Principled Leader are Hard to Find

Populism tramples principle in Alberta
GWYN MORGAN
From Monday's Globe and Mail


Experience has taught me that populist politics are seldom principled. It's not that populists don't want to do what's right and best; it's just that if a choice has to be made as to which has priority, what is popular wins.
Ralph Klein was very popular, but he was not a populist. When he took on the job of premier, Alberta was suffering the after effects of Trudeau's national energy program followed by a prolonged slump in energy prices. Inheriting a big deficit, he slashed spending on everything from hospitals to schools, an unpopular but necessary move. Investment in the relatively embryonic oil sands was virtually at a standstill. The Klein government implemented a royalty regime that provided for recovery of investment before significant royalties kicked in. Mr. Klein understood a key truth - you can't tax what doesn't happen, and lower tax rates almost always result in more revenue.

If you poll almost any society with questions like "should the rich pay more?" or "should industry pay more?" you can count on a majority of yes answers. If you precede that poll by a government commissioned report alleging that "the people" have not been getting their "fair share," the number of yes responses will be even greater. Then, if the chairman and some members of that review commission actively campaign for full adoption of their report, the populist pressures intensify.
In a choice between polls and principle, the populist's choice is predictable. Enter the populist Premier Ed Stelmach. What principles have been violated by Mr. Stelmach's royalty decision?

The first one is reneging on the terms under which the province sold conventional oil and gas lease rights to industry. Assessing the amount to bid for new leases is a complex matter starting with the reality that the odds of finding commercial resources on any one lease are low.

Once the technical analysis is completed, risk-adjusted forecasts of costs and production are made, using a range of pricing scenarios. The final step is to apply provincial royalty rates to determine the producer's share. During my three decades of working to build what became Alberta's largest natural gas producer, royalty rates were the lone factor that we counted on in our investment analyses.
Royalty terms were vital in determining how much to bid for a resource lease from the province, creating what we believed was a long-term commitment on both sides. An analogy would be buying the right to lease an office for 25 years. The bigger the annual lease payments, the less you're prepared to pay up front. And you would count on the deal not changing even if new lease rates went up.
The second matter of principle Mr. Stelmach's government has violated is reneging on oil sands royalty commitments under which capital has already been invested. Except in the case of Syncrude and Suncor, the money was invested without a contract binding the government to honour the terms.

Nonetheless, investors rightly see this unilateral change as a clear case of doing what is popular rather than what is right. And in terms of doing what is best, the damage to Alberta's reputation certainly illustrates the wrong choice.
Does an owner have both the moral and legal right to unilaterally change the terms under which he is prepared to lease his property? The answer is clearly yes ... for new leases. Industry can then decide whether to buy new leases or develop new projects having consideration for the new royalty rates. Had Alberta raised royalties that would apply to leases not yet sold or for oil sands projects not yet commenced, then the rare combination of what is popular may have aligned with what is right and best.

So what will the fallout be?
Alberta's current annual royalty revenue is about $8.5-billion. Sale of leases added $2.5-billion over the past fiscal year and the province's share of income taxes is about $1.5-billion, for a total take of $12.5-billion. The province calculates that it will receive an additional $1.4-billion by 2010 as a result of the higher royalty rates. But that assumes no change either in what the industry bids for land sales and no reduction in production resulting from reduced drilling. Consistent with the fact that you can't tax what doesn't happen, Alberta's coffers could end up with no gain at all, or even a net reduction.

Industry is still in shock, but the computer models used to compare before and after investment feasibility are grinding away. Companies with investment opportunities outside Alberta will be looking at them a lot closer. The natural gas drilling and development service sector was already suffering, so expect an even worse downturn. New project decisions in the oil sands will have to factor a much higher government take into a business already replete with risk.
Mr. Stelmach states: "I'm confident we've made the right decisions for today and for Alberta's future."

As for me, I continue to believe that populist politics are seldom principled.

