The Apocalypse Is On the Way

It is a beautiful day in Victoria. The sun is out and it is 10C. The flowers are up. Many trees are in bloom. People are out working in their yards. But while eating breakfast I pick up the Times-Colonist. A front page story covers the demonstrations in Vancouver yesterday over the proposed expansion of Trans Mountain Pipeline. Indigenous leaders insist that the new pipeline will be stopped. But look how quickly opposition was shut down at Standing Rock. Today the repressive state has enormous power and popular opposition is weak. This is not the 1960s.

Vancouver rally againstTrans Moutain Pipeline

Friday Kinder Morgan obtained a court injunction banning protests at their Burnaby terminal. There had been around 15 protesters there for over a week trying to slow down new work, part of the expansion which has the approval of the Trudeau government and the appointed National Energy Board.

Is there a chance that the project can be stopped? The municipalities of Burnaby and Vancouver have gone to court to challenge the legality of the NEB and their declaration that the project can not be held up by laws existing in the municipalities. The NEB has the support of the Trudeau government.

There are high hopes that the John Horgan NDP government will stand by its pledge that the pipeline will not go ahead until an expert panel decides that there would be no threat posed to B.C. from an oil spill. But the B. C. government has already backed down on this political issue by agreeing to allow the courts to rule on the legality of the proposed commission. Does anyone really expect a court to rule against a corporate development project? Will anyone really be surprised if the Horgan government folds on this issue? The NDP government reversed its pledge to halt the Site C dam construction.

But what disturbs me most is the fact that in this political fight between the Alberta and BC NDP governments the issue of climate change and the burning of fossil fuels is nowhere to be found. Yet even the U.S. Energy Agency says that if the goal of keeping the increase of the planet’s temperature below 2 degrees C, all of the bitumen included in the projected plans of the existing oil corporations operating in the Alberta tar sands must stay in the ground!

There is a mountain of scientific studies reporting on the extreme dangers to the planet posed by climate change brought on by the increase of greenhouse gases in the atmosphere. There are endless news reports which show real changes happening right now. One can understand why most governments make only empty pledges to take action. But it is hard to understand why intelligent people do not take the issue seriously. It does seem to me, as a political economist with an historical orientation, that it is a reflection of the reality of the triumph of liberal individualism and the defeat of the democratic tradition of community solidarity.

The apocalypse:

(1) On the Beach (1957 film)

https://en.wikipedia.org/wiki/On_the_Beach_(1959_film)

This film is based on Nevil Shute’s 1957 novel of the same name depicting the aftermath of a nuclear war. Unlike the novel, no blame is placed on whoever started the war; it is hinted in the film that the threat of annihilation may have arisen from an accident or misjudgment.

(2) Planet of the Apes (original film, 1968)

https://en.wikipedia.org/wiki/Planet_of_the_Apes_(1968_film)

American astronauts land on strange planet where they find that evolved apes rule and dominate a smaller mute human population. Film ends when Charleton Heston, the captain, discovers the remains of the Statue of Liberty and realizes that they are on Earth which has been nearly destroyed after humans engaged in nuclear war.

(3) The Road (2009 film)

https://en.wikipedia.org/wiki/The_Road_(2009_film)

A man and his young son struggle to survive after a global cataclysm has caused perhaps by climate change. There is no living environment. They scavenge for supplies and avoid roaming gangs as they travel on a road to the southern coast in the hope that it will be warmer. Based on the novel of the same name by Cormac McCarthy, one of my very favourite authors. This novel won a Pulitzer Prize in 2006.

(4) The Last Policeman (trilogy by Ben H. Winters, 2013. )

http://www.quirkbooks.com/page/last-policeman-series-ben-h-winters#

The trilogy is a combination of a crime novel and science fiction. The world faces extinction as a large object from outer space approaches. How people react is the theme. As refugees approach the USA men turn to guns. Winters, it seems to me, is describing how Europeans are dealing with desperate refugees from the Middle East. The Pentagon study of the effects of climate change predicts American refugees (in the millions) fleeing to Canada.

Natural Resources: The Struggle between Democracy and Liberalism

Husky heavy oil upgrader at Lloydminister

For thousands of years human beings lived in very small communities, commonly referred to by anthropologists as “band societies.” These were egalitarian, democratic societies, based on the principles of reciprocity. Given this long history, one could argue that this is the normal social structure for human beings. The basic moral principles of these societies were altruism and solidarity. Land and natural resources were common to all.

