Thursday, 7 February 2013

Saskatchewan As a Mineral State

In a new book on the mining industry in Canada, Alain Deneault and William Sacher conclude that the province of Quebec is the top “mineral state” in Canada. They argue that the mining sector in Quebec “stands totally outside the logic and effective mechanisms of democratic oversight.” The authors conclude that “In spite of the billions of dollars in revenues they earn, these corporations contribute virtually nothing to the common good.” An analogy is made with known narco-states, where the governments are effectively controlled by drug cartels, and law enforcement “is effectively non-existent.” Thus, Quebec is deemed to be a mineral state, “a state entirely dedicated to the interests of the extractive industry.”

My immediate response to reading this analysis was what about Saskatchewan? How different is our province? Couldn’t we challenge Quebec as the top neo-colonial province?

How mining companies view Canada

On the other side of the issue, we could ask how the mining corporations themselves view the different Canadian provinces. One good source of information is the annual survey of industry executives made by the right-wing Fraser Institute in Vancouver. They are financed by big business.
In February 2012 the Fraser Institute released its annual survey of mining company executives. They report that 5000 companies were sent requests for opinion and 802 responded. The institute then uses these responses to create a Policy Potential Index, based on whether or not a political jurisdiction “encourages investment.” This survey passed judgement on 93 political jurisdictions which have a significant mining industry.

The Policy Potential Index covers 10 key issues including state regulations, environmental regulations, taxation, infrastructure, labour issues, geological support, and political stability. Canada was ranked very high. Of the 93 jurisdictions surveyed the results seem to indicate that Canada is indeed a neo-colonial mineral state: New Brunswick (1), Alberta (3), Quebec (5), Saskatchewan (6), Yukon (10), Ontario (13), Nova Scotia (15), Newfoundland and Labrador (16) and Manitoba (20). Manitoba was ranked (9) the previous year. The movement towards state ownership and control of mining in Latin America was singled out for criticism, reflected also in its falling ranking.

In 2010 corporate executives gave the province of Saskatchewan a 10 out of 10, the only province to get this high rating, for having the lowest cost system of regulations for the mining and mineral industries.

The oil industry loves Canada
In June 2012 the Fraser Institute released their latest survey of the oil and gas industry. It included reports from 623 managers and executives from 529 oil and gas companies operating in Canada. These representatives ranked Manitoba (5) and Saskatchewan (13) of 147 political jurisdictions as good places to invest. The worst countries listed had National Oil Corporations (state-owned and operated), high royalties and taxes, as well as most of the remaining untapped resources. 

Manitoba and Saskatchewan were given high rankings because of their very low royalties and taxes, their overall pro-business policies, and their weak environmental regulations. In contrast, New Brunswick and Quebec were given significantly lower ratings, mainly because of broad public opposition to the relatively new horizontal drilling, hydraulic fracking for shale oil and gas. But all in all, executives from oil corporations love Canada and hate Venezuela. 

Identifying a mineral state
Deneault and Sacher have identified eight key features which are characteristic of a mineral state. Here are the categories as I have applied them to Saskatchewan:

(1) A strong geological potential for extractible mineral resources. This would certainly apply to Saskatchewan where the mineral, oil and gas sectors now dominate the productive economy. While their revenues totaled $21.8 billion in 2011, they employed only 4.8% of the province’s labour force. 

(2) Public institutions transfer public mineral wealth and profits to a minority of private owners and corporations. Royalties and taxes on the mining and mineral industries in Saskatchewan are minimal. In 2011 they totaled $2,413 billion, which was only 11% of industry revenues. This may be the lowest return in the world. It should be remembered that natural resources are owned by the people as a whole, a public asset.
(3) The state uses law and military force to guarantee that private investors have access to mineral deposits. The law in Saskatchewan emphasizes private property rights over public rights. Unions are relatively weak in the mining industry, and strikes are rare. There are few confrontations with local communities, and the necessity of using police power has been very rare. Since 1991 the major political parties and their governments have put business interest first. 

(4) There is a network of infrastructure which guarantees access to human and material resources and facilitates movement of product to export markets. The province has always put a high priority on providing air transport, roads and bridges, public utilities and direct support for local communities in its northern mineral strategy. The province has actively supported pipeline construction. Reservoirs and canals were provided to serve the potash industry.

(5) It is easy for corporations to send profits abroad with little interference from the local government. There is no evidence that any government in Saskatchewan has been concerned about the flight of capital abroad or the use of intra-corporate transfer pricing and offshore tax havens to avoid paying taxes. They have all welcomed foreign ownership and control of the resource extraction industries.

