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MCCOLL: Beware corporate giants proclaiming themselves ‘too big to fail’

Corporate giants are back at the trough asking for taxpayers money and protective regulations.

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In the global online economy, there are winners and losers. The winners win big and become whales, and the losers go the way of Eaton’s and its mail-order catalog. With 90 per cent of web traffic going to just the top 10 sites, there is no online middle class. The COVID-19 pandemic has elevated major online retails – Amazon especially – to the status of an essential service. Between industry consolidation and being deemed an essential service, are online retails too big to fail, and thus in need of regulatory action? 

The first issue is one of creative destruction. If these online whales are too big to fail, what will happen to capitalism without creative destruction? The libertarian argument is that no firm is too big to fail and there should always be creative destruction. Eaton’s was once the largest retail business in Canada and its mail-order catalog played arguably a more important role in the lives of rural families 75 years ago than Amazon Prime does today.

The classic Canadian children’s book, The Hockey Sweater, might have never been written if set today. Instead of accidentally ordering the socially unacceptable jersey of the Toronto Maple Leafs from Eaton’s English mail-order catalog and being stuck with it, Roch Carrier’s mother would have used a French language version of Amazon.ca to ensure she was ordering the correct Maurice “Rocket” Richard number 9. She also would have enjoyed Amazon Prime two-day free shipping and all the related streaming video and music that comes “free” with the Prime membership. Perks that didn’t exist in the town of Sainte-Justine, Quebec in 1946.

While Amazon is the whale of both business-to-business cloud computing and online retail, it is hardly the first large tech business or large retail business. It is also not alone in the competitive landscapes it dominates. In the same way that Eaton’s used to dominate mail-order and large retail, nothing lasts forever, and there’s no grantee that Amazon will enjoy perpetual dominance – or even rival Eaton’s 100+ year corporate existence. Brick and mortar retailers are constantly expanding their online presence to rival Amazon both from an online order standpoint as well as providing live inventory. Free two-to-three-day shipping is convenient, but so is buying online at lunch and picking it up from your local store’s customer service desk on your drive home from work. Although this only applies during normal times, during a pandemic with mass social distancing, the advantage swings back towards Amazon.

In the cloud computing business, Amazon is up against other giants like Google and Microsoft as well as software-as-a-service solutions sold directly by major software vendors like Oracle. When HP purchased IT outsourcing company EDS in 2008 for $14 billion (USD) to become a rival to outsourcing whale IBM, Amazon Web Services (AWS) was two years old and so small that it didn’t even fully host Amazon.com. Fast forward a few years and AWS is the cloud whale that upset the outsourcing industry apple cart. IBM has had to refocus on high margin services, consulting, software, and revolutionary AI solutions like IBM Watson. Whereas HP – once the world’s largest IT company – announced an $8 billion accounting write-down on the value of their EDS outsourcing business in 2012, shut down their AWS competitive cloud business, and split into two much smaller companies in 2015. 

While retail giants have typically been dominant over the course of a century, the lives of modern IT companies are at far greater risk of being the victim of creative destruction. The internet survived the rise and fall of Nortel, HP EDS, Blackberry, and many more technology whales. The internet would survive a loss of AWS.

Companies eager to be described as “too big to fail” are often eager for regulatory action tailored to advance their interests. Amazon is no better or worse in this regard, always willing to entertain discussions about regulatory burdens for their competitors and direct taxpayer subsidies. The massive loans and grants being offered in response to COVID-19 have businesses big and small jockeying for a slice of taxpayer money. Taxpayers must remain vigilant lest the aid packages disproportionately end up in the hands of the politically well-connected firms that need it the least.

It has been reported in the Wall Street Journal and the Financial Post that Amazon, as well as other online retailers, benefit greatly from lower delivery costs afforded to them by the money losing U.S. Post Office and Canada Post. While all online businesses that ship using the government-owned post offices benefit relative to retail locations, Amazon – the largest online retailer – enjoys the bulk of the indirect subsidy. Estimates put the value of this subsidy in the billions of dollars in the US. While lobbyists for physical retail businesses are looking for equally generous subsidies the better solution, and the one employed in Germany, is to privatize the postal service and end the taxpayer subsidy for shipping.

A more egregious and direct subsidy was the competition for Amazon’s “HQ2” second headquarters project. The competition involved governments submitting bids – like they would to the International Olympic Committee – to buy Amazon’s residency with tax breaks and direct handouts. New Jersey and Maryland both submitted bids that – had they been successful – would have been close seconds to the largest state funded tax subsidy of a corporation in US history: Washington State’s $8.7 billion (USD) handout to aviation giant Boeing. The blatant crony capitalism was ridiculed by Reason.com with a brilliant satirical video.

