Sunday, April 15, 2012
Friday, April 6, 2012
The fears of an ignoramus Chicken Little
If you look at the comparison chart of stock market indices for Canada and the U.S. over last five years, they match reasonably except for last six months. Dow Jones has jumped almost twenty percent and Toronto index is treading water. One would think that the economy down south is booming while we have double digit unemployment and major housing crisis.
While the drop in commodity prices is blamed by many, it does not explain the whole difference. There is something else underlying this jump in the stocks south of the border. Rather than superficial projections we have seen in business media lately, this rise needs detailed investigation to learn what it mean for the stocks in near future. What would keep me awake at night if I had American stocks is the strong possibility that evaluations are getting way ahead of the economy and a minor collapse in next few months is possible. If this were to occur, it has an implication not only for global economy but the U.S. presidential elections as well.
A Broken Tooth
Ravi has a very short memory. He may have an excuse though. When you hit seventies, memory is the first thing to go. But he has had this problem ever since he was a child. What makes it strange is that he can remember most things perfectly. He can repeat verbatim the whole conversation if you accused him of not paying attention. He never forgets where he put his wallet, or the keys or the phone numbers. But ask him what he had for breakfast, he has no clue. It can be a problem once in a while but it also has its benefits. He had the same sandwich - cream cheese and sliced tomato on whole wheat bread - every working day for forty years. He has had the same breakfast since the day Monica moved with him fifty one years ago. She lovingly makes for him in a large tub of granola with identical ingredients once every three months. Every morning Ravi puts a cup of it in a bowl, pours skimmed milk on top and lets it sit for an hour when he reads the newspapers; national newspaper to find out what is going on in this world of ours and the local broadsheet to note the date of memorial service if one of his acquaintances has passed away.
It was Monday two weeks ago. It was a normal Canadian winter morning, blowing snow and the temperature of minus twenty centigrade, still dark at eight o’clock. He noted happily that every one that mattered to him was still alive and picked up the breakfast bowl. He put a spoonful in his mouth and chewed. “How did the rock get in here,” he wondered aloud as the teeth met resistance. He spit it out on a paper towel and here it was. A tooth, not just a piece, a whole tooth! Where did it come from? He looked in the mirror. Horror of horrors. There was a gap right in the middle of the top row. It did not hurt. He felt the space with the index finger of his right hand. The base below the gum line was there, the rest had broken off and it was lying along with bits of granola on the towel.
In a situation like this there is not much one can do except call the dentist. Ravi has a really good person looking after his teeth who is available to him for long distance consultation twenty four hours a day. He called Freda, his daughter, who practices dentistry in a small town one thousand kilometers away and asked her what kind of glue he needed to glue it back. “No, it can not be glued back, space age glues don’t work with teeth in the mouth,” he heard her say. She also confirmed what he had suspected all along - she couldn’t do much on skype because her drill does not travel through wires. He had to go to her clinic and she would get her receptionist to put him in the next available spot.
A combination of taxi, shaky small plane, another taxi took Ravi to Freda’s clinic on Wednesday afternoon. She looked at the tooth and shook her head vigorously, “Not a good sign. Rest of the tooth has to be removed and then a new tooth has to be implanted. Just as well you called me. Ten thousand dollars will stay in the family rather than go to a stranger who is already loaded.” This was done on Thursday after hours because she had the whole day booked. She drilled through the bone and inserted what would be the root of the new tooth. It had to settle before the tooth could be put in. So, for three months Ravi would have to go around with his lips firmly in contact with each other as if attached by a space age glue. His accent is already difficult for most people, the mumble would be impossible to decipher. He can only hope that there would be a few friends left when he opens his mouth with a gleaming enamel tooth replacement. Hindu scriptures and the tradition in his family permitted him the society of his friends for a couple more years before he was to take on the solitary life of a monk at the age of seventy five.
He returned home on Friday and started the regimen of two pills – one pain killer and one antibiotic – three times a day. Killer was a bit of an exaggeration but the pain did become tolerable. Something, could it be the antibiotic, made his stomach ache and turn everything he ate into gas which made him bloat and found every outlet it could at most inconvenient times. Thankfully, no inconvenience lasts for ever and the pain in the mouth and the gas were gone after two weeks without causing lasting damage and hopefully never to show their ugly faces again. Life returned to as normal as it can be when the mouth can not be opened in public.