    In these democratic societies there were differences in personal property, but there was no concept of private property in the means of production, which is the standard today. Everyone had access to natural resources and was guaranteed adequate food, clothing and shelter. Customs, rules and moral codes were established on the basic democratic principle of utilitarianism. Political decisions were made by popular participation. Anthropologists have noted that in these societies, sharing among the group increases when there is a shortage of food or a threat of starvation.

    In all these societies, land and natural resources belonged to the people as a whole. The different communities often had territories where they operated, recognized by others, but even here there was no strict territorial notion of ownership. These band and tribal societies have been held up as the earliest examples of democracies. The fundamental value was the recognition of the equal worth of all human beings.  (See Fried, 1967; Hindess and Hirst, 1973; Lewellen, 1992)

Unequal access to land and resources

    Change started to come with the neolithic revolution, the development of modern agriculture. Through the use of improved staple crops, the introduction of draft animals, and the use of irrigation, those who farmed the land were able to produce an economic surplus. The storage and distribution of cereal grains, in particular, allowed the development of a social division of labour. This new social system first occurred in Mesopotamia. 
 
    We see the creation of social classes, the fundamental division between the political, religious and economic elite, who had some form of special use rights over land and resources, and the majority who were the producers: serfs, slaves, peasants, peons, independent farmers who paid a tax, those under debt bondage, etc.. It was common that the producing class was forced to surrender 50% of the crop that their labour had produced. This was called “rent,” surrendered supposedly for the right to have use of the land. However, in reality this was a system of appropriation of the “surplus labour” from the agricultural producers, the surplus over and above what was necessary for the survival of the producing family.

    In these new hierarchical societies, where the farming classes were grossly exploited and often faced starvation, the political state became necessary in order to enforce the social division of labour. With clear class divisions, laws and rules were established and implemented by the dominant classes. The military, the penal system, and the death penalty became central characteristics of these states. It is in Mesopotamia that we first see the use of organized religion as an important ideological institution in the defence of hierarchy and inequality. (Bellwood, 2005; Bottero, 1992; Flannery and Marcus, 2012; Gamble, 2013; Leick, 2001; Weaver, 2003)

    Rebellions by the producing classes had to be contained. But while access to land and resources was unequal, the concept of individual ownership was virtually non existent. As territorial states were developed, land and natural resources became state property, to be allocated by the ruling political elite. (See Harris, 1977; Balandier, 1970; Krader, 1968)

    In Europe after the fall of the Roman Empire, the decentralized political system led to the development of the feudal system of ownership and use of land and other resources. Local lords and tenant farmers had rights to land; the serfs paid a rent to their landlords, in the form of products, labour time and then later money. But there was no private ownership of land, and serfs had rights to the use of land.

    The shift to private ownership of land and resources came during the early rise of capitalism, the period commonly referred to as mercantilism, roughly between 1500 and 1750. Mercantilism was characterized by the formation of the territorial state, the development of the modern state political system, and the expansion of European imperialism and colonialism around the world. The territorial state became the new owner of all resources, and the absolutist kings and queens granted land and other natural resources to privileged individuals.

Cameco Corporation uranium mine

Land rights and imperialism

    For Canadians, what is most important is the changes that were occurring in England. The Norman invasion of 1066 began the process of establishing a more centralized political order. William the Conqueror laid claim to all of England by the right of conquest. As the absolute sovereign, he then allocated all the land of the country to a special group of aristocrats. These lords in turn granted land use to other subsidiary lords, then down to the tenants who actually did the farming. Peasants had the right to land use, for which product and services were rendered as rent. But there was still no concept of private ownership of land; lords could not buy and sell land and resources as if they were private property. The Crown still held absolute property rights.

