The Enemy of my Enemy: Encore!

Old Arab saying (likely Bedouin), “The enemy of my enemy is my friend” or better still  “I against my brother, my brother and I against my cousins, then my cousins and I against strangers” These are more than mere sayings for they describe how the Arab Tribes, who are all descended from the Bedouins, go about the complicated business of conducting their affairs. There is nothing new about this since the timeless tribal rivalries between the Sunnis, the Shiites and the Kurds, and various subsets, have kept the area known as the Mid East locked in conflict for centuries. The problem is that Judeo Christian ethos does not allow for a continuation of the untidy situation such as we are now experiencing in the Mid East. We desperately feel the need to fix and pigeonhole problems regardless of whether they are a result of our own making or someone else’s. In the past we have relied upon a broad interpretation of ‘national interest’ as an excuse for intervention. In 1914 Winston Churchill, then First Lord of the Admiralty, was keen to advance the cause of his creation the Anglo Persian Oil Company (B.P.)  Backed by the remaining mite of the British Empire, and the League of Nations, he succeeded in recasting the Mid East into nation states such as Palestine, Syria, and Jordan, and Persia (now Iran) along tribal lines. The Americans, then seized in the grip of isolationism, left it to the Standard Oil Companies to protect their national interest. The  result was the formation of Aramco, a joint venture with the ruling Sunni Tribes resident in what is now Saudi Arabia. These arrangements worked well provided there was a superpower willing and able to back up the arrangements with deadly force. Now there is only a vacuum bought on by the miserable failure in Iraq and more lately Syria. Wisely America seems to be finally getting the message concerning the folly of becoming involved in Civil Wars, and Russia, bruised by low oil revenues, looks likely to do the same. Finally the argument for the national interest in protecting oil supplies is getting thin because we now have more oil in North America then we know what to do with. Ron Paul the eloquent elder statesman for the libertarian ideals, put it this way in an open letter to the ‘Daily Reckoning'”There is no doubt in my mind that the American People, financially and for security reasons, would be better served if we just came home and avoided these nonsensical military interventions, that are carried out in  behalf of various special interests (the Military Industrial Complex) that control our foreign policy” Ditto Canada. The same arguments should apply to the never-ending Arab Israeli conflict. Israel, as the only nuclear power in the region (the elephant in the room) is, as has shown on numerous occasions,  very capable  of taking care of itself. We can be allies, but we do not need to drive the whole peace process. The Arab tribes, can, and likely will, muddle through on their own or under the auspices  of the Arab League or the United Nations. They resent our present intervention, that as we have seen in the past weeks does nothing to advance the cause of peace.

Supply and Demand Not:

Every now and again I come  across snippets that make me wonder if the tenants that have guided us for so long are still with us.

This week I read that oil producers in Texas are drilling very expensive  wells into shale rock formations and then capping them, rather than completing them, so as to store the oil for a time when prices improve. The wells require fracking ( a process of blasting sand water and chemicals into the rock to liberate the oil) It is this very expensive process that had led to the rebirth of the American Oil Industry and the resultant glut in World oil markets. (Every barrel produced in the U.S. displaces a barrel imported from other sources)

Because there is no doubt that the fracking process works this can be likened to building an inventory of product, just as if it were in a tank farm. An investment that will either prove prescient, or remarkably dumb, depending upon continuation of the law of supply and demand as we have known it.

The old way of thinking is that  increasing supply, or potential supply at a time of static demand, will, lower prices rather that increase them.  Apparently these investors believe otherwise.

I believe the rational for their thinking maybe be found in the actions of Central Bankers in much of the world who are pumping money rather than oil into the system so as to artificially lower  interest rates and stimulate their economies.  Problem is, that this action has proved, during the last three years, to increase asset values rather than stimulate demand.

The price of stocks, and real estate has increased, some say to bubble like levels, while the price of commodities in US dollars, has plummeted. (Iron Ore, Coal, Copper, Natural Gas, and now oil) The Baltic Dry Index is at an all time low singling that the demand for bottoms (bulk carriers)  that transport commodities is stagnant.

It strikes me that increased demand must come from China, India, and Indonesia, accompanied by a reduction in supply from major producers if the supply demand equation is to re-aligned. In the case of oil this will require cuts in production by producers of non conventional oil in North America. In the case of other commodities cuts in production by the oligopoly of the giant mining conglomerates.

