Wednesday Night #1394

Overcoming the small annoyance for some of us (Westmount-Ville-Marie residents) of being in our fourth month of elections, with the only one that provoked true enthusiasm being over on November 4, we bravely tackle the important matters largely ignored by the Quebecelectioneers.
The economy and world financial crisis would be at the top of our list, even if the G20 Summit had not been held on Saturday. Reviews appear mixed, but largely contain a deep sigh of relief that expectations were exceeded and the fondest wish of economists and policy makers – “do no harm” – was granted. Mr. Harper seems pleased with himself and has lost no time in telling the media – and us – that he was an honest broker in the process. More important, it is noted that he now has a freer hand to backtrack on his firm pledge during the election to not run a deficit.
But news of the economy is not improving, as we learn tonight that Japan is sliding into recession and Citigroup will eliminate 52,000 jobs over the next year, twice the target announced last month. Pundits are saying that “the forces arrayed against recovery, including the credit contraction and cutbacks by consumers, are so powerful that they may overwhelm the record sums of spending and tax cuts being discussed in Washington.” (Bloomberg)
A sign of the times is the introduction of the Global Dow. “[It] covers both developed and emerging markets, recognizing that far-flung areas of the world are becoming more closely linked and more interdependent, and that wealth creation is no longer concentrated in a few countries. In addition, it includes companies from emerging sectors, such as alternative energy.”
The proposed bailout of the auto manufacturers remains a question mark, but looks less likely. [IHT For U.S. automakers and union, clout has plunged, too] In our opinion, Tom Friedman’s “How to fix a flat” strikes the right note – why should the taxpayer bail out feckless management that has continued to produce cars that few consumers want, while foreign rivals excel at meeting the public’s needs. [“But many industry experts say the big foreign makers are established enough to take control of the industry and its vast supplier network more quickly than is widely understood” NYT]. Note also the reference in the Friedman column to good news from Honda of Canada.
Mr. Friedman’s rage over the lack of innovation in the auto industry allows us a nice segue to the recent report on Innovation from the Conference Board of Canada, by our OWN Guy Stanley. It doesn’t make for very happy reading, but if enough people pay attention to it, perhaps things will change.
On a related topic is the report of the Association of Universities and Colleges of Canada that points out that universities are major players in R&D in Canada, performing more than one-third of our research and contributing at least $60 billion to the economy in 2007. So what happens to all that R&D if the country isn’t applying it to innovation?
We will be joined this evening by Ambassador Donald Bliss, the eminently qualified American Permanent Representative to ICAO, and his wife Nancy. Of all of his achievements and qualifications, the one that intrigues us most is the title of his book The Law of Airline-Customer Relations: Stability, Security, Safety and Service. We note the word service – the forgotten element for so many airlines today. Like most of the UN organizations based in Montreal (yes, there are several, of which ICAO is the largest and the oldest), ICAO’s mandate is little known or understood, and we hope our guest will elaborate on what ICAO does, in particular the efforts to lessen the environmental impact of aircraft engine emissions.
Other items for consideration:
Jean Charest’s mixed-message about development/protection of Quebec’s North. We are, of course, in favour of sustainable development, but are somewhat confused by the reports regarding his proposed policy of developing energy, creating provincial parks and encouraging the mining industry – the good news is that the PLQ has finally got its act together with the English-language portion of its website.
With the U.S. election over, we can now fixate on the Transition. Do we really think Hillary (and Bill) is/are the best choice for Sec. State? Who will be the nominee for Treasury? Why has Larry Summer’s star fallen? Not that we have any say, but it is good theatre. Finally, we wonder if President-elect Obama is prepared to make the ultimate sacrifice and hand in his blackberry.
Somali piracy: is the heist of the Saudi tanker finally going to provoke a serious reaction from the world? We are no longer talking about fancy private yachts taking unnecessary risks. Who are these pirates?  What c/should be done? Pirates raise stakes with oil tanker hijack ; Rules frustrate anti-piracy efforts [For a lighter – and clever – take on this issue, see Comment #1 below]

