Air Horn Politics

Posted on September 25, 2016 by

“We’re all seriously suffering from a kind of Trump derangement syndrome…he uses up so much of the oxygen and it’s like having…a big air horn installed in your head and you just can’t get away from it.”— Garry Trudeau, the Pulitzer Prize winning creator of Doonsbury  

Sadly, Albertans have their own version of air horn politics and it’s interfering with our ability to understand the economic challenges we face.

But we can try.

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Donald Trump: He’s YUGE

Let’s start by reviewing the big (or in Donald Trump’s vernacular “yuge”) news of the week.

Saving the economy 

Finance Minister Ceci anticipates a modest recovery in 2017 (the Conference Board of Canada agrees with him) and announced more loans to small businesses through ATB Financial.

Rob Horricks, CEO of Blush Lane Organics is grateful for the government’s help and says “this is the perfect time to be opening new stores and new businesses.”

Wildrose finance critic Derek Fildebrant says Mr Ceci is nuts.

He says (cue the air horn) ratings agencies won’t have confidence in Alberta unless the government gets over its concern that “cutting a single dime of public spending” will be catastrophic to the economy.

Hmmmm.

Recently the government cut spending by $3 million (that’s a lot of dimes) by not mailing reminders to people whose vehicle registrations were expiring…and was lambasted by car owners who got fined for driving with expired vehicle registrations.  So much for getting rid of the “nanny state”.     

More importantly, Mr Fildebrant ignored the fact that on Sept 7, 2016 DBRS expressed its confidence in Alberta by confirming its bond rating at AA high (stable).

DBRS said Alberta has “moderate flexibility” at this rating and with these oil prices to withstand even more “economic and fiscal deterioration” and that Alberta’s “debt burden is expected to remain relatively low” when compared to the other provinces.

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Derek Fildebrant: not quite so YUGE

The point Mr Fildebrant should put his mind to is DBRS’s conclusion that if oil prices don’t recover and stabilize Alberta may need to make further spending cuts and impose higher taxes.

Fildebrant’s solution to the economic downturn is (cue the air horn) (1) roll back personal and corporate tax hikes, (2) ditch the carbon tax and (3) stop the minimum wage hike to $15/hour by 2018. Apparently these three measures will rescue the economy.

Which brings us to the Western Feedlots example.

Western Feedlots

Western Feedlots Ltd (WFL) will close its doors in 2017.

WFL’s CEO says the carbon tax and Bill 6, the farm safety legislation, are “prohibitive to competitiveness”.

Oh, and precipitous drop in cattle prices over the last year didn’t help any.

It’s difficult to get detailed financial information about WFL because it stopped filing public documents when the majority shareholders bought out the minority shareholders in Aug 2000.   However we do have access to the PwC valuation report* which provides a snapshot of the business up to that time.

WFL buys cattle, feeds them and markets them to beef packers, primarily Cargill Ltd.  It also feeds and markets cattle owned by ranchers.  Its profits are “extremely sensitive to fluctuations in feed, calf and finished cattle prices.”   In 1998 sky-rocketing feed costs cut gross margin to 5.5%, roughly half the gross margin of the previous year.  (5.44, 5.45 PwC Report).

Did the new carbon tax sound the death knell?

In a recent tweet U of C economics prof Trevor Tombe (@trevor tombe) compared the impact of the carbon tax with the 25% drop in prices.  The impact was less than $1 per one hundred pounds of cattle ($1/cwt).

$1/cwt is small compared to the drop in price, but is it small in absolute terms?

PwC says WFL charged cattlemen a fee of $1/cwt to participate in a program to get better prices from Cargill for better beef (more marbling for example).  The program was called Value Based Marketing (VBM).

The purpose of VBM wasn’t to make a profit.  It was more like a loss leader to give WFL information about the quality of the herds running through its feedlots so that WFL could make better cattle buying decisions in the future.  (para 5.18 PwC Report).

If the $1/cwt VBM fee didn’t break the bank in 2000 it’s unlikely that the $1/cwt carbon tax would do so now.

What about expenses related to Bill 6?

Economics and agriculture prof Sven Anders says the government’s decisions (like Bill 6) will increase expenses but the real problem is that two large beef packers, Cargill and JBS USA Holdings, dominate the market leaving feedlot owners with very few options when prices fall.  This structural problem is very much like Alberta oil being at the mercy of one major buyer, the US. 