(6) Regulations and standards for working conditions and environmental protection are kept to the minimum.
It is well known that the safety standards for workers in Saskatchewan are even weaker than in Alberta. Environmental regulation has always been limited. The history of the uranium industry is a good example of the determination of all the provincial governments to put economic development first.

(7) Extracting corporations are provided cheap access to energy and electrical power. A top priority of our Crown corporations, Sask Power and Sask Energy, has been to provide support to all resource developments. Rates for corporate consumption are set significantly lower than those for the general public, and they are secret.

(8) Mining industry has enormous influence over government officials and actions.
When public policy on the resource industries is changed, and when regulations, royalties and taxes are modified, this is always done behind closed doors in consultation with industry representatives. The general public is always excluded. NDP governments have been no different than the formally conservative governments. Business rules.

Seems pretty clear that Saskatchewan is a mineral state.

The history of mining in Canada
Canada began as a colony of Great Britain and France. Our geography was well suited for the original mercantile colonial policy: natural resources were extracted and sent to the mother countries; in return, colonies were expected to import manufactured goods from the industrial centres.

This economic pattern did not change with the end of formal colonial domination by France and Great Britain. As Harold Innis, the well-known Canadian political economist reminded us, Canada then became a colony of the United States. The Paley Report by the U.S. government during the Korean War set forth the official U.S. view of Canada: we were to be the natural resource warehouse for the U.S. military and industrial complex. A continental oil agreement would guarantee U.S. ownership and control of Canada’s oil and gas resources. Canada never went through a period where it was an independent country.

The special status of the mining and mineral industries in Canada was documented by Eric Kierans in his Report on Natural Resource Policy in Manitoba (1973). These two industries enjoyed an almost tax-free status in Canada, quite distinct from other economic sectors. The McGill economist and former president of the Montreal Stock Exchange argued that “Canadian economic policy has always been based primarily on the sale and export of our resources.” Canada had “never grown out of the patterns of investment and growth established in our colonial past...”

Kierans pointed out that the model for the mining industry was actually set by the Hudson’s Bay Company. The benefits to Canadians were basically limited to the wages and salaries paid to local employees. The enormous profits from the extraction of the fur resource went abroad. In addition, the Hudson’s Bay Company also established a corporation policy which became a basic characteristic of the mining and mineral industries: retained earning were huge, capital expenditures came out of income, and dividend payments were limited. Economic power was held in the corporation.

These mining and mineral industries have greatly benefited from the active support of the federal government, which has provided them with special benefits including tax incentives, exemptions, and privileges not given to other sectors of the economy. After 1955 these included a three year mining tax holiday, accelerated depreciation rates, and depletion allowances covering the exhaustion of resources extracted. As Kierans concludes, the much lower corporate income tax they pay makes it difficult for the country to “break out of its developing nation status, i.e., heavy reliance on staples exports.”

Canada as a tax haven for the industry
But while Saskatchewan remains a neo-colonial outpost for transnational corporations in the mining and mineral sectors, Toronto has developed as the primary world centre for this industry.

The mining industry in Canada has a long history of speculation and white collar crime. Denault and Sacher point out that between 1907 and 1953 6,679 mining companies were listed on the stock exchange in Toronto, “only 358 ever produced a significant amount of ore, and a mere 54 ever paid dividends.” No surprise that this environment produced the Bre-X bankruptcy and scandal in 1997.  

The Toronto Stock Exchange (TXS) and the TSX Venture Exchange exist today as the main centre for acquiring equity financing. Between 2007 and 2011 they accounted for over one-third of the world’s total. Over 75% of the world’s mining and exploration corporations have established  “head offices” located in Canada, with 60% of them listed on the TSX. As the authors note, “strangely enough, many mining exploration firms registered in Toronto do not hold a single mining claim on Canadian soil.”

The Toronto exchanges have long been known for speculation, a key characteristic of the mining industry. These corporations can also draw on federal and Ontario tax incentives. Those who have  registered their “head offices” in Canada have no fear of government interference in overseas operations. In both Canada and abroad, they benefit from the active support of the Canadian government.

 Across the less developed world today Canadian-based corporations are under attack for gross exploitation of local workers, environmental degradation, human rights violations and working with corrupt governments. There have been demands here and abroad for the Canadian government to take legal action against these corporations. However, to no one’s surprise, in 2009 Stephen Harper’s government issued a formal policy statement declaring that it would instead support the alternative of Voluntary Principles on Security and Human Rights. The safe haven continues.

Alain Deneault and William Sacher conclude that “perhaps it is time to reread Canada’s history with an eye as a subtextual meta-narrative of colonial continuity... Canada has reinvented itself time and again only to better serve the same interests: those of the speculators and exploiters of the resources of the world’s land.”