Ed and his Pink Hat go Drinking

A reaction to Ed Stelmach's royalty plan

First off, drilling levels will be fine through this winter. Companies have already bought their land rights, so they are already committed to winter drilling projects. This will be great for Ed and the Progressive Communist party of Alberta. Ed will be able to sit back on his throne, sometime in mid February and point triumphantly to the record drilling levels and say “see, helping Albertans did not deter drilling. We must not be afraid of the big oil companies”. Most people will cheer and then once summer comes, and the election is over, and pink Eddie is re-elected, the industry will come to a grinding halt, but the pubic won’t be interested in the debate anymore. The lack of drilling will be attributed to a downturn in the industry, a bust cycle, possibly blamed on a high dollar or more access to middle east oil.

The big energy companies like Encana, Talisman, Conoco, CNRL… etc will spend their dollars elsewhere (see Saskatchewan) out of principle. They will make a stand because they know who’s next in line (see looting feds) for their profits. People think it is hard to move a giant corporation like Encana. Well its not, Encana is just a bunch of engineers. Pipelines, compressors and pipelines can be rebuilt (cost can be spread out amonst competitors) or in a lot of circumstance already exist on other parts. All the equipment associated with oil production is owned by Albertans— the rigs, wellheads, pipe, welding units, trucks, trailers, tools, and heavy equipment are all owned by Albertans who rent their capital to energy producers. The energy companies have no stake in any of this capital expenditure.

Some other points:

So the Alberta government decides to raise royalty rates on oil 20%— and oh by the way they want to get into the bitumen upgrading game as well. This is a direct transfer of wealth from the people who extract bitumen to the people that upgrade it. As I said in my last post this is the moral landscape of the mixed economy.

The feds created the NEP (the nationalizing of the energy industry) and they crippled the province. The government bought all the foreign owned companies for 10 times their worth and then watched the industry die. Then they got out of the energy game by reselling all the same companies that they had just bought for inflated prices for 10 cents on the dollar. Next the government spends tax payer dollars in order to create incentives for rich oil giants to drill again. Then, predictably energy companies use our money to drill again (sometimes knowingly dusters—very funny to hear these stories). 20 years later, companies are drilling at ultra high levels with their own money and the government steps in raises the royalty taxes on oil to potentially 50%. I wonder what happens nex?

I hate having to hear people say “A slowdown is good for the province” —huh 8.5% unemployment is better than 4%. Investment leaving the province is better than investment coming into the province. Stagnation is never beneficial. Alberta has bought into the Canukistan dream.

The Moral Landscape of a Mixed economy

Here is a highlight from an earlier conversation…

“Drilling levels are already down to 35% utilization. It’s not going to be good if Ed tries to tax energy companies an extra 20%. They’ll just leave. Big companies are mobile. It’s just a bunch of engineers in a building. How are extra royalties going to pay my mortgage?”

“Well it’s not bad for all people. My sister’s a teacher and they are due to renegotiate their contracts this January, and me thinks when the government is rich the teachers will get their just deserts.”

This is the moral landscape of a mixed economy. The gains experienced by one group of people can only be accommodated by the losses of another individual or group. Where in a free country income levels are raised by a general increase in productivity the opposite is true in a mixed economy. In a mixed economy the only way to get more wealth is to convince the government to loot more from another group. This type of morality tends to divide citizenry rather than uniting it—a morality grounded in the virtues of suspicion and resentment. When teachers or nurses (both are respected essential societal roles) strike or demand more money we are treated to the two opposing view points on the matter. The first says teachers should be paid more and the second says they shouldn’t. Simple enough, but the question arises—why does the second group even exist? In the private sector, there is little resent when there are raises in income levels. Usually the synopsis is—good for them or lucky bastard. There isn't any resentment, because Joe’s raise has no impact on Ted’s ability to get a raise. One person’s gains are the result of his own effort and not the result of someone else’s losses. This is a moral society.

In a just society there shouldn’t be any resentment between groups, when each are contributing to society. In an unjust society where gains are the result of losses, gains are always met with suspicion. It is in this context that we should recognize the negative aspects of government control and strive for a freer country.