The challenges facing Alberta’s economy are complex.

They deserve a better response from the Official Opposition than simply cranking up the volume on the air horn and blasting whoever comes within range.

*The PwC report report is available at http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00011585

Posted in Economy, Politics and Government | Tagged , , , | 9 Comments

Another Fine Mess: Thanks Stevie

Posted on September 19, 2016 by

It turns out the famous Laurel and Hardy phrase “here’s another fine mess you’ve gotten us into” is a misquote.  What Oliver Hardy really said to the hapless Stan Laurel was “here’s another nice mess you’ve gotten us into”.

At the end of the day it really doesn’t matter if it’s a “fine” mess or a “nice” mess.  It’s still a mess.

And that’s what we had last week when protesters shut down the NEB hearings into the TransCanada’s Energy East pipeline—a mess.

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Laurel and Hardy

Wildrose leader Brian Jean seized upon the incident as proof that Rachel Notley’s Climate Leadership Plan (CLP)—a cap on emissions, carbon tax and phase-out of coal fired power plants—was a tax grab that would never get “social licence” from “these people”.

Retired TransCanada executive Dennis McConaghy said Notley’s process was “naïve” and “ass backwards”.  She should have used the CLP as leverage, making its implementation conditional on getting pipelines approved.

Both arguments are poppycock.

“Social licence”

When Notley rolled out the CLP she said its purpose was to make Alberta “one of the world’s most progressive and forward-looking energy producers.”  She did not say it was intended to gain “social licence” or promise that once it was introduced opposition to pipelines would melt away.

Notley was wise to avoid the term “social licence” because no one has the faintest idea what it means.

Ed Whittingham, executive director at Pembina Institute says the term emerged around 2011 and morphed into a “mythical beast” like the yeti or Bigfoot and is just as elusive.

Kai Nagata, energy and environment director at the Dogwood Initiative, doesn’t use the term at all.  He says it’s vague and nebulous.  He prefers to look at social licence in terms of the rule of law, noting that Canadian courts command more respect than its politicians.

Nevertheless it continues to be bandied about by politicians and oilsands CEOs who agree public perception and opinion has to be considered in order to get an energy project approved.

While community engagement is critical to the success of any project, getting “social licence” is not a prerequisite to project approval in any provincial or federal regulatory process.

If the Notley government, Pembina and the Dogwood Initiative have no use for the term one wonders why politicians like Brian Jean and Jason Kenney continue to give it street cred.

Leverage

The conservatives’ attempt to discredit the NDP for failing to get “social licence” is simply political grandstanding.

However when business executives inflame the discussion by suggesting the ND government should issue an “ultimatum” to the rest of Canada something is seriously wrong.

Dennis McConaghy, a retired TransCanada executive, derides Notley for failing to make the implementation of the CLP conditional on getting pipelines approved.

This is a bizarre argument because:

  • Conditional legislation, particularly in the energy industry, creates uncertainty and drives away investment
  • Leverage only works when the party being pressured can deliver what you want.  Who is Notley supposed to be holding for ransom?  The protestors? The Mayor of Montreal? The provinces of BC, Ontario, Quebec and New Brunswick?  All of them can intervene in the NEB process but none of them can approve a pipeline. The only one who counts is the federal government.  Justin Trudeau and his cabinet will consider the NEB’s recommendations and make the ultimate go/no go decision.
  • Leverage that smacks of blackmail—approve this pipeline or Alberta will continue to pollute—will not sit well with Justin Trudeau who could easily do an end run on Notley by imposing federal climate change legislation.  Notley’s so-called leverage would evaporate in a puff of smoke, leaving her and all Albertans looking ridiculous.
  • Conditional leverage can only be used once.  What’s Notley supposed to do after the first pipeline is approved and the next pipeline or LNG project comes along?  Roll out even more stringent conditional environmental regulations?  While this would make Alberta the most climate change friendly jurisdiction on the planet it would drive uncertainty to hysterical levels and investment would vapourize.
  • Suggesting that Alberta should pass provincial laws contingent on the feds approving a pipeline messes with the division of powers set out in the Constitution Act of 1867.  Peter Lougheed would certainly come back from the grave to see if Rachel Notley had lost her mind.

The fatal flaw with the leverage argument is that Notley enacted the CLP to make Alberta a world leader in energy production.  She did not intend to use it as a bargaining chip in a business negotiation and she’s not about to blackmail the feds into approving pipelines by holding Albertans and the energy sector hostage.