    However, the landlords strove always to increase their control over the land. Parliament was originated as an instrument by which the landlords used their political power to gain the right to private ownership of land and resources from the absolute monarch. By the 17th century men with property had used their complete control of Parliament to establish a new legal system which granted them private property rights. Whereas the feudal system had been based on relationships between persons, by the 17th century this had been replaced by the capitalist concept of the exchange of things. (Hindess and Hirst, 1975; MacPherson, 1962; Vogt, 1999)                                                           
    The other major development in Europe over the mercantile period was modern imperialism and colonialism. England and the other major European nation-states embarked on extensive military assaults around the world. This involved not only the subjugation of the majority of the people of the world but also the imposition of absolutist colonial regimes. In all the conquered areas of the world, which included almost all of the non-white and non-Christian peoples, the colonial powers ended all systems of common ownership of land and resources. As one political economist noted, these acts of piracy “signalised the rosy dawn of the era of capitalist production.” Not only did the imperial states seize all land and resources, individuals and their families arrived from Europe bent on grabbing “free land” from the indigenous populations. (See Weaver, 2003)                                                            
    Those of us who live in western Canada know this from our own history. On May 2, 1670 the British Crown created the Hudson Bay Company and gave the company “the sole trade and commerce of all these seas, straits, bays, rivers, lakes, creeks and sounds ... that lie within the entrance of the straits, commonly called Hudson Straits and the possession of all such lands and territories not already possessed by other subjects or the subject of any other Christian prince or state.” The mercantile corporation was declared to be the “true and absolute lords and proprietors of the entire territory.” It mattered not who lived on this land.
   
Liberalism and the right to steal land and resources

    The European monarchs had no problem justifying their conquest and domination of other peoples around the world. The indigenous people were described as barbarians, were not Christians, and were by definition inferior. The Europeans were bringing Christianity and civilization. It took a while for the Church in Rome to determine that the non-white people around the world were actually human beings. The Church then ordered an end the practice of indiscriminately killing these people; instead , they were to become slaves and serfs to work in agriculture, forestry and mining.

    But some English capitalists felt the need for a moral justification beyond conquest for seizing other people’s land and resources and ending their freedom. The most influential defence of the new capitalist imperialism was set forth by John Locke (1637-1704), generally considered to be the founder of liberalism and liberal political economy. He set down the ideological justification for individual rights, the right to own private property and the justification for imperialism and colonialism in The Second Treatise of Government (1690) and Some Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money (1691).                                                                
    Locke argued that England had the right to seize land abroad as their settlers and business enterprises would be productively using the land and resources. The land not under cultivation by the indigenous population was considered “waste land” and could be seized at will. But Locke went farther in advancing the liberal view of private property. Since the indigenous populations of North America cultivated their lands in a collective or democratic manner, Locke argued that they had no claim to it. Under the principles of liberalism, those who farmed could only establish a legal claim if the land or resources were used on an individual basis; it had to be enclosed and fenced off by individuals. Since this was not the case in North America, new local governments, enterprises and settlers were free to take any land that was being used by the indigenous populations.                            
    Equally important to establishing the liberal capitalist view of private property, Locke argued that those individuals and enterprises which seized land and natural resources did not require the consent of others or the community in general. North America was “wilderness” or “vacant space” and any use of the land by colonizers would be a beneficial improvement. He also stressed that it was not necessary for those who seized this land and resources to pay any compensation to the general public. Furthermore, the indigenous populations could only claim the right to use the land and resources if they were selling their product on the world market.  

    Finally, Locke argued, government was needed to establish rules to defend the rights of the owners of private property. This is the first task of governments. It is only logical that those who participate in politics, those who can be classed as “citizens,” who can vote and  hold a seat in Parliament, is limited to men who own property. (Arneil, 1996; Macpherson, 1992)

Saskatchewan Potash Corporation

The democratic reaction

    The traditional liberal view of ownership and control of natural resources by a small group of men did not gone unchallenged. Over time we have seen the struggle to revive the democratic tradition. In the political area, men without property mobilized in a broad fashion to achieve equal political rights with those who had property and the right to form trade unions. Those who were slaves struggled to achieve freedom. Non-whites fought to obtain the same rights as whites. Colonized peoples took up arms to achieve independence from the European empires and establish their own governments. Women continue to struggle to be recognized as persons with equal rights with men.                              
    As democracy spread across the world  the majority who did not own private property in the means of production took political action, formed political parties, eventually formed governments, and pushed for economic and social rights and greater equality.  Part of this broad democratic struggle  has included the demand that natural resources belong to the people as a whole. Elected governments, with sovereign power, can redefine ownership and how resources are developed and used. It is clear that in the period since the rise of capitalism and liberalism, the central political struggle around the world has been between the supporters of the liberal order of privileges for the few and those who support the democratic value of equal rights for all.

References
   
Arneil, Barbara. 1996. John Locke and America: The Defence of English Colonialism. Oxford: Oxford Clarendon Press.