I believe this will all happen at about the same speed as it has in past supply gluts (2-3 years) and I do not think that global money printing will do much to speed things up.

This does not mean that the value of commodities will not change. I believe that they will, by means of the coming re-alignment of world currencies. China must soon be admitted to the club, as we are seeing with the advent of clearing mechanisms for the Yuan in Britain Europe and Canada. The devaluation of the Yen and Euro will play only a minor role because commodities are priced for the most part in US dollars.

So much as it grieves me (I live in Western Canada) I believe this will all prove to be a case of ‘Plus ca change’

 

 

 

 

 

 

Social Licence:

“Social Licence”  is a buzzword, that describes  a concept,  that has now been thrust  into  political debate over the development of natural resources  in Canada. I suspect it is also a concept we will be hearing a lot more about in the ongoing battle over all things environmental.

I came across  these words,  in a report on a  debate held recently at the Manning Institute, a conservative think tank, in Ottawa. Speaking at the debate were the premiers of British Columbia and Alberta and Canada’s Minister of Finance. The subject of the debate was the economic development of  Canada’s Natural Resources.

The concept of Social Licence was  described by Christy Clark, (Premier of British Columbia) as “consensus among  those most directly involved in  a  project.”Notably she did not say whether those directly involved would include government agencies, such as The National Energy Board. But it’s very clear, in the case of Provinces, other than Alberta, that has a treaty with aboriginals, it would include First Nations.

This should not be surprising as Governments all over North America have shown a strong reticence in reaching a final settlement with native people’s, over who owns what, and who should be responsible for setting the terms for development.  This is such a hot button political issue it has been left to the courts to muddle through.

As Premier of British Columbia, Clark should know how this works, because her province is already adhering, in selective cases, (where it suits current policy) to the concept of social licence. In particular the thorny issue of  pipelines carrying oil for export  from Alberta. This same policy does not apparently apply to the construction of the $10 billion Site C hydro-electric dam, or to natural gas liquefaction Projects.

It could well be said, that President Obama  is using a similar dictate with his current veto of the Keystone Pipeline to carry Canadian heavy oil to American refineries on the Gulf Coast. In this case there is no consensus and likely never will be.

Consensus is a noble idea, much discussed but seldom seen in a democracy. It  carries no guarantee of being the right choice, only the right one at a  moment in time.  It is a warm and fuzzy idea, loved by politicians of all stripes, because it allows them to dodge difficult issues.  It takes a politician of true conviction (the rarest of all) to speak against current consensus.

Not withstanding there are examples where consensus has been successful,  M.A.D.D. (Mothers Against Drunk Driving) and the social stigma and health effects against  smoking are two that come to mind.

Trouble is there is Catch 22 in all of this, because it is an argument that can be used by both sides in any debate. Take for instance the example of homeowners anywhere  who might have Wind Turbines plunked in their back yard, all in the name of  environmental expediency.  Or maybe coal miners displaced by the shut down of coal-fired generators. And how about land owners in northern B.C. soon to be driven off their land by dam construction.

Far from being nirvana for politicians these smooth words of gibberish might well come back to haunt them.

The Grey Economy:

This week air&b, the home rental service, was in the news on several fronts. First because  Chesky and Gebbia, founders of this fast growing Goliath  landed on Forbes list of billionaires, each worth $1.9 billion. Second because of a mia culpa by senior management that  competition with the established hospitality industry was fair and reasonable, and third, and by far the most controversial, that the site was neutral in the thorny matter of tax evasion. (As required by law it reports rental revenue to the IRS, and soon to be the CRA)

According to published data air&b now has over a million listings in 340,000 cities in 190 countries of the world. The average length of stay is 4.5 nights and a low estimate of rental charges at $125/night would place homeowner revenue in hundreds of billions of dollars.

The company operates in what is known as the grey economy. Grey in the sense that it does conform to the norm and therefore is neither black nor white. A more accurate description would be a system that allows participants to work at their own speed, while maximizing convenience,  and minimizing costs for their customers. As an aside it might also minimize taxes for both parties.

People who work in the Grey Economy are deemed to be independent contractors (self-employed) and represent the fastest growing part of the economy in many industrialized countries including North America. Because so much of this activity goes unreported, it can skew government  unemployment  and income figures so they appear far worse than they really are.