A fine mess

All this is not to say that the angst around the pipeline review process isn’t real.

The Montreal protesters had no business creating a ruckus inside the hearing room and the NEB panelists had no business meeting with former Quebec premier Jean Charest when he was advising TCPL on its application.

But none of this is Notley’s fault.

Politics - Stephen Harper - CP- may 2 2012

Stephen Harper

This fine mess is the direct result of Stephen Harper’s decision to “streamline” the process in order to guarantee the outcome.

Harper weakened the environmental review process which eroded the public’s trust in the NEB.   Calling environmentalists foreign-funded political radicals and telling Obama that approving Keystone XL was a “no brainer” didn’t help.

Harper politicized the NEB by stripping it of the power to approve or reject a pipeline application.  The NEB is limited to making recommendations to the Prime Minister and cabinet.  This may have been happy news to the industry when Harper was in power but it scares them silly now that Trudeau is sitting in the PM’s office.

(Perhaps Harper should have made the PM’s right to approve pipelines conditional on the Conservatives being in power forever).

Stephen Harper got us into this “fine” mess and Rachel Notley is trying to get us out of it.

Anyone who doesn’t understand that should stop wasting our time and check out a few Laurel and Hardy movies.

Sources:

http://calgaryherald.com/news/local-news/notley-confident-in-albertas-pipeline-plan-despite-continued-opposition

http://www.cbc.ca/news/canada/calgary/brian-jean-social-licence-1.3422551

https://www.policyschool.ca/wp-content/uploads/2016/03/social-licence-loweyfinal.pdf

http://business.financialpost.com/news/energy/ottawas-gameplan-on-climate-change-in-shambles-as-energy-east-hearings-spiral-into-soap-opera?__lsa=cd89-9ae3

 

Posted in Energy & Natural Resources, Environment, Politics and Government | Tagged , , , , , | 34 Comments

Who should govern in times of significant disruption?

Posted on September 11, 2016 by

Chris Kutarna says this is the best time in history to be alive.  We’re healthier, wealthier and better educated than at any other time in history…so why are we so miserable?

Kutarna is a Fellow at the Oxford Martin School at Oxford University.  He argues we’re experiencing a second Renaissance—an amped-up version of the first Renaissance which swept through Europe from 1450 to 1550.

The Economist isn’t quite so dramatic; it says we’ve entered the Third Industrial Revolution, the age of digital manufacturing.

I prefer Kutarna’s characterization because it recognizes we’re in the throes of significant social, technological, economic and political disruption.

We’ll bring this conversation back to Alberta politics in a second, but first a little background.       

Renaissance

The first Renaissance started in Florence in 1450.  The second Renaissance started around 1990 and isn’t tied to a specific geography, being fueled by events like the end of the Cold War, the emergence of the World Wide Web and globalization.

The Gutenberg press revolutionized the speed with which ideas could be communicated across Europe but the speed and breadth of communicating via the internet leaves Gutenberg in the dust.

Renaissance 1.0 saw advances in science and technology that changed the way Europeans viewed the planet (hello New World), the heavens and themselves.  The second Renaissance pushed the frontiers of science and medicine, automation and robotics to the point where we no longer treat the human body we transform it at the molecular level; we no longer view the night sky with telescopes we map the universe with computers and digital cameras.

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Girolamo Savonarola

The first Renaissance saw the rise of charismatic leaders like Girolamo Savonarola, a Dominican friar who came to Florence with a plan to make Florence great again.  He promised that pious living and a renewed belief in God would oust the corrupt Medici, save Florence from the Turks to the East and the French to the West and deliver to each of his followers wealth and power beyond their wildest dreams.

I don’t need to draw you a picture, do I.

Aftershocks 

We can’t keep up with the changes brought by Renaissance 2.0 but we do know the gains and losses haven’t been equally distributed.

Those who own the banks and the factories win, those who don’t lose.   The computer technology that enhances our lives is used by the state to limit our freedom.

We’re 26 years into the cycle and we’re fed up.  We refuse to do what’s expected of us.

Britain chose Brexit.  Germany, France, Belgium and Austria rejected the Transatlantic Trade & Investment Partnership.  The Republicans chose Trump and many Democrats prefer Bernie Saunders.