If you look at the comparison chart of stock market indices for Canada and the U.S. over last five years, they match reasonably except for last six months. Dow Jones has jumped almost twenty percent and Toronto index is treading water. One would think that the economy down south is booming while we have double digit unemployment and major housing crisis.
While the drop in commodity prices is blamed by many, it does not explain the whole difference. There is something else underlying this jump in the stocks south of the border. Rather than superficial projections we have seen in business media lately, this rise needs detailed investigation to learn what it mean for the stocks in near future. What would keep me awake at night if I had American stocks is the strong possibility that evaluations are getting way ahead of the economy and a minor collapse in next few months is possible. If this were to occur, it has an implication not only for global economy but the U.S. presidential elections as well.
A Broken Tooth
Ravi has a very short memory. He may have an excuse though. When you hit seventies, memory is the first thing to go. But he has had this problem ever since he was a child. What makes it strange is that he can remember most things perfectly. He can repeat verbatim the whole conversation if you accused him of not paying attention. He never forgets where he put his wallet, or the keys or the phone numbers. But ask him what he had for breakfast, he has no clue. It can be a problem once in a while but it also has its benefits. He had the same sandwich - cream cheese and sliced tomato on whole wheat bread - every working day for forty years. He has had the same breakfast since the day Monica moved with him fifty one years ago. She lovingly makes for him in a large tub of granola with identical ingredients once every three months. Every morning Ravi puts a cup of it in a bowl, pours skimmed milk on top and lets it sit for an hour when he reads the newspapers; national newspaper to find out what is going on in this world of ours and the local broadsheet to note the date of memorial service if one of his acquaintances has passed away.
It was Monday two weeks ago. It was a normal Canadian winter morning, blowing snow and the temperature of minus twenty centigrade, still dark at eight o’clock. He noted happily that every one that mattered to him was still alive and picked up the breakfast bowl. He put a spoonful in his mouth and chewed. “How did the rock get in here,” he wondered aloud as the teeth met resistance. He spit it out on a paper towel and here it was. A tooth, not just a piece, a whole tooth! Where did it come from? He looked in the mirror. Horror of horrors. There was a gap right in the middle of the top row. It did not hurt. He felt the space with the index finger of his right hand. The base below the gum line was there, the rest had broken off and it was lying along with bits of granola on the towel.
In a situation like this there is not much one can do except call the dentist. Ravi has a really good person looking after his teeth who is available to him for long distance consultation twenty four hours a day. He called Freda, his daughter, who practices dentistry in a small town one thousand kilometers away and asked her what kind of glue he needed to glue it back. “No, it can not be glued back, space age glues don’t work with teeth in the mouth,” he heard her say. She also confirmed what he had suspected all along - she couldn’t do much on skype because her drill does not travel through wires. He had to go to her clinic and she would get her receptionist to put him in the next available spot.
A combination of taxi, shaky small plane, another taxi took Ravi to Freda’s clinic on Wednesday afternoon. She looked at the tooth and shook her head vigorously, “Not a good sign. Rest of the tooth has to be removed and then a new tooth has to be implanted. Just as well you called me. Ten thousand dollars will stay in the family rather than go to a stranger who is already loaded.” This was done on Thursday after hours because she had the whole day booked. She drilled through the bone and inserted what would be the root of the new tooth. It had to settle before the tooth could be put in. So, for three months Ravi would have to go around with his lips firmly in contact with each other as if attached by a space age glue. His accent is already difficult for most people, the mumble would be impossible to decipher. He can only hope that there would be a few friends left when he opens his mouth with a gleaming enamel tooth replacement. Hindu scriptures and the tradition in his family permitted him the society of his friends for a couple more years before he was to take on the solitary life of a monk at the age of seventy five.
