada as it is to the United States and I applaud him for that. Mr. Harper was also quick to point out that our economic problems, although linked through our trading relationship are somewhat different from the U.S. problems, particularly in the areas of healthcare, housing and banking.

Canada’s problems are driven by crashing oil prices and a collapse in demand for our natural resources, automobiles and other manufactured products. Fortunately, our banking system remains strong. An article published in Newsweek Magazine earlier this month says that in 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th.

Nationalization of banks in the United States is now being openly discussed. It was the dominant item on CNN Wednesday. On Thursday, former Chairman of the U.S. Federal Reserve Alan Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism in the United States, came out in favor of nationalizing some U.S. banks.

In an interview with the Financial Times of London, he said nationalization could be the least of all evils for policymakers. "It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring," he said.

The former Reserve Chairman said temporary government ownership would "allow the government to transfer toxic assets to a bad bank without the problem of how to price them."
Nobel prize-winning economist Joseph Stiglitz says nationalized banks are the "only answer.

“We live in a very different world than the world of the Great Depression. Then, we had a manufacturing economy. Now we have a service-sector economy”. In the Great Depression we didn't have a safety net. Now we have unemployment insurance.

The U.S. government has poured hundreds of billions of dollars into the U.S. banking system, to little effect. U.S. banks continue to fail. American taxpayers have already become owners in a large number of banks. With the state as sole owner, executives and board members could be fired without golden handshakes. Managers could be incentivized by linking remuneration to multi-year profitability.

Full public ownership of the banks could facilitate the creation of a ‘bad bank’ that would hold on its balance sheet all the toxic assets (assets of uncertain value not easily convertible to cash) currently held by the U.S. banks. The bad bank, holding the toxic assets would collect the cash flows associated with them until a liquid market for these assets could be established. The publicly-owned banks could be re-privatized when financial markets stabilize and the economy recovers.

The logic of bank nationalization in the American (and British) context could make sense but the Americans will have a problem with it, a problem that traces back to the declaration of American independence. It’s about their perception of freedom and independence, the sanctity of free markets and the perception they will self-correct.

The natural reflex of most Americans is that government interference in the private sector is not a good idea, yet they crave it for healthcare and other social programs. The auto industry will soon be on government life-support.

Leaders of the U.S. financial industry have become abject failures. Their banks or financial institutions have already been exempted from market discipline, i.e. bankruptcy, thanks to state intervention.

The very fact that they operated with minimal government oversight, drove themselves to the verge of bankruptcy and managed to make themselves so essential that they cannot be permitted to collapse suggests they cannot be left in the hands of their current owners.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com

There are more than 9,400 banks in the United States.

That compares to the big six (of fourteen) in Canada.

Last year more than thirty U.S. banks collapsed or were closed by U.S. regulators. Another nine were shut down in January of this year. Since October 2008, three hundred and fifteen U.S. financial institutions have been shored up with funds from the Troubled Asset Relief Fund (TARP) and more are likely to join them.

It appears that the sub-prime mortgage fiasco sucked most of the equity out of the U.S. banking system. The domino effect has been felt around the world. Investor George Soros has estimated that it will take another $1.5-trillion to properly recapitalize just the U.S. banks - a colossal sum that the U.S. Congress might be loath to fund. We should care because what’s good for the U.S. economy is good for the Canadian economy.

Royal Bank of Canada's investment arm warned in a report earlier this week that as many as 1,000 U.S. banks could fail in the next three to five years as losses mount on commercial real estate loans.

In Canada, the issue is not so much the banks but the fact that many lending sources have been withholding credit in the wake of the global financial crisis. In his recent budget, Finance Minister Flaherty set aside $125-billion to boost access to credit by acquiring insured mortgages from the banks to free up cash for lending.

Since October 2008, Canada’s economy has lost 213,000 jobs. In January, 129,000 jobs disappeared, 101,000 in manufacturing alone. On Wednesday, Stats Canada data showed that Canada also recorded its first trade deficit in 32 years, reflecting the sudden collapse of U.S. demand and the collapse of commodity prices.

BMO Capital Markets deputy chief economist Douglas Porter called it "a watershed report," Statistics Canada said exports fell faster than imports in December, resulting in a trade deficit of $458 million, compared with a surplus of $1.2 billion the previous month.

It is the first time Canada's trade balance has fallen into deficit since March 1976.

Exports fell 9.7 per cent to $35.3 billion in December, the largest month-over-month percentage drop since October, 1982. Imports dropped 5.7 per cent to $35.8 billion, mostly on volume reductions in machinery and equipment, auto products and industrial goods.

This past week, General Motors announced it is cutting 10,000 “white collar jobs”. Meanwhile, French President Nicolas Sarkozy announced that PSA Peugeot Citroen and Renault SA will each be given a five-year loan of 3 billion Euros ($3.9 billion) from the government after they promised not to shut down plants or fire workers in France. Renault Trucks, which is owned by Volvo AB of Sweden and some other auto-makers, will receive 500 million Euros in loans.

The automobile sector in France employs about 2.5 million people or 10 percent of the working population. Germany and Italy also find themselves in the forefront of collapse in the automobile sector.

With the global economic crisis, the status of the automobile appears to be changing in society. Automakers who have long been blind to global environmental issues, exploited the SUV market when oil prices were in full explosion. Now they are being forced to accelerate their investments in the design and production of new cars that are reliable, cheaper and more energy-efficient.

Disorder in the automobile industry, even more than the decline of the housing and banking industries, is a reminder of economic history - the rise and fall of industrial destinies.

When "Fortune 500" listings began in 1955, General Motors was the largest American corporation and it was one of the three largest, measured in revenues, every year until 2007. GM was the "largest industrial corporation in the world," in its own description of 1989 and it was engaged, at the time, in "the most massive reindustrialization program ever attempted.

Albert Einstein once said, as if referring to the current economic stimulus climate "We can't solve problems by using the same kind of thinking we used when we created them".

Consider in contrast, Bank of Canada Governor Mark Carney’s remarks where he says economic recovery in Canada hinges on efforts around the world to bolster the financial sector. He says "extraordinary steps" are being taken by all G7 countries to keep banks from collapsing. Are they extraordinary or are they simply reactive to the experiences of a depression - seventy odd years ago?

Is this an economic "crisis" or an economic sea-change opening the door to extraordinary opportunity, a transformation that will revolutionize the way we think and live?

Who knows, we could be in the midst of some form of economic and societal revolution where no person or government can determine its conclusion.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com