Canadians rejected the status quo as well.  They chose Trudeau over Harper and Rachel Notley over Jim Prentice (remember him?)       

Who is in the best position to govern?

It’s been a little over a year since Albertans replaced the Progressive Conservatives with the New Democrats, but many Albertans think they’ve made a colossal mistake and want to unite the right in order to reinstate the Good Old Boys and bring back the Good Old Days.

If we are indeed embarking on the second Renaissance this would be a terrible mistake.

Here’s why.

Alberta’s government needs a clear vision and exceptional courage to meet the challenges of fundamental global change.

The Notley government has been in power for just over a year.  It’s demonstrated it has the vision and discipline to take the long view.

It shored up the energy sector by implementing forward looking policies like the Climate Leadership Plan to reduce greenhouse gasses and repair the sector’s reputation.  At the same time the government cut the industry some slack on the Royalty Review.

The government offered incentives to value-added industries like petrochemicals and plastics and encouraged the development of the renewable energy sector.

It’s diversifying the economy by supporting other sectors.  The food industry recently overtook refined petroleum products as the largest manufacturing sector in the province.

It turned the conservative tax model upside down by increasing corporate taxes and introducing a progressive income tax regime favouring middle and lower wage earners.

It increased the minimum wage.

These strategic changes will improve Alberta’s economy over the long run while insulating Albertans from changes imposed on Alberta’s economy by forces beyond its borders.

What has the Opposition done?

The Wildrose spend an inordinate amount of time criticizing the ND’s economic and social policies but has yet to produce any viable alternatives.  They lack a long term strategy and their short term policies are incoherent.  (For a scathing review of their beer policy, the “6-Pack Plan for Alberta Beer Producers and Consumers” policy, check out this blog by beer industry insider Jason Foster).

The Progressive Conservatives wisely refuse to support the Wildrose’s antiquated social policies, choosing instead to criticize the ND’s economic policies.

Both parties repeat the same mantra—“cut taxes, balance the budget”.

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Good Old Boy Ralph Klein

This isn’t a vision for the future, it’s a return to the status quo which fails to address the challenges Alberta faces today—a one-trick pony economy and deficits in healthcare, education and infrastructure.

What can we do?

The second Renaissance is happening right before our eyes.

Luckily Alberta elected a radically different government with the foresight to address 21st century challenges with 21st century policies which will ensure the benefits and the losses created by rampant change are borne by all Albertans.

Now is not the time to reinstate the Good Old Boys and bring back the Good Old Days.  They failed to deliver when they were in power and there’s no reason to expect anything has changed.

Kutarna says there’s a long and interesting history waiting to be written.  Let’s make sure we’re the ones writing it.

Sources:

http://www.economist.com/node/21553017

http://www.cbc.ca/radio/thecurrent/the-current-for-september-6-2016-1.3748863/september-6-2016-full-episode-transcript-1.3750178#segment2

http://www.cbc.ca/radio/thecurrent/the-current-for-september-7-2016-1.3750038/september-7-2016-full-episode-transcript-1.3752035#segment2

Posted in Energy & Natural Resources, Politics and Government, Uncategorized | Tagged , , , , , , | 38 Comments

Brian Jean Makes a Joke

Posted on September 4, 2016 by

Two things happened this week that reflect very poorly on the judgment of Wildrose Party leader Brian Jean and his supporters.

The first was The Joke.  The second was his apology for The Joke.

Let’s take them in turn.

The joke…

You all know the story.

Mr Jean was at a Wildrose forum in Fort McMurray.  He responded to a complaint about the lack of government support for seniors in Fort McMurray with this:

“Let’s be honest. I’ve been beating this drum for 10, 11, 12 years now, so I will continue to beat it, I promise. But it is against the law to beat Rachel Notley, so …”

The audience broke into laughter and applause and he couldn’t finish his sentence…thank god.

Mr Jean quickly apologized for his joke—many times as it turned out—but the public, which split into two camps, won’t let it rest.

One camp is horrified that the leader of the Official Opposition would make a joke about violence against women.

Stephanie McLean, ND Minister for the Status of Women said the joke was “totally unacceptable” and “out of touch” with what Albertans expect from their leaders.

PC MLA Sandra Jansen said politicians are elected to solve these issues not make light of them.  She said that in 2015-16 more than 10,000 abused women and their children ended up in shelters and 8,076 women and 8,283 children were turned away due to lack of space.

