Wednesday Night Salon #1190 December 22,2004 [For full summary of discussion see: http://www.wednesday-night.com/Wed1190.asp] Ukraine (See also: http://www.wednesday-night.com/newsUkraine.asp) Ukrainian elections are again in the news, with allegations of poisoning of popular presidential candidate Yushenko, electoral fraud and undue Russian pressure on behalf of candidate Yanukovych, who favors closer ties with Russia. There are some who suggest that the intense interest sparked by the repeat election is due to unease about the improper sale and disposal of nuclear weapons, including "dirty" bombs, left in the Crimean region at the break-up of the Soviet Union. Russia Russia's involvement in the Ukraine election may be attributed to the gradual encirclement of Russia by countries friendly to the West with resulting loss of influence on the international scene, as was discussed several weeks ago. [See http://www.wednesday-night.com/Wed1186.asp] Another consideration is the difficulty in uniting relative wealthy sections of a country with poor areas, This may partially account for Vladimir Putin’s promotion of Russian patriotism among young people, and his decision that the Kremlin will name all future regional governors, but sceptics will view these moves simply as retrograde steps towards the Iron Fist policy of the old Soviet Union. Russia's economy is beginning to look more like the Wild West than the European West, despite the fact that it has done very well this year, - largely due to oil prices -, and the prosperity is likely to continue. Putin can afford to spend more money on the military while he is searching for ways to expand from resource-based to diversified exports (which may come with Kremlin control of the regions). The recent sale of the Yukos subsidiary Yuganskneftegaz to a shell company for $9.3 billion, half of what foreign auditors said it was worth, and its subsequent purchase by the Rosneft oil company, which has Russian President Vladimir Putin's deputy chief of staff as its board chairman, contradicts any idea that Russia is rushing towards a market economy. Less widely known is the fate of three of the some 30 Alberta-based oil & gas companies established in Russia. All three have been taken over literally at gunpoint (assets stolen and the Canadian owners bankrupted). General conclusion: The faint of heart and otherwise normal investor would do well to avoid investing in Russia at this time. The PM wandering in the desert An increasing disenchantment with the Martin government is being expressed by a wide range of voices and on a number of different policy issues. The latest criticism arises from Mr. Martin’s friendly visit to Colonel Khadafi. Criticism focuses largely on doubts concerning Khadafi’s brand new nice guy image and his human rights record. There is a difference between making political openings in order to influence another country and suggesting, as Martin has, that "increasing trade is a major encouragement for human rights". The visit is seen by some as an indication of the general absence of principle guiding the current government, and the encouragement by Canada of bad, undemocratic government in order to foster business interests. [Editor's Note: Thursday's New York Times carries the story that Prince Saud al-Faisal, the Saudi foreign minister, announced Wednesday that his kingdom was expelling the Libyan ambassador and withdrawing its own envoy from Tripoli because of a Libyan plot to assassinate the crown prince... and Libya is now our new best friend?] Productivity All growth is related to productivity. Productivity measures how much an economy produces using a given amount of labour and equipment. Over the past few years, as many companies were benefiting from the decreasing value of the Canadian dollar, productivity growth has not been viewed as important in Canada. But with the rising value of the Canadian dollar and increase in Canadian productivity lagging behind that of the United States (largely because we are producers and exporters of resource-based products), productivity increase - one of the most important factors in the economic health of a country – assumes greater importance. Although it is generally agreed that productivity is very easy to define as output per unit of input, it is extremely difficult if not impossible to measure. In some industries such as automotive manufacturing, it is reasonably easy, but how does one measure, for example, health care? How are such factors as price and quality considered? Without completely accurate measurement, one looks for symptoms i.e. a good economy with low or no inflation, as good productivity keeps prices down by producing more. This is broadly the case in the world today and largely attributable to the introduction of new technology. Foreign ownership of resource companies There are still some questions concerning Canada’s continental fuel obligation as defined by NAFTA, especially with the sale of oil & gas companies to foreign investors. The answer is very simply that no matter who owns Canadian resource companies, they own a company that does not own the resource, but has a lease to produce oil (or any resource) under terms and conditions set by the provincial government. There are those who believe that a future federal election will be fought on the question of provincial versus federal rights and obligations; that if, for instance, Alberta were to want to export larger percentages of oil and gas production, it should only be allowed to do so once the needs of Canadian citizens across the country are provided for at a decent price. Economic Outlook – one perspective The economic outlook for 2005 is good, but the markets are fully priced, with few if any bargains to be had in the stock market, making it a tough year to make money, especially with the U.S. Fed increasing rates. The Canadian dollar could drop during the year from the eighties to the seventies, but will return to the eighties by year-end. [Editor's Note: A National Post year-end report on the economy quotes labour economist, Jim Stanford as saying that over the next three years as many as 400,000 jobs could be lost if the loonie comes to rest at 85 cents US, and that growth prospects for 2005 are looking poor. "I think we're in for a bit of a tough year . . . globally, the economy is slowing down a bit and we have our own particular challenges in Canada that mean we'll being doing well just to keep up with the rest of the world.] QUOTES of the EVENING Human rights law and the exercise of human rights law are not the same Investment in Ukraine is risky This exercise with Khadafi has been the most self-interested ploy that any politician has ever made Productivity is the single most important thing there is. The problem is that it is very difficult to measure In a review of history of leaders of the world, we often make deals with gangsters. ... We dealt with Mao If we believe in Church and State separation, we should believe in Business and State separation Growth in productivity keeps inflation down. Decrease in productivity keeps inflation up