With the downturn in the aviation industry caused by COVID-19, Boeing is back at the trough asking for more taxpayer funded handouts. Boeing’s current crisis is largely one of its own making. Its trade dispute with Canada over the Bombardier C-Series jet ended up backfiring spectacularly. The Canadian Government cancelled a planned order for Boeing Super Hornet fighter jets and Bombardier – driven to exit the commercial aviation market – sold the C-Series to Airbus. The deadly 737 Max scandal alone should disqualify Boeing executives from expecting any sympathy from the general public. If Boeing needs money, then it should sell bonds, issue new shares, or sell parts of its business. The military jet businesses Boeing acquired through its 1997 merger with McDonnell Douglas would undoubtedly fetch billions.

On March 31, 2020 Alberta Premier Jason Kenney announced a plan that “will accelerate the diversification of Alberta’s economy:” a plan to invest $1.5 billion in the Keystone XL pipeline for an undisclosed equity state in the project and provide $6 billion in taxpayer loan guarantees to TC Energy (the $1.5 billion “investment” would come from new Alberta Government debt). Premier Kenney explained that this deal was the result of six months of negotiations between TC Energy and government officials and claimed that without this investment the pipeline would have not been built. 

In justifying partially nationalizing a pipeline Kenney said, “our failure to get pipelines built has been a failure of government policy and politics, not of markets.” The previous week, the premier accused Russian and Saudi oil companies of “predatory dumping” and proposed trade barriers to keep foreign oil out of North America. Trade barriers, mandated curtailment, and taxpayer ownership of pipelines all adds up to a new National Energy Program based around a government supply management scheme.

TC Energy is a heavily regulated multibillion-dollar company with billions of dollars in annual profits. Until recently, TC Energy seemed committed to building the pipeline. So long as “more government” is the solution, then the taxpayer is always going to be asked to fund bigger and more expensive government. Why would anyone build a multibillion-dollar project in Alberta in the future without first engaging in rent-seeking to see if they too can get a $1.5 billion equity deal with $6 billion in loan guarantees?

In The Wealth of Nations, Adam Smith pointed out that cronyism and collusion are nothing new, writing “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” However, he also went on to warn that regulations to prevent such meetings would be inconsistent with liberty and would likely make things worse. The best solution for policy makers wrote Smith, was to simply “do nothing to facilitate” such cronyism.

The old French proverb, “The more things change, the more they stay the same” rings true today. The optimal policy solution for regulating modern commerce remains the same optimal policy solution proposed in 1776, when commerce was powered by sail and horse (steam railways were invented in the early 1800s): policymakers should neither help nor hinder big companies.

Alex McColl is the National Defence Columnist with the Western Standard and a Canadian military analyst

Opinion

WAGNER: The hopeless task of reforming Canada

Considering all of the attempts to reform confederation over the last four decades, what other option is there?

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Many Albertans and other Westerners are justifiably angry about how the West is mistreated within Canada. The federal government has been deliberately thwarting the development of the West’s energy resources, thereby suppressing economic growth and prosperity. The Liberals plan to maintain this ruinous course in their effort to fight climate change. 

Despite this – and the West’s constitutionally entrenched second class status in the constitution – most Westerners are still patriotic Canadians and want the country to work. They’re willing to give Canada another chance and try to improve the country to rectify the injustices against the them. Constitutional reform is often suggested as a way to achieve this goal.

From an abstract perspective, it is very reasonable to want to try to fix Canada before giving up on it altogether. Historically, Canada has accomplished many great things and offered freedom and a superior way of life to millions of people. Who wouldn’t want to save that?

But from an historical perspective, there is a problem with trying to reform Canada: in the post 1992 (Charlottetown Accord) era, there has been a multi-partisan consensus that constitutional reform is verboten, for fear of offending Quebec. Those who have tried to break this consensus have been ignored or written off. If these people haven’t been able to achieve the kinds of changes necessary to get a fair deal for the West, what makes others think they could achieve them now?

To state this point most bluntly: if Preston Manning and the Reform Party of Canada were unable to make the kinds of changes Western Canada needs, then it can’t be done. 

The Reform Party was the West’s best chance of getting a better deal within Canada. Many of the region’s best citizens were involved. Thousands of well-meaning Westerners put all kinds of time and money into getting the party off the ground and sustaining it for a decade. It was the dominant federal party in Alberta and most of the West until it folded into the Conservative Party of Canada. There is nothing like it in Western politics today, and even if all of the groups calling for constitutional reform were amalgamated, their efforts would look miniscule beside the old Reform Party.

Many readers of the Western Standard likely recall the Reform Party fondly. They know that the initial impetus for the party was rectifying the subordinate place of the West within confederation.