The other camp says it was just a joke, lighten up already.

A Facebook comment suggested if women wanted to be treated like men they’d have to “take it on the chin”;  bringing to mind The Honeymooners, a 1950s sitcom in which Jackie Gleason always got a laugh for waving his fist in his wife’s face and saying:  “One of these days Alice—POW. Right in the kisser!”

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Jackie Gleason as Ralph Kramden 

Why are we so fussed by all this?

Humour

Sociologist Rose Coser says humour and laughter “are among the strongest signals of social solidarity and togetherness”.

Cultural sociologist Giselinde Kuipers says humour sets out moral and social boundaries—its pulls some people in and shuts other people out.  “He who laughs belongs,” she says, “He who doesn’t is excluded.”

And that’s why we can’t let it go.

The leader of the Official Opposition gathered his supporters to him and created a sense of “solidarity” by making a joke about beating up a woman, not just any woman but the most powerful woman in Alberta.

Those of us outside of the Wildrose circle were dismayed while those inside the circle rushed to Mr Jean’s defense and blamed the outsiders for not having a sense of humour.

If this is all about having a sense of humour then Mr Jean and his supporters should remember that the TV audience quickly tired of Jackie Gleason and his tag line “POW, right in the kisser”.  The sitcom was cancelled after one season having lost the ratings war to the crooner Perry Como.

If “POW, right in the kisser” didn’t fly in 1955 it certainly won’t fly 61 years later because no matter how you try to dress it up, jokes about beating up women are never funny.

The apology…

Mr Jean quickly apologized for the joke.

He gave Ms Notley full credit for the steps she’d taken on the seniors file saying:

“Now I have to compliment that woman and I shouldn’t have said what I said because I truly admire her for that…[it was] not necessarily in her best interest, because she could have easily just let that go as it was and blamed the previous government.  She did not, so I think Rachel Notley deserves a round of applause.”

Think about that for a moment.

In the space of five minutes Mr Jean admitted he’d made little progress on seniors’ issues in 12 years (this encompassed the entire time he was an MP in the Harper government).  He implied the Notley government wasn’t doing enough for seniors when he knew this wasn’t true* and then he flip flopped  saying he admired Rachel Notley for the way she tackled seniors issues even though it wasn’t in her best interest to do so.

To cap it off he prefaced his praise of Notley by calling her “that woman”—a phrase made famous by Bill Clinton when he denied having sexual relations with Monica Lewinsky.

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Brian Jean Official Leader of the Opposition

The Joke shows Brian Jean in an unscripted moment.  He reached out to his supporters with a deeply troubling joke that would do the 1950s era Jackie Gleason proud but left the rest of us wondering what it will take to move the Wildrose Party into the 21st century.

*See for example Hansard May 25, p 1148, May 10, p 869 and May 3, p 801 where Seniors Minister Lori Sigurdson describes additional government funding to repair and replace seniors housing, add 2000 long term care beds, home modification programs to let seniors “age in place” and a pilot project providing seniors with transportation so get groceries and see their doctors.    

Posted in Law, Politics and Government | Tagged , , , , | 22 Comments

Trump and the Nukes

Posted on August 28, 2016 by

We’re so focused on Donald Trump’s race-baiting rhetoric that we’ve almost forgotten that if elected this man will have the nuclear codes at the tips of his stubby little fingers.

This is a serious concern for 50 Republican security officials who signed a letter saying Trump does not have the temperament to be president and commander in chief.

The former heads of the CIA, NSA, Homeland Security and countless other agencies say Trump can’t tell the difference between truth and falsehood, doesn’t encourage conflicting views, lacks self-control, is impetuous and can’t tolerate personal criticism.  They say “all of these are dangerous qualities in an individual who aspires to be president and commander in chief, with command of the US nuclear arsenal.”

No kidding!

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Donald Trump’s stubby little finger

And yet some military advisors downplay the concern.   They’re confident that the “institutions” surrounding the presidency will prevent a lunatic president from lobbing 925 nuclear warheads at a real or perceived enemy.

Institutions

Thomas Karako, a senior fellow with the International Security Program and Missile Defense Project at the Center for Strategic and International Studies, says Americans (indeed the world) should have faith in the institutions that are “larger than any man or women” who occupies the Oval Office.

What institutions?