He returned home on Friday and started the regimen of two pills – one pain killer and one antibiotic – three times a day. Killer was a bit of an exaggeration but the pain did become tolerable. Something, could it be the antibiotic, made his stomach ache and turn everything he ate into gas which made him bloat and found every outlet it could at most inconvenient times. Thankfully, no inconvenience lasts for ever and the pain in the mouth and the gas were gone after two weeks without causing lasting damage and hopefully never to show their ugly faces again. Life returned to as normal as it can be when the mouth can not be opened in public.
Friday, March 30, 2012
On Being Old
My wife Evelyn and I are not young any more. She was sixty eight a short while back and I will be seventy four in a few weeks. We are in good health and manage to physically and mentally cope with daily chores of our lives. Speaking for myself, I have one big advantage in being old; there are no career ambitions. I have reconciled to what I had wished for but did not achieve in my long career. As for financial success, my wife was a great Financial Officer of the household and we have saved enough for a comfortable, though by no means luxurious, living for the rest of our lives without ever having been the top dogs in our professions. Evelyn still works three mornings a week. Not for the money but due to the passion she has for the work. I write several hours a day, again not for the money; my work rarely gets in print. We have time and energy for our widely scattered family and friends. Still, I feel as if I live with a sword of Damocles hanging over my head. Any moment, without any notice, I could have a stroke, a heart attack, a fatal accident on the highway because of slow reactions or with some luck peacefully pass away into next life in my sleep. I have no idea how much time – days, months, years – I have left, not of life as much as of good health when I can do what I wish. Realizing the unpredictability of my situation, I have prioritised what to do with my time every day and not make any long term plans, particularly those with impact on others.
There are three reasons for undertaking activities. There is something of importance to achieve, it is expected of me, and it is enjoyable. The achievement does not have be important to any one else, just to me. The years when I worked for general adulation are over; remaining years are for what I wished to work on but did not have time or energy to do. There are so many options. It can be travelling to some place of niggling memory from the childhood, some historical place of great personal interest or some irresistible challenge like climbing Everest. It can be living for an extended period in a place I have always dreamed of. It can be reading War and Peace in Russian, studying Hindu epics in Sanskrit, playing Chopin preludes or something as simple as writing an autobiography. The achievement would be in being able to do it – not in becoming a recognised authority on it – autobiography would be for grandchildren to enjoy sometime in the future not necessarily for publication and to win accolades.
The work on hoped for achievement is always tempered by what is expected by the family, friends and community. Family may not share or sympathise with my ambitions and my pursuit could interfere with their own. Moreover, I must help them in their efforts as much as I wish them to help in mine. Friends have demands on my time too. They might need my help when they are ill, my company when they are depressed. Community has stood by me when my kids were growing up and when I needed volunteers to help me and the family. It is time for payback and I must volunteer some of my time and energy for community work.
What about enjoyment. All work and no play makes the senior go senile before his time. There are many books one reads for enjoyment, not for enlightenment. One may watch TV, movies, theatre and opera and listens to music merely for relaxation, not to broaden the knowledge base. Yet, if one could enjoy learning Russian as a first step to burying himself in the world Tolstoy created, daily workouts to get fit to run that marathon or climb that mountain, the need to relax would be that much less and there would be more time in the day for the family, community and himself. Therefore, one key to contented remaining years is the match between the goal and what provides real joy. After all, if one hates practicing whenever there is free time, s/he is not likely to learn ‘Twinkle twinkle little star’ leave alone the simplest Chopin prelude. The other, and no less important, key in making the best of the rest of one’s life is to contain the ambitions within limits of her/his inherent capacity. If one suffers from advanced stages of Asthma the chances of making it to the top of a mountain are remote. It is good to dream of catching a star but in real life a little practicality reduces a great deal of disappointment and goes a long way towards making it all enjoyable.
After considering these factors I have chosen to devote whatever free time I have to writing. I will write essays on social and political issues and short and long fiction, wherever the fancy takes me. With this choice I know that whenever the sword falls, not much of importance will be left in limbo. I would hope to publish my work and add to the fund of literature assembled over the ages. But if it is not deemed worthy by editors so be it. I will be disappointed but world will not lose a Shakespeare.
