Thursday, April 17, 2014

On resources with Ian Jessop, Apr 17

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When special interests buy a government

Before BC Liberals were first elected in 2001, they promised natural resource producers to materially cut the public share of values extracted. They kept their promise and producers filled party coffers in return. There is a fiction in Canada that no connection exists between political contributions and government actions. I disagree.

Producers paid less to extract public resources, even though rising prices increased their ability to pay. This shows the value of resources produced.

Government received amounts shown below. The charts show that resource production exceeded $18 billion in 2011 and government receipts in FY 2011-12 were well under $3 billion. Had the 35% share been maintained as it was during the early to mid 2000s, in one year, an extra $4 billion would have been available for education, healthcare and infrastructure. This province is heading for a crisis point in public education and I believe these simple charts demonstrate this is unnecessary.

Liberal defenders tell me that government revenues are based on profitability of resource companies and declining revenues reflect higher costs. Of course, that is guesswork. When multinational companies ship commodities overseas, there is a tax benefit when costs are assigned to production and profits assigned to post-production activities. In other words, profit calculations at the mine head are unreliable.

When Teck Resources leases offices in Vancouver, they pay rents based on the market value of the building, not on the company's ability to pay. Landlords don't vary the rent according to Teck's profitability. Yet, when Teck extracts billions of dollars worth of BC copper and coal, they want to pay royalties based on what they calculate to be their profits. That's a great deal for Teck, not a great deal for the public that owns the resources.

Note: revenue amounts are drawn from public accounts; production values are from Natural Resources Canada reports, Mineral Production of Canada, by Province.

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Short term gain for long term pain

Yes, things were different in the nineties. In three years ended 1998, log exports totaled little more than $200 million but in 2011-2013, the value was nearly $1 billion. However, growth has not come without consequences., December 2013
"While one Canfor mill shuts down, another opens up, in China."
Business in Vancouver, January, 2014:
"The constant flow of B.C. logs to overseas sawmills is hurting local custom cutters and lumber remanufacturers who rely on the fibre. They are finding it hard to source what keeps them in business..."
The Globe and Mail, October 2013:
"...West Fraser announced that it will close its mill in Houston, B.C., by mid-2014, while Canfor plans to shut down its mill in Quesnel, B.C., next March..."
Ecology and Society, 2013
"We found that the specialty mills ...contributed more jobs per volume of wood consumed and produced, produced more diverse primary and value-added wood products, targeted more diverse markets, and did more trading in logs of different species...

"Although all these activities resulted in more logs flowing toward their highest value use, we found that the specialty mills lacked a secure and adequate timber supply..."

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Wednesday, April 16, 2014

Perception supersedes reality

WorkSafe BC is in the news again and Shirley Bond appointed part-time Ferry Commissioner Gord Macatee to review WSBC operations. This is a common government ploy: when one group of patronage puppies screws up, they dispatch a trusted insider to conduct a "review" and suggest improvements. Current WSBC Chair George Moffit has had much experience with these kinds of assignments but now, his organization is targeted.

Gord Macatee set up as a consultant after years as a senior bureaucrat. He worked at VANOC and took on the role of Ferry Commissioner, part of the bloated BC Ferries governance. It's a gig that pays 6-figures but allows opportunities for numerous other assignments. Although he resides in Victoria, Macatee is on the board of Vancouver's Providence Health Care, operator of St. Paul's Hospital and other public health facilities in the city. He's vice-chair of the Victoria Hospitals Foundation and has served on various boards of directors.

Macatee is hardly an independent, disinterested consultant. He's a trusted dependent of the Liberal Government, just as George Morfitt has been. Members of this small community of political beneficiaries are practiced at looking without seeing, at creating polite critiques that harm nobody of importance. This is one of the reasons that public institutions in BC are so inept; they are immune from real examination and real change. Essentially, they are grazing lands for people who are politically useful.

The rest of this piece is from November 2012.

A reader drew my attention to this article from 2.5 years ago. The principles are unchanged so I believe it is worth revisiting.

First published April 23, 2010, republished November 2012.