In his introduction to Act of Faith, a book published in 1991 to chronicle the initial rise of the Reform Party, Ted Byfield describes the historical injustices done to the West, making a new party necessary. As he points out, during the Liberal government of Prime Minister Pierre Trudeau, it increasingly “began to look as though Canada was a mere con game, being played out by Ontario and Quebec at the expense of the West.” 

But instead of turning to independence, most Westerners at that time just wanted fairness within Canada. So, with the Reform Party, he writes, “No longer would the West talk about ‘getting out of Canada.’ Instead the slogan became, ‘The West Wants In,’ a phrase coined by Alberta Report columnist Ralph Hedlin. It means that the West wants constitutional changes that will enable it to play a more equal role in Canadian affairs, notably a Triple-E Senate.”

The Reform Party made a tremendous effort, but ultimately got nowhere.  

The fact is that fighting for a better deal for the West within Canada has been going on, in one form or another, for decades. Besides the Reform Party, there were various other advocates for Senate reform at least since the early 1980s. Especially noteworthy is Bert Brown and his Canadian Committee for a Triple-E Senate.

Despite such great efforts, their goal was never achieved.

These people should be applauded for their efforts. It makes perfect sense to advocate reform before proposing more drastic solutions. But they worked hard, did their very best, and central Canada offered them what Central Canada will always offer discontented Westerners – nothing. 

Does anyone really think that a new Western political movement can be organized that could equal the Reform Party, let alone improve on its achievements? Because that – at minimum – is what it’s going to take to accomplish the kinds of changes necessary for the West to get a fair deal. 

In sum, over the years there have been plenty of proposals and attempts to improve the situation of the West within Canada. They have all failed for the same reason – central Canada is not interested. Central Canada is satisfied with the status quo and knows that the West is powerless to do anything about it. 

Albert Einstein defined insanity as, “doing the same thing over and over again, but expecting different results.” I am reminded of this statement when I hear calls for a new deal for the West within Canada. Again, such calls are completely reasonable and should be heeded by the Laurentian elite, but hat’s not going to happen. We’ve seen this movie before many times, and the ending is always the same.

What then, is the answer? Albertans and Saskatchewanians should be thinking about the independence option. Some of us have already concluded that’s the route to go. According to a recent poll, 45 to 48 per cent of Albertans already are. 

For others, it will be very difficult to reach the same conclusion because of their love for Canada – and that’s understandable. But considering all of the attempts to reform confederation over the last four decades, what other option is there? Central Canada is not going to accept constitutional reforms giving more power to the West. Whatever our attachment to Canada, the failure of reform leaves pursuit of independence as the only remaining viable alternative to the status quo.

Michael Wagner is columnist for the Western Standard. He has a PhD in political science from the University of Alberta. His books include ‘Alberta: Separatism Then and Now’ and ‘True Right: Genuine Conservative Leaders of Western Canada.’

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Opinion

CLEMENT: Alberta’s new vape laws will discourage smokers from making the switch

For every vape pod not purchased, 6.2 extra packs of cigarettes were purchased instead.

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Alberta’s new vaping regulations are a huge step backwards for harm reduction, and ultimately public health. This week, Health Minister Tyler Shandro announced that Alberta – in an attempt to curb youth vaping – will move to regulate vaping in the same manner as cigarettes, which includes age restrictions, restrictions on where consumers can vape, where advertising can be displayed, and possibly a ban on flavours.

It should be clearly said that vaping products are harm reduction tools for adult smokers, and that curbing youth access is a noble and worthy cause. That said, beyond the age restriction, Alberta’s approach to vaping is bad public policy.

First off, the provincial government has now shown that it is incapable of regulating based on the risk associated with a product. We know from credible public health agencies like Public Health England that vaping is at least 95 per cent less harmful than smoking. Because of that, vaping should be regulated in a different manner, one that recognizes the continuum of risk. Regulating vaping like smoking is problematic because it sends the wrong signal to adult smokers, primarily that vaping and smoking are of equivalent harm. By sending this false message to consumers, it can be expected that fewer smokers will make the switch to vaping, which is a net negative for public health, society at large, and more importantly, adults who are trying to quit cigarettes or consume nicotine in a less harmful way.

Take in store displays for example. In Alberta, cigarettes are purchased (mostly) at convenience stores where they are behind a screen so that products cannot be seen. Unfortunately, Alberta’s new regulations apply that same restriction to vaping products. Allowing for modest forms of in-store display will help prompt and inform adult smokers that reduced risk products exist, and will increase the likelihood of them making the switch. In order to encourage smokers to make the switch they have to know that these products exist, and the best way for them to acquire that information is at the point of sale where they traditionally purchase cigarettes. By placing all vaping products out of view, they will largely be out of mind for the 15.8 per cent of Albertans who currently smoke.