Balandier, Georges. 1970. Political Anthropology. London: Allen Lane the Penguin Press.

Bellwood, Peter. 2005. First Farmers: The Origins of Agricultural Societies. Oxford: Blackwell Publishing.

Bottero. Jean. 1992.  Mesopotamia: Writing, Reasoning and the Gods.  Chicago :University of Chicago Press.

Flannery, Kent and Joyce Marcus. 2012. The Creation of Inequality. Cambridge: Harvard University Press.
-
Fried, Morton H. 1967. The Evolution of Political Society. New York: Random House.

Gamble, Clive. 2013. Settling the Earth: The Archeology of Deep Human History. New York: Cambridge University Press. 

Harris, Marvin. 1978. Cannibals and Kings: The Origins of Cultures. New York: Random House.

Hindness, Barry and Paul Q. Hirst. 1975. Pre-Capitalist Modes of Production. London: Routledge & Kegan Paul.

Krader, Lawrence. 1968. The Formation of the State. Englewood Cliffs, N.J.: Prentice Hall.

Leick, Gwendolyn. 2001. Mesopotamia: The Invention of the City. London: Penguin Books.

Lewellen, Ted C. 1992. Political Anthropology: An Introduction. London: Bergin & Garvey.

Macpherson, C. B. 1962. The Political Theory of Possessive Individualism: Hobbes to Locke. New York: Oxford University Press.

Megarry, Tim. 1995. Society in Prehistory: The Origins of Human Culture. New York: New York University Press.

Vogt, Roy. 1999. Who’s Property: The Deepening Conflict Between Private Property and Democracy in Canada. Toronto: University of Toronto Press.

Weaver, John C. 2003. The Great Land Rush and the Making of the Modern World, 1650 - 1900. Montreal: McGill-Queens University Press.

“I’ve seen the future, brother: it is murder.”

The Collapse of Western Civilization; a View from the Future. By Naomi Oreskes and Erik M. Conway. New York: Columbia University Press, 2014. 90 pp.

I guess a lot of people who read feel like they have had enough of the climate change issue. There are thousands of scientists working on the issue, and reports come out every day. A survey of literature in the scientific journals finds that 97% of those doing the actual research know that global warming and climate change is caused by humans burning fossil fuels.

The international organizations confronting this issue have set an arbitrary limit to the increase in temperature that we can tolerate: 2 degrees Celsius. That level of increase is often cited as “the tipping point” which will trigger disasters that cannot be stopped or reversed. The World Bank in its 2012 report argued that if things continue as they are going by the end of the 21st Century the rise would be around 4 degrees. They warned that it is not certain that we can adapt to such a climate. The International Energy Agency, an arm of the western capitalist states, which promotes the extraction and burning of fossil fuels, warned in 2011 that we are actually heading towards a 6 degrees Celsius increase.

We also know only too well that our governments are unwilling to take any serious steps towards reducing greenhouse gas emissions. All the international conferences on the issue repeat the conflict between the industrialized western states and the less developed countries. Our governments are not impressed with arguments that our industrial revolution created the mess, so why should the poor countries of the Third World be called on to take a heavy economic hit? Why don’t we set up a system based on per-capita consumption of fossil fuels? And so on.

It is easy for those of us who have followed this issue over the years to conclude that it seems highly unlikely that our governments will adopt any policies that seriously try to mitigate the problem. Naomi Oreskes and Erik Conway believe this to be the case. Thus their small book looks back at the Period of the Penumbra (1988 - 2093), which produced the Great Collapse and the Mass Migration (2073-2093). Why did this happen?

Oreskes and Conway are highly respected historians of science based at U.S. universities. In 2010 they authored the widely acclaimed Merchants of Doubt. They exposed the influence of a small number of right wing neoliberal scientists whose crusade was to cast doubt on the science which exposed the dangers of tobacco smoking, acid rain, the questions about the ozone layer, and climate change. They were aided by corporations and conservative “think tanks.” The strategy was to deny the mainstream scientific data, delay any government action, and to present misleading evidence. They were aided by the mainstream media, which gave them equal coverage under their demand for “balanced reporting.”

Neoliberal hegemony
The key to the lack of action by governments was the ideological hegemony of neoliberal political economy. The scientists were on the political right: they strongly resisted any government intervention into the free market. These advocates were relatively few in number, but they had the support of political and economic power.