Why Ed is Destined to Wear a Pink Hat

Alberta’s march toward socialism under guise of conservatism looms on. With per capita spending the highest in the country, and the government awash with money and still no tax breaks, Ed is still contemplating how much more to pillage. His fist is mighty with polls demonstrating support to the tune of 88% for the continued looting of the country’s smallest minority. Even though the Alberta Government has watched royalty incomes soar form 6.5 billion to 12.5 in the last 5 years it still wants more. What type of political principle is being followed here? I voted conservative. I thought I was supporting limited government, low taxes and the consistent rule of law. I guess not. Alberta’s conservative government is just as arbitrary and opportunistic as their liberal bedmates. Both parties are equally without principles. Without an adherence to guiding principles they can never be trusted. Some points about conservatism.

Since conservatism has no principles of its own to guide it, it must rely on previous experience to guide its decisions. This is why they typically, or in theory support the free market. It has been proven successful. That was not always the case. The conservative party used to be filled with land owners and aristocratic types and be fearful of the freedom oriented classical liberals. Since they rely on experience for direction Conservatism has become an ideology extremely distrustful of new ideas.

Since conservatism is reactionary it may temporarily succeed in stemming the tide of socialism but it will never change the direction—as it is without its own guiding principles. Unless this changes conservatism is destined to be dragged along a path of not its own choosing.

More On Grade 9 Social Studies

I’m still on this quote from a grade 9 social studies textbook.

“Individualism is a theory that individual freedom is just as important as the welfare of the community or group as a whole. It often involves the absence of cooperation.” P.35 “Made in USA.” Reidmore books, 1990

Let’s talk about this quote. Individualism involves the absence of cooperation. Huh. This is explicitly false. Instead capitalism is the economic model which stipulates that all contracts are voluntary. When two separate groups choose to work together for a common purpose is the very definition of cooperation. A paradigm where all contracts are voluntary and no individual or group has the right to coerce another man or group is dependent on cooperation to achieve aims.

And the opposite of a free cooperative state is a controlled society. Statists are not dependent on cooperation because the government has the ability to coerce people. They in effect control production, pricing and the law. For example when the government stipulates that X percentage of work done on crown lands must be done by unionized workers they are not promoting cooperation they are promoting coercion. The union rep knows the industry man is bound to law and must work with him, and he exploits this knowledge for his own potential gains—wages, work schedules, and general power. The industry man resents that he must do work with who state has told him to work with and certainly there is little cooperation between the two groups.

When contracts are voluntary they must be good for both sides or the contract will not be signed. This puts an emphasis on cooperation between the two groups.

Grade 9 social studies

This is an actual quote from a government issued primary social studies textbook issued to grade 9 students.

“Individualism is a theory that individual freedom is just as important as the welfare of the community or group as a whole. It often involves the absence of cooperation.” P.35 “Made in USA.” Reidmore books, 1990

Never mind the absurdity of the quote. I want to talk about education in general.

Canada’s drift toward socialism is not a coincidence. All agencies have an agenda. It is impossible not to—unless you are an entirely thoughtless being. Our government and the bureaucracies that run the country are no different. They have agendas and bias too. Their aim is to increase their power, their impact, and their prominence within society. Thus public education has an agenda as well— to promote socialized education. This is done logically twofold— first, propagate the importance of national programs and the government that administer them IE education, and secondly diminish the role of freedom and the private realm. IE limited government and private education. This quote is not on its own. There are many just like it.

Most people are afraid of private education. They worry radicals will co-opt education. But I ask them if they accept the fact that society is not done evolving and that ideas are still developing, and if you believe education is an important factor in this progression, then you should especially against any one group having a monopoly over the ideas taught to our future generations. It is ludicrous to leave a bureaucratic institution in charge of the intellectual development of our children. They decide what is taught, and how it is phrased. The competition of ideas is an important part of a free society. It is what leads to change and progress. It is how social theories develop—by challenging the status quo. A competition of ideas felled Communism. A competition of ideas is what abolished slavery. This point should not be understated.