The same goes for the prospect of a flavour ban, which Alberta is now paving the way for with its new regulations. A ban on flavours, while done under the banner of curbing youth access and use, would hurt adult ex-smokers the most. Harm reduction research on the usage patterns of adult vapers – who were former smokers – shows that the availability of flavours is a significant factor in their decision to switch from smoking to vaping. In evaluating the purchases of over 20,000 American adults who vape, researchers concluded that prohibiting non-tobacco flavoured vapes would significantly discourage smokers from switching.

While these arguments may seem like hypotheticals to some, figures from the UK have shown us in real time, the impact a harm reduction approach has on smoking cessation. The United Kingdom is arguably the leader in embracing vaping as a harm reduction tool and as a means to steer adults away from smoking. So much so that over1.5 million people in the UK have completely switched from smoking to vaping. In addition to that, 1.3 million people in the UK used vaping as a means to quit smoking, and no longer vape or smoke. Because of the UK’s harm reduction approach, 2.8 million British have switched away from cigarettes, or quit altogether.

These regulations are further compounded by Alberta’s misguided 20 per cent vape tax, which further discourages smokers from switching. Supporters of the tax will argue that an increase in the price of vape devices will reduce the amount of people who vape. This is true, however it also has the consequence of increasing the amount of people who smoke cigarettes.  Research from the National Bureau of Economic Research, evaluating 35,000 retailers, showed that every 10 per cent increase in vaping price resulted in a 11 per cent increase in cigarette purchases. In terms of product sales, this means that for every vape pod not purchased, 6.2 extra packs of cigarettes were purchased instead. This is exactly the opposite of what public health officials should be encouraging via public policy.

While youth vaping is a problem – and one that needs to be addressed – it is important that the government doesn’t sacrifice adult smokers trying to switch or quit in the process. Regulating vaping like cigarettes ultimately means that more Albertans will continue to smoke, which certainly isn’t anything worth celebrating.

David Clement is the North American Affairs Manager of the Consumer Choice Center

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Opinion

RICK STRANKMAN: It’s time to break the cycle in Alberta

Albertans will soon have an opportunity to figure out what kind of a future we want: a dependent one, or a free one.

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For the past decade, Alberta’s leadership have chosen their battles on our behalf very poorly. In that time, Alberta’s lot in Canada has not improved. On the contrary, their neglect has only exacerbated an already unfair and intolerable situation.

Albertans have been led by what can only be described as “leadercentric” organizations that inevitably become top down. It’s time to break that cycle. The power to determine the path we take resides with Albertans. We must take the bull by the horns or we’ll just get more of what comes out the other end.

For decades, Equalization payments in Canada continued without change to the detriment of all Albertans; and now that Albertans could use a hand up – not a hand out – Ottawa has essentially turned its back on us. If we haven’t figured out yet that we need to look after ourselves and start putting our needs ahead of Ottawa’s, we never will.

The proposed Energy East pipeline would have benefitted every Canadian, but rather than a mutual buy-in from Eastern Canada, we have encountered legislated and, at times, illegal road blocks when trying to move our Canadian revenue-generating energy east.

The reality is that due to the unprecedented events that have taken place around the world recently, a financial storm is blowing that Alberta will not be sheltered from. It’s important that we batten down the hatches and properly prepare ourselves to take control of our future.

It’s time for some accountability and soul searching. We have the power to not let ourselves be put in the position we’ve been in for decades. We owe it to ourselves and future generations to make sure that it doesn’t happen again. Alberta is not only a place where I carve out a living from the land; it’s my home. It’s a place where generations of our families have spent our entire lives; a place that’s being unfairly stolen from us along with many of our freedoms.

There are two ways to look at the current situation: it can be the excuse we all use to blame our misfortunes on, or we can look at this as an easily justifiable reason to correct our trajectory before we fly vertically into the ground.

Henry Ford once said, “Failure is simply the opportunity to begin again, this time more intelligently.” 

Ford created a corporation that has been an industrial leader for over a century. Henry Ford along with the Ford Motor Corporation encountered many failures along the way. In spite of these failures, they took the lessons learned and moved into the future with a keen eye on the ditches of failure.

Older readers will recall the old bumper sticker we used to see that read, “Please God, give me one more oil boom. I promise not to piss it all away next time.”

Albertans will soon have an opportunity to figure out what kind of a future we want: a dependent one, or a free one. In the face of all the imminent changes that are about to take place, positive opportunities exist. Let’s take that opportunity and carve the words into the tablets that determine the future, and not continue to repeat the mistakes of the past.

Rick Strankman is the former Wildrose and UCP MLA for Drumheller-Stettler

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