Sean Holman at PublicEye Online reported this April 20, 2010:
Former auditor general George Morfitt has picked up some contract work as a result of being a member of the provincial government's B.C. horse racing industry management committee. That six-person committee was launched in January to help "restore the the industry's financial strength." And now Mr. Morfitt has been hired by the government's gaming policy and enforcement branch to "offer advice from a point of view independent of the horse racing industry." This, according to a government spokesperson. The notice of intent to award that contract - which is worth up to $25,000 - was rolled out last Wednesday. Mr. Morfitt will also preside over administrative review hearings concerning issues such as the revocation of horse racing registration or a gaming license.
Morfitt is obviously a man of talent with expertise ranging from accounting and finance to public policy, horse racing, gambling, ferry operations, car sales, education, pharmaceuticals and public safety including installations involving electrical, gas, pressure vessels, elevating and amusement devices, railroads, etc. That he chooses to practice as a consultant in the public sector arises from his record of success. Success well earned, no doubt.

Firstly, I believe that government and its agencies spend far too much on consultants. Recently, BC Liberals granted huge pay raises to senior officers and civil servants, allegedly so public service could attract the best and the brightest. If indeed we employ so many highly paid experts in the civil service and ministerial offices, why do we spend so lavishly on consultants? And, why return to the same people over and over? Outside experts should be independent, not dependent.

Leaving that aside, I see a problem with Morfitt's activity in the public sector. It is work that should not be available to a former Auditor General. Citizens and MLAs have little opportunity to review government finance in even slight detail. So, we rely on the Auditor General, an officer of the Legislature, to independently investigate financial policies and practices of the government. This position is unique to all others.

George Morfitt completed two terms in this key position and, while he was well regarded, I find it troubling that anyone can act as Auditor-General, then retire to consult for the same government and its agencies. Those organizations were audit subjects and the auditor must always be free of conflict or appearance of it. No person should wonder if the officer shaped opinions or analyses to retain favor of the people with hands on the public purse.  Post-term consulting contracts might be seen as rewards for prior cooperation.

Again, I don't question Morfitt's competence or integrity. Fellowship was bestowed on him by fellow Chartered Accountants and that is a sign of distinction. However, professional accountants have struggled for years to refine practice rules to improve, among other things, public perception of their independence and professional integrity. In the last decade, numerous accounting frauds were attributed to pressure on auditors to report favorable numbers.  Some of those pressures resulted in ethical breaches, none more serious than the cases which led to  dissolution of one of the 'Big Five' accounting firms.  In reviewing a rush of audit fraud, CNN reported that one former corporate accountant said about his profession, "Early on in their career they learn to shave the truth."

Retired Auditors General should not contract with the governments they audited. Independence and credibility is vital to the role. There should be no suggestion, however remote, that post-retirement rewards might flow to a friendly and cooperative examiner.

George Morfitt has taken many provincial appointments and engagements over the past number of years. In one of those jobs, BC Liberals even tasked Morfitt with a role in reviewing the legislature's eight statutory officers, including Auditor General. I doubt a former officer, now a consultant, is going to be suggesting more restrictive rules for consultants.

This may not be exhaustive, but I list here examples of Morfitt's post-retirement engagements in the public sector:
  • WorkSafe BC, Vice Chair;
  • BC Safety Authority, Director
  • Motor Vehicle Sales Authority, Vice Chair;
  • Adjunct Professor, University of Victoria;
  • Consultant for Richmond, Airport, Vancouver Rapid Transit Project (2004)
  • Health Council of Canada, Councilor;
  • Capacity Development Network, Associate Director
  • Consultant regarding regulation of horse racing (2005);
  • Consultant for a comprehensive review of operational safety at BC Ferries;
  • BC Horse Racing Industry Management Committee, Member;
  • British Columbia pharmaceutical task force;
  • One of a four-member panel to review the legislature's eight statutory officers.
Just as private businesses develop strong systems of internal controls to limit potential for inappropriate behavior, so should government. Unhappily, there has grown a culture of entitlement that would shock public servants of bygone days. A generation ago, mandarins each expected one salary and one pension arrangement. Now, many collect varied forms of remuneration and expense allowances, part paid personally, other parts directed to personal corporations and partnerships, more difficult to track, of course. Pensions overlap with current earnings and occasionally one agency funds a large severance payment while another public agency hires that same person to a new arrangement.

Before the province forces layoff of hundreds of teachers, closure of tens of neighborhood schools and hospital surgeries and wards, let us resolve to first stop authorizing extravagant payments to senior executives and consultants.

Hard choices, Liberals. You guys said you were willing to make them.
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Flimflam sham

When conducting hearings on Northern Gateway, the National Energy Board Joint Review Panel denied participation to many and held sessions behind closed doors to limit opposition voices. Its decision favoured multinational industry over affected Canadian citizens and ran contrary to the bulk of testimony heard, including expert claims that “world-leading” standards will not protect our coast from heavy oil spills.