Education is the one of the most important things in our children’s lives and we should question the fact that we unquestioningly leave text book writing to an unelected bureaucratic group with its own agenda to promote.

Alberta's Unfair Royalty Regime

I want to start with one of the main issues I have with the report. It failed to take the cost required to harvest energy into its assessment of determining a fair tax share for the government. Even going so far as to state “costs are not an argument for or against a particular finding of a fair royalty level” p.37 What????

Costs are very relevant. It is very indicative of the overall character of the “ivory tower” report when it refers to “costs” so flippantly, and without meaningful regard. “Cost” is the most important aspect of trying to run a business. “Costs” is the money paid to Albertans directly in wages when recouping the energy from the ground. “Costs” is the money paid to Alberta firms for the equipment required to recoup energy. In some of the countries Alberta is compared to, rig workers make less in a month than Albertans do in a day. How can we compare the two regimes? It assumes that the only potential gainers from resources are multinational corporations and governments. Alberta is different. We have shunned this archaic model. Instead Albertans earn the money themselves from exhuming the energy. Albertans are some of the best paid workers in the world (this includes rig workers, engineers, truckers, tradesmen, hotel attendants, nurses, teachers... etc.) This is exactly what is meant by the Alberta advantage. The money flows to the people. We consequently have one of the highest living standards in the world, and this was never taken into account anywhere in the report. In fact it was only referred to disparagingly through its reference to “costs”.

Alberta has some of the most stringent environmental standards in the world. These costs were just glossed over.

Alberta’s deep basin gas is expensive and difficult to harvest. The deep basin pool runs alongside the Rocky Mountains. The drilling is exceptionally complex and expensive. The formations are hard and time consuming to drill. The difficult drilling translates into crooked holes, which adds to completion and production costs. The deep basin is consistently yielding smaller and smaller returns and finds each year. The higher costs and declining productivity puts Alberta at a disadvantage in the conventional oil and gas market. Our marker was compared to other jurisdictions which have lower associated costs and higher productivities.

The biased report also failed to mention that Alberta has increased its revenue from royalty taxes 6.5 billion in 2001/2 to 12.5 billion in 06/07. Less drilling means less tax money, regardless of what the rate.

In the same period of time the personal and corporate taxes collected by the Alberta government have also increased from 4.6 billion to 7.5 billion.

Party politics

Newspapers and mainstream media love polls which demonstrate the lack of political initiative in Canada. We are constantly being bombarded with studies demonstrating the political apathy of people. Why would that be? Is it that people don’t care if there country is free or not? Well of course they do. People are naturally political. What people are apathetic about is party politics. Why? Because party politics makes liars and hypocrites out of everyone and nobody wants to be either. Party politics lacks intellectual consistency. Intellectual consistency means principle and sometimes principles run contrary to the politically advantageous solutions. All parties being out for their own interests—that is to secure, makes their leadership and decision making impossible to predict..

A free individual can defend limited government, low taxes and liberty or a socialists can defend his principles of nationalization, enforced equality, and high taxes, because their logic makes abstraction easy, thus individual knows what his position is on every day issues. But what party politics does is make the individual defend a party’s stance. A party which disdains principles, thus the individual can never confidently predict their stance on any given subject.

An individual believing in liberty doesn’t want to have to defend limitations in freedom or increased government spending. Harper budget. Amidst party politics, the conservative spent the last year in his social circle proclaiming the need for a limited government and now he has to turn around and say “well in this one instance, higher taxes are good. This destroys his or her credibility as an independent thinker. It clearly paints him as a follower, or worse yet an opportunist that blindly defends the ruling party’s arbitrary whims. How does someone who believes in a limited government defend Harper’s decision to continually award Bombardier more money. How does a conservative defend Stelmach’s decision to abruptly raise royalty taxes on our most important export in Alberta, thereby threatening to bring the province to its knees? How does an exponent of freedom defend George Bush’s patriot act, or a bans on gay marriage. These all run contrary to the principles he most values.