As I read their prediction of what would happen without a significant effort to reduce the burning of fossil fuels, I was reminded of the study done for the Pentagon on what to expect from the advance of climate change. It was the only study to seriously predict major loss of food crops, food riots, mass migrations, wars for the control of resources, the outbreak of diseases, and the inability of governments to deal with the crisis. The result, they predicted, would be highly authoritarian governments and increased militarism.

Oreskes and Conway project the arrival of the Great North American Desert in 2041, which spread up from the High Plains in the USA through the breadbasket states and the Canadian prairies. In response to food riots and widespread looting, the U.S. government imposed martial law. The two countries formed the United States of North America to try to share resources and help the mass migration of American citizens into Canada. Similar moves were made in Europe and Russia. The populations of Australia and Africa were obliterated by the warming climate and the inability to grow food. The country that dealt best with the crisis was China, which had an effective authoritarian government, a very large military/police establishment, and a citizenry used to following orders.

“Where they said REPENT, REPENT, I wonder what they meant.”

Thanks, Leonard.

Will We See the End of Economic Stagnation in 2014?

NOTE: It is quite evident that I have been neglecting my blog. There have been few postings in the past six months. The problem is that I am working full time on a new book. It will take a couple of years to research and write. The subject is the rise of agriculture and the development of class society. My approach is that of political economy and sociology. My extensive reading over the past six months has only made me more pessimistic; the steady advance of capitalism seems to have made it unlikely that there will be a shift back to a more democratic and egalitarian social system. As one looks at the rapid onset of climate change, and the unwillingness of any governments to take this crisis seriously, we seem most likely to be headed to some sort of catastrophe. Happy New Year!

This is the time when once again economists and their pretenders make their annual predictions of what we can expect in the coming year. I did not do badly last year; these were my predictions:

(1) The U. S. economic recovery would be weak.
(2) The European Union would experience a double dip recession.
(3) In spite of the pledges of the new Japanese government, deflation would continue.
(4) There would be only weak economic growth in Canada, due to a large extent to the all time high level of household debt to income (165%).
(5) The Canadian housing bubble would begin to deflate.

I was off on the last prediction. There are some indications in some markets that the peak of the bubble has been reached, but what is happening is not general. All the powers that be still insist that there is no bubble; they all have a very large stake in preventing it from happening, the politicians, the banks, the media, the realtors, etc. The Bank of Canada takes the position that we should see a slight decline in sales and prices, a “soft landing” of perhaps 10% over a few years.

The Housing Market Today
However, the fact remains that the average price of a house in Canada is twice that of the United States. Over history the price of an average house has ranged between two and three times household income. It is now still over five times household income, on a national basis. It is over ten times in Vancouver. This can’t continue.

Of course all commodity bubbles collapse, and housing is no different. It will come, sooner or later. The bubble has been created by the lowest mortgage interest costs in history, the role of Central Mortgage and Housing Corporation in guaranteeing lenders (not home owners), the willingness of banks to lend (guaranteed) money to poor risks, and the policies that have been taken by Stephen Harper’s Conservative government. [Remember CMHC guaranteed mortgages for 40 years with no money down?]

Incidently, the International Monetary Fund, Germany’s Deutsch Bank and the Organization of Economic Co-operation and Development (OECD) have recently argued that the housing bubble in Canada is the largest in the industrialized world. The OECD and Deutsch Bank argue that the price of housing is overinflated by 60%. They base this analysis on historic trends, the ratio of buying a house to renting, and the ratio of house prices to household income.

What Can We Expect in 2014?
Well of course all the smart people at the top are predicting an economic recovery in the USA which will benefit Canadian exporters and the Canadian economy. My view is that the rate of economic growth in the USA will be closer to 2% than the 3% - 3.5% anticipated by business economists.

In all the western countries, the central banks have set interest rates close to zero. The Fed in the United States is still printing money (Quantitative Easing) at a rate of $75 billion a month; this now totals over $4 trillion since 2008. One results has been a bubble in the U.S. stock market, as almost all this free money floats up to the top 1% of income earners.Corporations are hoarding cash as they do not see any profitable investments.

