THE CANADIANS WEALTH AMPUTATED BY 358 G IN 2003 THANKS TO PAUL MARTIN.
Andre Gouslisty, May 25 2003

Former Professor of Economics
Faculty of Administration
University of Sherbrooke

It is not easy to make profits. It is necessary for that to have almost genius. To make profits implies, initially, the creation of a good or a service, then, its sale at a price higher than the cost and this, without stop, constantly, without any pity from any body. The businessman undergoes two significant pressures. First, the pressure of competition, which prevents him to increase its prices and its receipts. Then, the pressure of labour, which prevents him to reduce its costs. The businessman is on a razor’s edge with two chasms, one on his right and the other on his left. A mere nothing can make him to fall. The result is bankruptcy. We understand then why the prosperous businessman, like a victorious General, behaves with pride and arrogance. This pride and this arrogance are justified.

So that a former milk deliveryman, and bouncer of night club, of a Canadian province, Alberta, like Mr. Bernard Ebbers, transforms, in 17 years, a small company of telephone at reduced price, in World Com, the second company in importance of interurban communications in United States, one needs, without any doubt, to have genius, the genius for business, like others have the genius of music or mathematics.

But many businessmen do not have genius or, the genius can leave them after having lived in them. They then have recourse to the cheating, the swindle, the falsification of the financial statements, to make on paper the profits they are unable to make on the ground. That was the case of the managers of Enron ( an electricity broker), WorldCom, and much of others which were not still caught. It is the doubtful morality of many businessmen, highlighted by the scandals of Enron, WorldCom and others and to protect the public against it, that was promulgated, in 2002, in the United States, the Sarbanes-Oxley Act. This Act imposes to the companies managers, to authenticate the financial statements personally and to constitute within the board of directors a checking committee composed by people independent from the leaders and principals shareholders.

But, as brilliant as can be a businessman, as honest as he can be also, nothing qualifies him for the economic and financial management of the State, because the State is managed by principles others than profit.

To have entrusted, in 1993, their economic and financial interests with a businessman, Paul Martin, the Canadians find themselves at the beginning of 2003 less rich by 40% with what they should have had. Since gross domestic product (GDP) was, from 1993 to 2002, around 895 billion $ on average per annum, it is 40 % of this amount, that is 358 billion $ which miss in the assets of the Canadians to be what they should have been.

Such a result is not astonishing because the State is not a commercial enterprise, the State is not a business.

There is a great difference between the State and a commercial enterprise. The great difference, is that the State can create money, at the tiny cost of the ink necessary to make an entry, whereas the company must gain it by selling a good or a service, that it must conceive and manufacture initially, and this at a price higher than the cost. All that is far from being easy and requires on behalf of the businessman almost genius. This genius does not qualify him however for the management of the State.

The State does not need money drawn from the public to function contrary to a company. The State can function without taxes and borrowings since it can create, from almost nothing, the money which it needs. If the tax exists, it is because it has the role, not to ensure receipts to the State as the vulgar believes it, but to give a value to the money the State emits. The money the State emits takes a beginning of value in the eyes of a citizen when he must pay to the State, and in his currency, a tax on something, his head, his fortune or his income. He goes then in search of this currency by offering to the State goods and services. The State and its currency can then exist only if the State is perpetually demanding goods and services and offering currency what makes it, by destiny, by need, the largest contractor of the Nation and its larger manufacturer.

We showed, in an article entitled “ The false surpluses of Paul Martin “, dated of the 9th of September 2002, and published in our Web site, www.gouslistyandre.com, that M.Martin, while arriving at the ministry of finance in 1993, and as an excellent businessman he was, and who he is still today, noting that the State did not make profit, started to carry out budgetary surpluses. These budgetary surpluses were financed by the Bank of Canada and repayment of the national debt. A budgetary surplus constitutes a puncture of liquidities and a loss of reserves for the banks. To not generate a rise of the interest rate it, (the budgetary surplus), must be compensated by an injection of liquidities in the form of purchases of securities by the Bank of Canada or in the form of refunding of the Debt. As the State is the Treasury + the Central Bank + the Debt Administration, it is thus by drawing from the left pocket of the State that one could carry out the surpluses of the right pocket. It is far from being particularly brilliant. All that being made with the great applause of the Bank of Canada and its poor governor.

“ Life is short, but it does last more than a day. Measures of the economy must include not only current consumption but also saving - provision for future consumption. Since today’ s bread quickly goes stale, to provide for future consumption we must provide for future production. That, in turn, requires well-trained and well-equipped future workers in future jobs. To have more tomorrow we must devote more today to the accumulation of capital, public and private, tangible and intangible, physical and human. That capital accumulation we call investment “, Robert Eisner, The Misunderstood Economy, Harvard Business School Press, Boston, Massachusetts, 1994, p. 4.

It is at the light of the preceding remarks, made by one of the most respected American economists that we propose, in this article, to give an appreciation of the financial management of Paul Martin, Minister of Finance of Canada from 1993 to 2002 and to see whether he was the statesman and the good father of family which enriched his children and avoids ruining them or a dangerous and ruinous businessman for the people and the country.

The Saving of today, i.e. the Richness of tomorrow, is equal to the investment plus the surplus of the foreign trade plus the budget deficit, in other words we have the following equation: Saving = Investment +Foreign Trade Surplus + Budget Deficit.

Table I shows the investments in Canada during the ten years having preceded the arrival of Paul Martin to the management of the State and during the Martin years.