The Northern Gateway review was revealed as a sham and that revelation made authorities uncomfortable. The BC government has had its own experience with bogus assessments - Narrows Inlet comes to mind - so it developed a changed strategy.

The Ministry of Environment has claimed this as its purpose:
"Responsible for ensuring sustainable development of the province's land, water, and resources while protecting environmental values."
Ignoring its stated role, to ensure development at one large and controversial project does not produce evidence that the fix is in and decisions already made, Environment Minister Mary Polak simply removed her department from further review. Fortuitously, she had booked time with Vaughn Palmer's Voice of BC and the two of them will be able to explain government actions before controversy mounts.

Jumbo Glacier Resort exempted from environmental process, CBC News, April 15, 2014
"Environmentalists and the B.C. NDP are questioning the motives behind a government bill signed Monday night that looks set to clear the way for the controversial Jumbo Glacier Resort — and others like it — to avoid any further costly, environmental reviews.

"The order exempts prospective year-round ski resorts in B.C. from the Environmental Assessment process completely..."
The lowdown on changes to BC’s environmental laws, by West Coast Environmental Law.

Update 4:50 pm April 16, 2014

Who knows what pressures caused this quick turnaround. The initial decision was so fundamentally flawed that even the people behind it had to realize its stupidity. RossK asked what was going to be next, would surgeons be allowed to operate without review of qualifications? Would lawyers be allowed to practice without passing the bar?

* * * * *
The following was published at Northern Insight August 22, 2012 and, with current developments, it's worth re-posting.

Bob Mackin has an interesting piece in The Tyee about a newspaper tycoon and BC Liberal abettor. David Black's bluster was about about oil refining but the part of Mackin's story that caught my eye involved one-time Province newspaper publisher Paddy Sherman.

In 1958, Sherman was both a news reporter and an avid mountain man. Apparently, vocation served avocation when he wrote a front page promotion for an unlikely BC ski resort. There was no financing and little substance to the extravagant plan but that didn't bother The Province. Sherman wanted the facility to proceed so they gave it maximum splash.

Mackin provides another newspaper's eventual headline:
"Grandiose Garibaldi Scheme Falls Flat on Its No-Assets."
Some months ago, I tracked the life story of Jumbo Glacier Ski Resort. The proposal has reappeared occasionally since it was first reported in a July 1991 edition of the Vancouver Sun:
"A Japanese-backed company is planning to build a $250-million year-round ski resort on a series of spectacular glaciers west of Panorama..."
In 1993, The Province was calling Jumbo Glacier Resort a certainty involving European and Asian investors. Two years later, newspapers said the project was proceeding with support from a consortium of Canadian, U.S. and European investors. In 2012, the Times Colonist repeated promises the ski hill would soon be operational. NW's Bill Good and others try to paint Jumbo as a victim of regulatory foot dragging but actually Jumbo has been an unfinanced scheme with proponents hoping that media play would attract investors. Shills in the corporate "news" operations are willing partners.

By the way, don't plan your ski vacation at Jumbo just yet.

Media may have people like Bob Mackin aiming to report accurately and sincerely but it has many more who earn a living by shilling for special financial interests. Sometimes, the promoted is a ski hill, fish farming or "ethical oil." Other times, it is a pipeline operator, car dealer or land developer.

The shill factor in media, especially in new media, is illustrated by a report in ZDNet.
"A Federal judge overseeing the Oracle vs. Google patent lawsuit said that search giant has failed to comply with a request to document all payments to bloggers and writers covering the trial.

"...U.S. District Judge William Alsup said in his order:
"The August 7 order was not limited to authors “paid . . . to report or comment” or to “quid pro quo” situations. Rather, the order was designed to bring to light authors whose statements about the issues in the case might have been influenced by the receipt of money from Google or Oracle. For example, Oracle has disclosed that it retained a blogger as a consultant. Even though the payment was for consulting work, the payment might have influenced the blogger’s reports on issues in the civil action...

"Google suggests that it has paid so many commenters that it will be impossible to list them all..."

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Monday, April 14, 2014

Democracy myth exposed

Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, Prof. Martin Gilens, Princeton University and Prof. Benjamin I. Page, Northwestern University.
"Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.

"The results provide substantial support for theories of Economic Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism."

Source: Economic Policy Institute - H/T Bob Rae

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