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Feature   August 1, 2001   by Jim Anderton

Blundering towards recession

We are led, both in government and in the boardroom, by individuals who are either incompetent, or simply don't give a damn.

Just a few months ago, observant readers will recall that I wrote a viewpoint entitled, Recession?..No Way, in which I declared that predictions of a serious economic downturn were premature. I may stand corrected, or worse, embarrassed. I still believe that the fundamentals (the real fundamentals, not the measurement that the brokerage houses use) are sound, but the endless stream of negative reporting in the media, combined with rudderless politics at all levels of Canadian government (and in Canada’s boardrooms) might just drive us into recession. Growth is down, and so are corporate profits, but isn’t that a reasonable expectation after years of exceptional growth? If Nortel is now worth a tenth its peak share price, does that mean that the company has lost 90 percent of its brightest people, production capacity, or know-how? Of course not, but ask yourself this: when was the last time you heard an economic prediction from an economist or “expert” who wasn’t heavily exposed, either personally or professionally, to the equities markets? The vast majority of Canadians are simply not players in the stock market in any substantive way, with the possible exception of RRSP’s, and those only come into play if you’re nearing retirement. The so-called “wealth effect” is a polite term describing how wealthy Canadians leveraged themselves into the stratosphere, then plummeted when falling share prices washed out their collateral. For the vast majority of Canadians, what the stock markets do simply doesn’t matter, or more accurately shouldn’t, as long as employment drives consumer spending. Unfortunately, the mistakes of Canada’s business lites are usually played out through layoffs, a spreading disease which really can kill consumer confidence, leading of course, to more layoffs and even less consumer spending. And when we’re taking about consumer confidence, tax cuts won’t help, and neither will low interest rates. The unemployed, underemployed, and those worried about joining their ranks, pay little tax, and certainly won’t borrow to purchase big-ticket consumer goods. The fact that politicians have such difficulty understanding the simplest elements of a consumption economy, and their insistence on wasting time with ineffective tools like interest rate policy and tax cuts (paid for with user fees and downloading) leads me to a very depressing conclusion: We are led, both in government and in the boardroom, by individuals who are either incompetent, or simply don’t give a damn. Since both groups tend to have considerable personal wealth, incompetence seems unlikely. Canadian service business owners have the same issues, and decisions to make about resources and how to allocate them, as the CEO’s of the largest Canadian corporations. They make those calls without a legion of middle management to help them sift and collate information, and generally without the safety net of millions of dollars in personal wealth to cushion the fall should they make a mistake. If a shop owner fails, there is more at stake than an inflated ego. That’s why it’s tragic that business men and women in the front lines are captive to the irrational thinking of both governments and large Canadian corporations. And you won’t find the answers in the newspapers or on television either. Want to discover if Nortel’s John Roth is really worth 150 million dollars? Let him run a two-bay general repair shop in Estevan, Saskatchewan, Truro, Nova Scotia, North Bay, Ontario or any one of hundreds of towns and cities where the “fiftieth percentile” Canadians live. Would he survive? I wouldn’t bet the heavily mortgaged farm.

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