Table I -  Investments in Canada from1982 to 2002 in million $

Source- Bank of Canada Banking and financial Statistics

Table II shows what was the saving in Canada from 1982 to 2002.

  Table II -  Saving in Canada in % of the GDP (in million $)

Source:  Bank of Canada Banking and financial statistics

It arises clearly from the precedent Table II :

• that from1982 to the beginning of the Martin years which start in 1993, the saving in Canada was on average, each year, 25,49 % of the GDP;
• from 1993, the beginning of the Martin years, to 2002, end of the Martin years, the saving was on average 21,41 % of the GDP per annum;
• that consequently, the saving in Canada was during the Martin years, lower, each year, by 4 % comparing with what it was during the ten years preceding the Martin regime;
• that consequently also, the wealth of the Canadians is, at the beginning of 2003, lower by an amount equal to 40 % of the average GDP of the years 1993-2002, and comparing with what it should have been, if Canada had not had as a manager of its finances, a businessman wanting to carry out the State like a “ business “. The average GDP of Canada, from 1993 to 2002, was 895 billion $ per annum. The loss in assets of 40 % represents an amount of 358 billion $. If we suppose that Canada is a “ business “, M.Martin his principal leader, and the Canadians the shareholders of the company, the shareholders would have at the beginning of 2003 assets lower by 358 billion $ thanks to the management of M.Martin. We do not make any sacrilege when we suppose, one moment, that Canada is a “ business “. If we have good memory, Mr. Jean Chrétien, at the beginning of his career of Prime Minister, defined Canada as an association of shopping centres while however omitting to mention that it was badly managed. It is only later that Mr. Chrétien began to sing that Canada was the most beautiful country of the world like formerly, around 1930, in the Casino of Paris or in the Moulin-Rouge, people sang that the most beautiful of all the tangos of the world is that which one dances with its ladylove

Following the preceding observations we can ask two questions.

The first question is, why , when Canada was managed by lawyers like Pierre Trudeau, Jean Chrétien (first version), Brian Mulroney etc. grew rich at a rate of 25,49 % of the GDP, per annum, whereas under the management of Martin, a businessman, Canada did grow rich at only the rate 21,41 % of the GDP?

The answer to this question is, probably in the fact that lawyers and pettifogging lawyers, being obliged, very early in their career, to live like the wolf of the fable of Jean de la Fontaine, in a world where nothing is assured, where there is no place for a frank and a peaceful dinner, where all must be gained at the point of the sword, those, while arriving at the head of the State, and realizing that it has two large and immense powers, that to create the currency and that to tax, did not worry, with reason, of the budget deficits and the national debt. By doing this, they facilitated the enrichment of the Canadians better than the businessman Martin will do it thereafter.

The second question is, why the Governor of the Bank of Canada did not address to M.Martin, about, the following speech: “ Mister minister, the State is not a business. The concept of profit is of no help in the financial and economic management of the State. Forget this joke of budgetary surpluses. Do not worry about the national debt, and especially of that into Canadian $. Worry about the wealth of the Canadians and its growth. If you need money we will help you. The function of the taxes is not to ensure liquidities for the State, but to give a beginning of value to the Canadian dollar, our national currency. The purpose of borrowing is not to ensure liquidities to the State but, and especially with the saving bonds, to assure to the ordinary citizens a mean of constituting productive financial assets (taxable) without having to loose them by lending money to businessmen like you “?

The answer to this question is, possibly, in the fact that the actual Governor of the Bank of Canada knows less about the very nature of money than the first Governors of New England or New France which were to manage with a handle of soldiers but also with the powers to create a currency and to tax. It is obvious that actual Bank of Canada Governor and its department of economic research know much less about the very nature of the currency than, for instance, the Governor Louis de Buade, count of Frontenac and his “intendant “ Jean Bochart de Champigny, who were to create, in 1690, the currency of playing cards to avoid the scarcity of coin. (By the way, Paul Bremer, the actual American Governor of Irak has three powers at his disposition : the army, the power to create money and to distribute it against goods and services and the power to tax, but it seems that he does not realise that and have then interest to return to basic and history).

Another possible answer to the preceding question is in the fact that Bank of Canada Governor has interest, like all those of the High public service, to accredit the idea that the State is a business, to claim and to require to be remunerated like the managers of private undertakings, which box production bonuses even when the outputs are negative. It becomes, indeed, more and more of public notoriety, that the high public civil service is not any more at the service of the State, but at the service of businessmen without talents with which it hopes to run off with the assets of the State. It is the enrichment of the old Soviet and communist high civil service, converted to the capitalism, which seems to be the supreme model to imitate, for the civil service of the western and liberal democracies with the assistance of certain political parties which recommend the reduction of the size of the State. The talented businessmen, such as for example Bill Gate, from Microsoft, have no need to make money to plot with senior officials or ministers (contrary to what certain courts says, the intervention of a minister, disloyal to the State and the Crown, was certainly necessary, and that jumps to the eyes, to give to the Bronfman family trust a remission of tax of 750 million $), neither to steal their partners, the other shareholders, nor to swindle their employees by forcing their pension funds to invest in the company which they manage even if they know that the company is in difficult situation.

The businessmen, especially those which are without talent, seek to be considered as sacred, for better doing money. They use for that employers’ associations, like, in Quebec, le Conseil du patronnat. It would be an error for the political parties to give them a sacred status.

The talented businessman becomes rich by enriching others. The non talented businessman becomes rich by ruining others. Talented or not, a businessman who caught the taste of profit will never have the reflexes of a statesman. The false surpluses of Paul Martin are a proof of that.