The President does not need the approval of Congress to order a nuclear strike.  The only “institutions” standing between him and the metaphorical Big Red Button are the Secretary of Defense and the Chairman of the Joint Chiefs of Staff.

Both of these individuals are appointed by the President.

The chain of command goes from the President to the Secretary of Defense to the Chairman of the Joint Chiefs of Staff.  The Secretary of Defense can authentic a nuclear strike order but he can’t veto it.

No need to worry says Thomas Karako.  The military (ie. the Chairman of the Joint Chiefs of Staff) is not obligated to carry out an order unless it is lawfully given.

Lawful orders

One of the many principals established at the Nuremberg trials was that military personnel have a duty to refuse to carry out illegal orders.

This, like many lofty principles, turned to dust 22 years later at My Lai, Vietnam.

On Mar 16, 1968, Second Lieutenant William Calley led the men of Charlie Company on a sweep through several hamlets searching for enemy soldiers.  They came upon elderly men, women and children preparing for market day and slaughtered them—before and after a lunch break.  An estimated 350 to 500 civilians were murdered.

Many of Calley’s men said they were just following orders.

However Huey helicopter pilot Warrant Officer Hugh Thompson and his crew refused.

Thompson landed his helicopter three times to stop the carnage.  The first time he confronted Lieutenant Calley who refused to back down.  The second time he landed his helicopter between the soldiers and Vietnamese civilians to block the soldiers’ line of fire and pick up the wounded.  The third time he plucked a small child out of a ditch.

Thompson reported what he’d seen up the chain of command and received a medal. He also received death threats and dead animals on his lawn from soldiers who said he was disloyal.

The massacre was only fully investigated after another soldier, Specialist Ronald Ridenhour, wrote to 30 members of Congress—all but three ignored his letter.

The duty to disobey an unlawful order was overridden in the field by the duty to follow orders and not rat on your fellow soldiers.

Catch 22

Do “institutions” have more integrity then men in battle?

Under Thomas Karako’s scenario if a lunatic president gives a nuclear strike order, the Secretary of Defense and the Chairman of the Joint Chiefs of Staff will assess its lawfulness.

If the Secretary of Defense decides the order is illegal he can resign and the decision will fall to his second-in-command and so on down the line.

If someone lower down in the food chain cracks and relays the order to the Chairman of the Joint Chiefs of Staff the Chairman will have a few minutes to mull it over.  If he decides the order is “unlawful” he can raise his concern up the chain of command, not to the Secretary of State who just quit but the lunatic president himself.

It’s the perfect Catch 22.

But all this is moot.  If the president believes he’s protecting the US against an actual or imminent attack and orders a nuclear strike, he’s made a constitutional order.  The military must obey or stage a military coup.

A piece of advice  

John Noonan is a Republican, a former Air Force missile launch officer and national security adviser to two Republican presidential campaigns.  He says instead of worrying about whether an attack on the US is real or Trump is grandstanding Americans should ensure he doesn’t assume power.

Excellent advice. Because when Trump says the military is “not gonna refuse me” he’s probably right.

Sources: Military Ethics Course offered by FutureLearn

http://www.vox.com/platform/amp/2016/8/3/12367996/donald-trump-nuclear-codes

http://www.politico.com/magazine/story/2016/06/2016-donald-trump-nuclear-weapons-missiles-nukes-button-launch-foreign-policy-213955

http://www.nytimes.com/2016/08/05/science/donald-trump-nuclear-codes.html?_r=1

Posted in Politics, Politics and Government, Uncategorized | Tagged , , , | 17 Comments

The K-Bro Linen Flap

Posted on August 21, 2016 by

Would someone snap a wet towel at the Opposition please?

The Opposition is upset because Sarah Hoffman, the Health Minister, wants to see a business case on alternatives before she agrees to outsource the province’s healthcare laundry services to K-Bro Linen Inc.

K-Bro started as an Edmonton-based diaper laundry service in the 1950s.  It moved into healthcare and hospitality laundry services in the 1980s and now it’s the largest owner and operator of laundry services in the country.

sarah-hoffman

Sarah Hoffman Health Minister

Edmonton and Calgary outsourced hospital laundry services to K-Bro in the 1990s.  The Opposition says Hoffman is balking at giving K-Bro the rest of the province because of “ideology”.  They say she’s going to waste $54 to $200 million replacing inadequate AHS laundry facilities in order to save a paltry 130 to 140 jobs.

Really?