T h e  R e p o r t

The aviation industry
Despite successive cycles of prosperity and near bankruptcy, the airline industry has grown and matured aided by an ICAO policy of financial deregulation, while maintaining tight technological regulation and control.  The success of the deregulation decision has made travel much more efficient.  It, as well as subsequent competitiveness has forced carriers to maximize fuel efficiency in order to minimize cost.  A perhaps unintended benefit of the tight competition has been the positive effect on the reduction of carbon emissions in air transportation, especially when compared with that of ground transport.  In an attempt to reduce cost, the airline industry has been very conscious of the need to optimize routes in addition cutting fuel emissions by optimizing fuel consumption.  Increased competition has not had an adverse effect on safety because although competitiveness in other industries can lead companies to cut corners, aviation safety issues remain tightly controlled and crashes, though infrequent, when they do occur, have a devastating effect on an airline far in excess of the tragedy itself.  Africa, the most economically regulated air market in the world, suffers the worst crash record on the planet, illustrative of the disconnect between competitiveness and safety.
ICAO and IMO (International Maritime Organization) share similar goals and problems.  Essentially, ICAO has control over international but not domestic aviation.  For example, the United States domestic aviation fuel consumption is taxed, but not international.  Apart from these organizations, the only supranational regulatory body is the admittedly imperfect Security Council of the United Nations.  (The European Union has, with supranational monetary control, taken a step in that direction.)  These and such other events as the resurgence of piracy clearly point to the need for increasing world governance.

The automobile industry
The most recent element in the current world financial crisis is the plight of the automobile industry that has recently come to light.  Wednesday Night mavens believe that North American governments will attempt a bailout, but such recent moves are very reminiscent of an enhanced version of the finger in the dyke story with the final chapter increasingly in doubt.[Update: The bailout is not going to happen immediately, given the reaction from Congress on Thursday: “The House Speaker, Nancy Pelosi of California, and the Senator majority leader, Harry Reid of Nevada, at a joint news conference, said that any legislative proposal put to a vote this week would fail, and they leveled scathing criticism at the executives, including pointed barbs at the corporate titans for flying to Washington this week on private jets.]

The economy
People are taking pragmatic bold steps without any notion of the ultimate outcome of their actions.  Decisions are being made without a clear vision of the ultimate effect, but with the certain knowledge that the global economy will disintegrate without some action being taken.    The most logical market-based solution would be increased taxation, an action extremely unlikely to be proven acceptable.  The price of goods, as well as that of securities, is unpredictable.  The relative price of a good versus that of another does not necessarily reflect their relative value.  We are unwilling to change the price of natural resources to reflect the pressing need to be concerned about sustainable development.  The irrelevance of price in the determination of value is an indication that the expectation of a floor to stock market indices may very well prove to be a myth.
The stock market is collapsing and the credit system is grinding to a halt.  The whole system is breaking down; the corporate sector is now collapsing and will soon begin to layoff staff.  There is no confidence in the banking system which is built on confidence.  We are desperately attempting to maintain a level of income that is unsustainable.  House prices are falling and steel has plummeted.  The prolonged shortage of construction equipment has disappeared.   There are no buyers for equity.  As the market collapses, the only ones in the market are hedge funds.  No one alive today has ever lived through a crisis like this one.  Ultimately, prices will come down, industry, labour.  Oil will probably settle at eighty to one hundred dollars a barrel.  We are, in fact, on the brink of a general global deflation.
Canadian banks are much more tightly regulated thus better off than those the U.S. and so, will not go down as fast as those in the U.S. [Update: TD Bank became the latest of the big five banks to disclose large charges it will take in its fourth quarter as it will book $350 million in credit trading losses.]
Most countries have not gone through a real depression in 75 years and don’t know how to handle it.

One hopeful note
The one glimmer of light in an otherwise gloomy picture is to be found in the United States as was evident in the recent U.S. Presidential election campaign.  The role of the Internet in the campaign captured the imagination and involvement of significantly more people than ever before.  The relative youth of new potential electors using the Internet and their expressed willingness to live a more sustainable lifestyle is seen by some as foreshadowing greater public involvement in government through the use of that medium.  It is hoped that the sheer numbers of involved Internet users, their demonstrated need and will to express and act upon their concerns, might lead to more a reflective, logical legislative process. [Update: Already the Obama team is flexing its Internet muscle with a call to service. It is reported that  barackobama.com is directing visitors to volunteer for — or donate to — relief efforts to aid the victims of the Southern California fires.]