Unemployment and underemployment remain high. In Canada we have an official unemployment rate of 7%. But if you add in the workers who have dropped out of the labour market and those who are working involuntarily part time it rises to 17%. Then you have to add in the significant rise in the number of people in precarious work: part time, contract, temps, etc , who are paid much lower than regular workers and who have no benefits. This is a major trend in the labour market. Throughout the western world, youth unemployment has been steadily rising. A look at what new jobs are being created reveals the high concentration in the areas of food service, personal care aides, retail sales, waiter and waitresses, unskilled labourers, and office clerks. The wages for these jobs range between $9 and $11 per hour.

With the move to neoliberalism, we have seen a major shift away from progressive income taxes and taxes on wealth. As a result, over the past ten years most workers have experience no increase in real income. Wealth and income is being concentrated at the top. In 2013 in Canada the top 1% of income earners received $381,000 in income, this was ten times the Canadian average.

Problems in the World Economy
There are few signs that the economic stagnation that the Great Recession started in 2008 is about to end. The European Union is still trying to get out of its financial and economic funk, and few are predicting that the overall rate of economic growth will exceed 1% in 2014. The rate of inflation in Europe is now below 1%, and there are growing fears that this could tip into deflation. There are also a number of elections scheduled for this year, and commentators are worried about the rise of the new rightist parties. Great Britain is very close to falling again into recession; they have their own housing bubble crisis.

The Japanese economy remains in deflation. The BRICS – the more advanced developing countries – are no longer the successful capitalist economies; their domestic and international debt levels are forcing the introduction of austerity programs.

The big question mark is the state of the Chinese economy, now the second largest in the world. Over the last ten years the Chinese government has used credit to keep the economy growing at a rate above 7%. Between 2008 and 2013 government directed credit rose from $8 trillion to $24 trillion. Commentators warn of the extensive debt taken in by governments at the local level. How long can this be sustained?

World commodity prices are in decline. This is bad news for Saskatchewan, which has experienced a booming economy with the expansion of the oil and potash industries.

So overall, the picture of the world economy is not that great. Everyone seems to be placing all their hopes on a recovery in the USA. But our southern neighbours are not what they used to be. Corporations have moved their manufacturing overseas to low wage areas. The top 10% of income earners dominate the economy. But how much can they buy? How much debt can those on wages and salaries afford?

Yes, there is a difference between the economists and the political economists.

Cameco uses dummy corporation to avoid taxes

Cameco's operation at Cigar Lake, SK

For the past few months the media has been carrying stories on how large transnational corporations are using offshore dummy corporations to avoid paying taxes in the countries where they are actually based. The corporations identified include Apple, Microsoft, Staples, Hewlett-Packard, Starbucks, Google, Amazon, and many more.

This is nothing new. The collapse of energy giant Enron Corporation in 2001 revealed to the general public all the tricks of the modern transnational corporation. Indeed, executives from oil and gas corporations denounced U.S. government actions against Enron and its corporate officers, arguing that these practices were common to all in the industry.

Do Saskatchewan corporations dodge taxes?
What about the large corporations that have major operations in Saskatchewan? A few years back when I was researching Saskatchewan’s oil and gas industry I asked the provincial ministry of finance if any of our corporations used similar practices. I was given the brush off. This was a federal and not a provincial responsibility. No answers were forthcoming.

But now we have clear evidence that these practices are used by Saskatchewan based corporations.  In early May of this year it was revealed that the Canada Revenue Agency has challenged the practices of Cameco Corporation. While this story made the national press, it seemed to escape the attention of the Saskatchewan media and our political leaders.

Cameco as a case study
In 1999 Cameco created a subsidiary, Canada Europe Ltd., and located it in Zug, Switzerland. Switzerland is well known as one of the favourite low tax hosts for corporations seeking to avoid paying normal corporate tax rates. Cameco “sells” the uranium it extracts in Saskatchewan to Cameco Europe at the very low prices that were set in 1999. Cameco Europe then sells the uranium at the market price. CRA reports that Cameco is allocating its profits to Cameco Europe and recording very low profits for its operations in Saskatchewan.

The Ontario media reports that over the past ten years Cameco has avoided reporting income of $4.9 billion which allowed it to save $1.4 billion in federal corporate taxes. The corporate tax rate in Switzerland is 5% compared to 27% in Canada.

The Globe and Mail (May 1, 2013) reports that a study of Cameco by Veritas Research Corporation concluded that Cameco in Saskatchewan “performed virtually all operating functions” for Cameco Europe. They concluded that all of Cameco Europe’s profits should have been declared in Canada and taxed at Canadian levels.

