Monday, 4 April 2011

The View From the Boardroom

I'd written earlier about the business media's dislike  for supply management, that essentially Canadian approach to producing and marketing dairy products, poultry and eggs. Quotas limit supply to demand, farmers are paid based  on a cost of production formula, and import controls are used to make the system work. Look here for more info: 

Late last week a Financial Post commentator took another swipe at supply management. What made it interesting is that he used comments from John Manley a former politician who now speaks for Canada's biggest corporations as the basis of his story. That doesn't make his comments right or wrong, it's just telling that so many of Canada's successful companies (in auto, telecommunications, pharmaceutical, mining, banking, etc. etc.) also benefit from Canadian rules that have sheltered them from  foreign competitors, often for very reasonable, nationalistic reasons (it's good to have healthy Canadian banks). I guess that's OK if you're putting on shiny leather shoes every morning, but not so good if  its rubber boots.


William Watson: Time to end supply management

April 1, 2011
Finally, something that actually gets John Manley a little angry
John Manley, former industry minister, former finance minister, former foreign minister, former deputy prime minister, current chief executive of the Canadian Council of Chief Executives, was in Ottawa this week to talk to the annual meeting of the Ottawa Economics Association, a group of 250 strong who heard him give a lunchtime talk at the Chateau Laurier. (You can see his slides at the CCCE’s website.)
Manley became finance minister on the fateful Sunday afternoon in 2002 when Paul Martin either quit or got fired. Four days later, after intensive briefing, he found himself chairing a meeting of the G7 finance ministers in Halifax. He told a funny story about the ritual the Finance officials put you through you when you become minister. Apparently, they escort you deep into the basement of the department’s headquarters on O’Connor Street, to a solid marble room in the middle of which there’s a shiny marble slab. They then lay you out on the slab, anesthetize you, rip your heart out and replace it with a fist-sized chunk of the Canadian Shield. This is what enables you for the duration of your tenure as minister to say nothing but “No!” to your colleagues.
If any of the country’s finance ministers haven’t yet had this operation, they’d better get it now, for bringing their balance sheets back from two years of stimulus spending is going to require stone-hearted-ness by the quarry-load.
You get the impression Manley, who cut deeply at Industry in the mid-1990s, is not actually cold-hearted. On the other hand, his public demeanour is Harper-like in its (how to put it?) lack of effervescence. So it was surprising to see him actually get a little angry during his discussion of a policy problem that has been a long-standing source of irritation on this page, too, namely, agricultural supply management.
Manley thinks it’s now time, in fact well past time, to begin to phase out supply management, the marketing board system that keeps our production of dairy and poultry products artificially low so their prices can be jacked up artificially high. To make the system work, we have to put very tight restrictions on imports, which we used to effectively ban but now, because of WTO rules put in place in the 1990s, merely charge sky-high tariffs on.
Piling two and three hundred per cent tariffs onto dairy and poultry prices is obviously very bad for consumers, especially poor consumers. But it also hurts us internationally. Manley argues our insistence that marketing boards stay off the table in all trade negotiations is killing our influence on the evolution of multilateral trade rules. We used to be “in the Green Room in Geneva,” he says, meaning we were among the small group of countries that put the final touches on any General Agreement on Tariffs and Trade or World Trade Organization deal. But now, because of our insistence on sheltering our supply-managed sectors from foreign competition, we’re “outcasts.”
As an ex-politician, Manley understands it would be hard to simply slash the tariffs and let the supplied-managed sectors fend for themselves. People who got into the industry and made significant investments in good faith under the existing regulatory regime would suffer big capital losses if the rules changed overnight. The government that took on supply management would therefore have to phase in reform over several years and also provide transitional measures to share the adjustment ­burden more widely.
When asked during the question period whether the slow productivity growth he also highlighted as a policy concern isn’t the result of regulations that provide similar sheltering from foreign competition to industries like banking and telecoms, Manley jokingly thanked the questioner for not suggesting his animus about marketing boards was because none of the 150 members of the CCCE is from a supply-managed industry. But after not conceding the premise — maybe there’s not much foreign presence in retail banking because our banks are actually pretty competitive already — Manley went on to repeat the general argument: If Canadians decide a given regulatory regime no longer serves the public interest, they should go ahead and reform it, though in doing so they should give due consideration to the timetable and to measures that will help ease the industry’s transition to a new regime.
The harder-headed among us might think that if an industry has had legislative protection for several decades, the accumulation of profits at a higher than competitive rate should have been reward enough. In the real world of politics, however, it may be necessary to help with the transition. Even so, getting rid of the offending regulations in perpetuity will be sufficient offset for reformers.
To be sure, John Manley doesn’t speak any longer with the authority of a senior Cabinet minister in a majority government. But if the spokesman for 150 of the country’s biggest companies, representing half its GDP in sales, says it’s time to do something about marketing boards, that’s encouraging news

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