We hear about this economy every day with new entrants such as Uber ( taxi service) and Handy Cleaners growing at warp speed. But it is the one we do not hear about that maybe growing the fastest, namely the business of child care or extended  family care. As more women stay in the workforce after child-bearing, these vital services for families with two working parents maybe becoming the largest employer of all.

The Grey Economy gives rise to a dichotomy between believers and non believers an, us and them,  situation, similar to the governors and the governed. In this discussion  there are no right answers other than a utopian situation where everyone is equal and pays their own way.

Quite obviously a growing economy where new participants pay no taxes is not a ‘good thing’. Likewise over regulation will stifle innovation and lead to  inefficient uses of capital, and thus lower everyone’s standard of living.

I suggest what is needed is accommodation, a much used, and little understood practice, that has gone missing in the world of ‘me now’

Rather than hide their faces in the sand, and fear monger, traditional services should try to become more competitive and heaven forbid, lower prices, with better service. (put the customer first)

Purveyors of the grey economy might also benefit from a less dogmatic approach to the regulators and taxing authorities. Surely this is a case of the proverbial half a loaf being superior to no loaf at all.

As for the regulators it will require a leap of faith to wave goodbye to a train that has already left the station

Chances are that, as in the case of the three different forms of taxi service in greater London, the various forms of service can coexist without the heavy hand of government. An why not day care and other social services?

It surely would be a great shame if innovation made  possible by the digital age is stifled for no good reason other than fear of the future.

 

 

 

Law and Justice:

A one time partner of mine , a Q.C. , once told me “There is lots of law but very little justice” a truism that has once more come to the for in the case of the five rural Ontario home owners in their fight against the imposition of a wind  turbine farm close to their property.

I wrote about these unfortunate  people in my post ‘Nimbies’ about  the rush to Green Energy regardless of the cost. I now read in the Huffington Post  that having lost in the lower court, the appellant have been stuck with legal bills of nearly half a million dollars. (They plan to appeal to a higher court). As one defense counsel said a “Loose you home to save your home situation”, if there ever was one. Or, as another legal beagle said “By simply exercising their right to access the courts, the appellants now find the disheartening prospect of financial ruin”

There is of course a point being made here. The Wind Farms, the current darlings of the environmental  movement, are saying ‘mess with us at your peril’  so to discourage others who might dare to oppose having a giant wind turbine plunked in their back yard.

Regardless of the efficacy of this particular situation, (a judge will make the decision on the award of costs) the legal process is now far beyond the reach of the average citizen, both as to understanding and affordability.

The laws of the land are written by lawyers for lawyers and not for the people. (the law is an ass)  Such is the state of law and government that most administrative details are carried out by tribunals who  regulate as they see fit. This is a great shame and a blight upon both democracy and the law.

One of the great founding principles of British Common Law is Mandamus  the purpose of which is to remedy defects in justice. It is my contention that  defects in justice frequently occur when a tribunal, such as those that rule on most environmental concerns, become so arbitrary as to ignore or even make new law; all in the name of the common good. Rule by rote in another way of saying the same thing.

I have been informed by learned counsel that Mandamus  is not a good fit for Tribunal Decisions. ‘A mandamus is normally issued when an officer of an authority by compulsion of statute is required to perform a duty, and duty despite demand in writing, has not been performed’ The key word here is statute.

Lazy politicians give immense  power to tribunals as a way of avoiding  responsibility for their actions. This argument is frequently countered by the excuse that the political class does not have the time to acquire the knowledge to make intelligent decisions. Used to be this is what committees of legislators were required to do. Not so any more apparently.

It is always tempting to accept rule by rote when decisions go in favor of ones’ beliefs. It is quite another matter when they do not. The wind turbines in Ontario being a case in point. Those in favor of wind energy, might consider the appeal of the appellants to be a costly nuisance, but to those whose ox is being gored (the owners of the homes in question)   it is entirely a different matter.

Seems to me, rote, in this case ,misses an accepted principle  where facilities used by utilities impinge upon the rights of home owners. In these cases it is normal for the utility to provide the owner with an option to sell at fair market value as determined by an independent third-party.

Apparently in this case the rampage of clean energy advocates, trumps common sense. Too bad.