Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Monday, June 25, 2012

Masters in Our own House

2012 marks uncharted territory for the province of Newfoundland and Labrador. Unlike years before, the province is facing the crushing realities of the world market place on its best laid plans for economic expansion. It is about to experience the boom/bust cycle that is all too familiar to oil driven economies - like Alberta. The 2007 Energy Plan, the "Masters in our own House" manifesto, was meant to usher in a new era of strategic development. Then Lt Governor Ed Roberts read the Speech from the Throne, as crafted by the Danny Williams government:

"Our people are proud nationalists who believe it is only by affirming our identity as Newfoundlanders and Labradorians that we will realize our goal of economic equality within the federation...Our people are ready to take charge of our future and, under [Premier Danny Williams's] leadership, our province will achieve self-reliance by becoming masters of our own house."
"We as Newfoundlanders and Labradorians aspire, not to perpetual subservience, but to self-sufficiency."
"Our people are not content to tolerate a future of relying on others economically. However, our people have now also learned that we will achieve self-reliance economically only by taking charge of our future as a people."

"Our province will achieve self-reliance". Therein lies the fatal flaw. Just as there is no such thing as a "self-made man" the idea that a people, any people, can be "self-reliant" is a concept hundreds of years outdated. In the age of globalization there are no "islands" protected from the deflationary waves. The western world finds its economies being rationalized to those in Asia, and not the other way around - as was originally envisioned.

Still, the nationalistic governments in Newfoundland and Labrador peddle the idea that somehow the power over the future lies in their hands. That the province is an entity unto itself, and the only thing holding it back is the negative attitudes that disagree. So it boldly, with blinders firmly attached, moves forward. It scored some victories with the oil companies for equity shares in offshore projects when oil was at an all time high. It scored a victory for $2 billion in offset payments from the feds when Martin had a minority government and was facing an election. However, when all things were equal it lost. It lost the Abitibi expropriation battle. It lost the recent NAFTA battle with the oil companies over research and development subsidies. It lost countless battles with Hydro Quebec. On and on it goes.

The problem is that despite all these lessons it does not appear to learn. Fast forward to today. The government is trying to force ExxonMobile to build all three $100 million modules in the province, or pay a large fine for not doing so. Exxon has stated the province can not build the third module on time, due to a lack of resources, and it must therefore build it outside the province or face costly delays in first oil. The Premier has threatened them with fines and "troubled waters" if they proceed. The Mayor of St. John's even boycotted a meeting with a top Exxon official in protest. Its the typical us vs them mentality that takes over when the government of Newfoundland and Labrador doesn't get its way. When it can't "take charge". Because controlling economic forces is not something any country can "take charge" of, let alone a province, in a global economy. It is not an achievable goal.

The province can spend its oil royalties as it sees fit. It can build the Muskrat Falls dam as long as it has enough money saved to leverage the rest in financing. It can do all that. But, it can't make iron ore mines any more attractive on the stock markets in a time of obvious, long term, international declines in consumption. It can't force private investors to invest and buy the mines shares on the stock market. It can not keep its young people from voting with their feet and leaving - a record 4000 or so did in the first quarter of 2012. It can not control the price of oil. It can not even accurately project its income each year from oil revenues. As of today, Brent crude futures are trading at $90 a barrel - 30% below budgeted revenues. The trend is downward as the world market place gets hammered by sovereign debt, consumer debt, and the resulting decline in demand. It will be a long term problem-decades long.

It begs the question: How is the provincial government reacting to the change? The answer is the same as usual. Fighting others to perpetuate the myth that we are "masters in our own house". No updated financial document to amend the budget to reflect the obvious massive deficit coming for this year. No plans to halt the Muskrat Falls development despite the mining companies in Labrador being frozen by the chill of world wide deflation. No plans other than the original - hell or high water - blinders firmly on. As we used to say in the army: No plan survives first contact with the enemy. To put the icing on the cake, the PC government passed Bill 29, which essentially guts access to information in the province, so that it can hide all those pesky little bits of reality that might make it known its not masters of its own House.

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