Why pay taxes in Saskatchewan?
In Saskatchewan the uranium industry enjoys very low royalties and taxes. In recent years annual  uranium sales have exceeded $1 billion. But total royalties and taxes paid to the provincial government have averaged only around eight percent of sales.

Why should this matter? When corporations do not pay taxes to the provincial government, programs are cut or else revenues are raised by additional taxes on individuals. In this boom period for Saskatchewan, royalties and taxes on resource extraction are still among the lowest in the world, and our governments are cutting services.

 It is most important for corporations operating in the area of extraction of non-renewable resources to pay high taxes. The reality is that all the large corporations operating in the resource extraction area in Saskatchewan have a majority of their stock held by people who do not live here. In fact, most of them are majority owned by shareholders who live outside the country. A system of low resource royalties and taxes on corporate profits means the surplus rent from resource extraction does not flow to the owners of the resource, the people of Saskatchewan, but flows out of the province and the country.

Is Another Potash Glut on the Way?

Leader-Post

There is a boom in the Saskatchewan economy, and economists all point to the increasing exploitation of our resource industries. A major factor has been the expansion of the capacity of the potash industry.

Over the past few years all of the potash corporations in the province have invested capital in their existing mines. These “brownfield” developments have brought thousands of workers to the province. The three existing potash corporations are presently adding new capacity which will total 14 million metric tonnes (mmt). The two new “greenfield” mines being developed by K & S Potash Canada and Western Potash will add an additional 5 mmt.

BHP Billiton has already spent $2 billion developing their Jansen Lake mine and is currently using state of the art borer machines to construct the two shafts. It is hard to believe that the corporation will actually put this development on hold. The first phase of this mine will provide 4 mmt, with capacity to be doubled down the road.

What does this mean for the Saskatchewan industry? In 2010 the existing capacity was around 20.7 mmt. Actual potash production was only 10.4 mmt in 2011 and 8.8 mmt in 2012. So why are the corporations adding another 23 mmt capacity?

This has happened before, during the administrations of T.C. Douglas, Woodrow Lloyd and Ross Thatcher. Ten corporations developed new mines, and given the world market, created significant excess capacity.

Why does this happen? Investment is enticed through government subsidies. These have included exemption from federal and provincial taxes, greatly accelerated depreciation rates, and very low royalties paid to the provincial government for the extraction and use of the resource. In the first round Saskatchewan taxpayers provided special low rates for electricity and natural gas and then built roads, a canal system to provide water, pipelines and a reservoir.

As economist Eric Kierans detailed in his famous 1973 study of mining in Manitoba, Canada has a long history of preferential treatment for this industry. The corporate taxes they paid were significantly lower than those of other Canadian industries. Nothing has really changed.

In 1969 farm prices fell on the world market, and farmers responded by cutting their purchase of fertilizer. A number of potash mines in Saskatchewan were on the verge of shutting down. Premier Ross Thatcher negotiated a classic cartel with the government of New Mexico:  a floor price was set for potash and production shares were allocated to the different corporations. The cartel was managed by the Potash Conservation Board, now known as Canpotex, which has  responsibility for all offshore sales by the existing Saskatchewan potash mines.

Today Canpotex forms an unofficial cartel with the three Russian and Balarus potash corporations. Uralkali and Belaruskali, linked through ownership, export through the Belarusian Potash Corporation (BPC).  Canpotex and BPC control around 70% of world potash sales. In this arrangement the Russian and Balarus firms follow the lead of the Potash Corporation. The corporations in concert curtail production to follow demand. Pricing of sales is remarkably similar. Recently, the three Saskatchewan corporations and Uralkali paid fines to the U.S. government to settle anti-trust charges.

In recent years the world market for potash has been between 50 and 60 mmt. Russia and Belarus have had 30% of this market. Uralkali is expanding capacity by 6 mmt. Farmers around the world are hoping that the excess capacity will result in price competition. Already China and India have managed to reduce prices to around $400 per tonne. Further reductions can be expected, and this will put a strain on Saskatchewan mines. BHP has pledged that it will not be part of Canpotex and will engage in price competition to gain their share of the world market. In a few years the government of Saskatchewan will again have to face the problem of overinvestment in the potash industry.

John W. Warnock is retired from teaching political economy and sociology at the University of Regina. He is author of “Exploiting Saskatchewan’s Potash: Who Benefits?” published by the Canadian Centre for Policy Alternatives in 2011.