As they say in the media, let’s “unpack” the Opposition’s arguments.

“Everyone is doing it!”

The Opposition says other provinces have outsourced laundry services and we should too.

Leaving aside the fact that “everyone is doing it” is a childish argument, this is a broad overstatement.

The only province to completely outsource healthcare laundry services is Saskatchewan which signed a contract with K-Bro last year (more on this below).

Some provinces toyed with outsourcing but the number of hospitals involved is not high.  Only 40 out of 226 hospitals in BC and only 3 out of 473 hospitals in Ontario (down from a high of 16 in 2006) have privatized laundry services.*

K-Bro recognizes that its dependence on the public sector is a significant business risk because “many large Canadian cities currently process all or a portion of their linens through public sector central laundries or on-premise laundries located within public sector facilities”.

K-Bro is optimistic that the trend to outsourcing will continue, but acknowledges that hospitals and health authorities “continually assess and review their outsourcing strategy”…which is exactly what Hoffman is doing notwithstanding the objections raised by the Opposition.

“We’ll save money!”

The Opposition argues it costs millions to do laundry in-house and this money would be better spent on patient care, salaries and critical infrastructure.

Fair point.  But the Opposition is ignoring the fact it also costs millions to do laundry out-house.

K-Bro’s 2015 consolidated financial statements identify Edmonton, Calgary and Vancouver as its biggest customers.  Last year these three cities produced $62 million in revenue.  K-Bro doesn’t break this down per customer but if we assume that all three customers spent the same amount on laundry services Edmonton and Calgary would have generated $40 million in revenue for K-Bros.  Multiply that by 10 and the ballpark cost to taxpayers to outsource laundry services under the existing 10 year contracts is roughly $400 million…and that’s before we add in associated costs which are not K-Bro’s responsibility.

For example, K-Bro’s contract to provide laundry services for hospitals in Edmonton and Calgary required it to move its facilities to newly upgraded leasehold space.

The move to leased facilities was such a coup that when K-Bro announced the Edmonton contract it told its shareholders any concessions K-Bro had made on price and the additional carrying costs for associated debt would be directly offset by the efficiencies it would reap from moving into the upgraded leased buildings.  Presumably the cost of maintaining these facilities is borne by AHS as owner, not K-Bro as lessee.**

Compare this to the 10 year province-wide contract Saskatchewan signed with K-Bro.

The Saskatchewan contract didn’t allow K-Bro to lease space.  Instead K-Bro was required to build a state of the art facility in Regina and two distribution centres in Saskatoon and Prince Alberta (valued at $22 million) so the costs of maintaining the facility falls on K-Bro not the Saskatchewan government.***

Bottom line:  a good chunk of the cost savings Alberta should have received from outsourcing laundry services to K-Bro appear to be flowing to K-Bro and its shareholders, not AHS and Alberta’s taxpayers and Hoffman is wise not to press ahead with outsourcing without asking for a business case on all the options available.

 “For-profits are more efficient and cost effective”

Former Liberal MLA Kevin Taft is a strong supporter of publicly funded and publicly delivered healthcare, but even he concedes that contracting out non-clinical functions such as laundry services isn’t a bad idea if there are several qualified bidders in competition for a contract.  Why shouldn’t a hospital benefit from market forces he asks?****

Indeed.

Sadly the Opposition isn’t trying to engage market forces by putting laundry services out to public tender.  It’s demanding Sarah Hoffman stop fussing and give it all to K-Bro on a silver platter.

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Drew Barnes WR Shadow Health Minister

Nothing would please K-Bro more than the government making it the only game in town—this furthers its growth strategy by expanding existing markets.  It also puts AHS behind the 8-ball when the Calgary and Edmonton contracts end in 2018 and 2023, because AHS would not have a credible alternative service provider (itself) ready to take over if K-Bro is unreasonable.

Excuse me, your ideology is slipping

Hoffman blames the shabby state of AHS laundry facilities on the previous PC government who forced AHS to privatize linen services by starving it of capital.  She’s prepared to support linen services but wants to assess how such projects stack up against competing demands for other healthcare infrastructure.

And that’s why she’s asked AHS to provide a business case supporting a number of options.

The Opposition says Hoffman is being “ideological”, but K-Bro would say she’s using good business sense.

*K-Bro SEDAR filings, 2014 statistics from Statista http://www.statista.com/statistics/440923/total-number-of-hospital-establishments-in-canada-by-province/

**http://www.newswire.ca/news-releases/k-bro-announces-new-alberta-health-services-contract-510188341.html

***http://www.snl.com/IRWebLinkX/file.aspx?IID=4104834&FID=21224162

****Clear Answers by Kevin Taft & Gillian Steward, p 10

Posted in Alberta Health Care, Politics and Government, Uncategorized | Tagged , , | 27 Comments

PPAs and the Master Narrative in Alberta

Posted on August 14, 2016 by

The American Press Institute (API) describes pack journalism,” now known as “the master narrative,” as a story line the press corps en masse is telling or repeating.

The API warns that master narratives can become a “trap or rut” and that journalists will pick facts that illustrate the master narrative and ignore other facts.

The leader of the pack

A classic example of “pack journalism” is Postmedia’s coverage of the NDP government’s decision to challenge the right of power companies to back out of their power purchase arrangements (PPAs).

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Hunter S Thompson – the antithesis of pack journalism

Postmedia’s master narrative is that the NDP government screwed up when it introduced policies to reduce carbon emissions because it triggered the early termination clause in the PPAs.

This narrative was supported by stories characterizing the PPAs as contracts and saying the government was suing itself or the power companies in order to renege on a deal its predecessors entered into fair and square in 2000.  None of this is true.

Some (but not all) of the economic data  

The University of Calgary School of Public Policy published a report on the impact of the NDP government’s changes to the regulations on power companies holding PPAs.

The authors, Trevor Tombe and Andrew Leach, concluded that the cancelled PPAs could cost Albertans $600 million, not $2 billion as the NDP alleged.

Postmedia jumped all over this conclusion, saying it seriously undercut the NDP’s claim (whether to the losses or the entire case was unclear) and suggested the NDP was resorting to the standard practice in lawsuits, overstating losses in order to look good when the actual loss turned out to be lower than expected.

Postmedia failed to report the more significant conclusions presented by Tombe and Leach, including:

  • The government’s change to the Specified Gas Emitters Regulation (SGER) and the Carbon Competitiveness Regulation (CCR) did not render the PPAs unprofitable (Fig 7, p 11)
  • Falling power prices, in addition to the change to SGER and CCR did render the PPAs more unprofitable (Fig 7)
  • The original intent of the Change of Laws clause was to allow PPAs to be terminated if a change of law made PPAs unprofitable, but not to give PPA holders a way to avoid market-based losses (p 13)
  • The amended Change of Laws clause provided “near-complete downside protection” which is “much broader than protection due to government policy” (p 3)
  • Allowing PPA holders to terminate their PPAs is not necessarily the best outcome for Albertans because it could result in higher electricity prices and increased concentration of control over the marketing of electricity (p 12)

Some journalists like the Globe and Mail’s Justin Giovannetti understood the significance of the U of C report stating that “The power deals would still be profitable after the government’s new carbon taxes, worth only $150 million.  However, plummeting power prices will reduce the value of the contracts by $1.1 billion by 2020.”

The best Postmedia could muster was a comment that the report “shows that neither the companies…nor the government are right to blame one single factor for this unprofitability.”

This is a misstatement as far as it concerns the government—the government is not blaming any “single factor” for unprofitability, it’s simply asking a judge to determine whether the amendment to the Change of Law clause was lawful.

The truth about the facts

The American Press Institute says the value of journalism flows from its purpose which is to provide people with verified information so they can make better decisions.

The API says journalists use a systematic process called the “discipline of verification” to find not just the facts but the “truth about the facts.”

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Carl Bernstein & Bob Woodward

One of the three core concepts in the discipline of verification is transparency (the other two are humility and originality).  Transparency requires a journalist not to allow his readers to be deceived by acts of omission.

Postmedia’s failure to report on all of the conclusions contained in the Tombe/Leach report, particularly the conclusion that the NDP government’s changes to SGER and CCR did not render the PPAs unprofitable, places it on the wrong side of transparency.

And while we don’t expect Postmedia to clutch the NDP to its bosom, we do expect it to do a much better job at understanding and managing its biases.

If it can’t bring itself to do that it should do everyone a favour and give free rein to its “inner tabloid.”

Better that than pretend it’s engaged in journalism.

Posted in Energy & Natural Resources, Environment, Politics and Government, Uncategorized | Tagged , , , , | 38 Comments