Retaining Canadian Ownership
In an otherwise excellent article lamenting the sale of Viterra, Eric Reguly of Globe and Mail does not point out that the companies he quoted were already largely owned by foreign, mostly American, hedge funds and run by American CEOs. These investors are driven by their short term interests and can not be expected to have Canada's interest at heart. Only way to retain Canadian companies in Canadian hands is to have ownership restrictions. We are constantly being told that we need foreign investment and can not afford such restrictions. We also need foreign workers and foreign managers for economic growth. What it amounts to is that if we want the economic growth, foreigners have to do it from the ground up. Then why lament if they own it too?
Whether we should have economic growth on these terms is an issue which needs some research: By Canadians.
Slow Economic Recovery:
The recovery observed in the first quarter every year since the 2008 collapse is due to lucky few spending their bonuses and once that is done the sales retreat again. There is an obvious reason behind slow recovery in manufacturing and service sectors and I do not know why the economists disregard it. All machinery lasts much longer than it did twenty years ago and needs to be serviced less often. My seven year old Altima runs as well as it did in the first year, something inconceivable even ten years ago. Our fifteen year old appliances do their job as well as they ever did and have not broken down once. There are very few people who replace these items just to acquire the latest models, most use them till they die. The age of an average car is eleven years because recent models last that long without many repairs and it is only going to get longer. Consumers will continue to demand cars and machines which last even longer and need servicing less frequently and manufacturers will have to supply them. With population stable, this will eventually translate into declining sales unless we stop practicing birth control. The implication of continuous quality improvement is that the economy will have to find a different avenue for growth than manufacturing to keep every one gainfully employed.
My wife Evelyn and I are not young any more. She was sixty eight a short while back and I will be seventy four in a few weeks. We are in good health and manage to physically and mentally cope with daily chores of our lives. Speaking for myself, I have one big advantage in being old; there are no career ambitions. I have reconciled to what I had wished for but did not achieve in my long career. As for financial success, my wife was a great Financial Officer of the household and we have saved enough for a comfortable, though by no means luxurious, living for the rest of our lives without ever having been the top dogs in our professions. Evelyn still works three mornings a week. Not for the money but due to the passion she has for the work. I write several hours a day, again not for the money; my work rarely gets in print. We have time and energy for our widely scattered family and friends. Still, I feel as if I live with a sword of Damocles hanging over my head. Any moment, without any notice, I could have a stroke, a heart attack, a fatal accident on the highway because of slow reactions or with some luck peacefully pass away into next life in my sleep. I have no idea how much time – days, months, years – I have left, not of life as much as of good health when I can do what I wish. Realizing the unpredictability of my situation, I have prioritised what to do with my time every day and not make any long term plans, particularly those with impact on others.
There are three reasons for undertaking activities. There is something of importance to achieve, it is expected of me, and it is enjoyable. The achievement does not have be important to any one else, just to me. The years when I worked for general adulation are over; remaining years are for what I wished to work on but did not have time or energy to do. There are so many options. It can be travelling to some place of niggling memory from the childhood, some historical place of great personal interest or some irresistible challenge like climbing Everest. It can be living for an extended period in a place I have always dreamed of. It can be reading War and Peace in Russian, studying Hindu epics in Sanskrit, playing Chopin preludes or something as simple as writing an autobiography. The achievement would be in being able to do it – not in becoming a recognised authority on it – autobiography would be for grandchildren to enjoy sometime in the future not necessarily for publication and to win accolades.
The work on hoped for achievement is always tempered by what is expected by the family, friends and community. Family may not share or sympathise with my ambitions and my pursuit could interfere with their own. Moreover, I must help them in their efforts as much as I wish them to help in mine. Friends have demands on my time too. They might need my help when they are ill, my company when they are depressed. Community has stood by me when my kids were growing up and when I needed volunteers to help me and the family. It is time for payback and I must volunteer some of my time and energy for community work.
What about enjoyment. All work and no play makes the senior go senile before his time. There are many books one reads for enjoyment, not for enlightenment. One may watch TV, movies, theatre and opera and listens to music merely for relaxation, not to broaden the knowledge base. Yet, if one could enjoy learning Russian as a first step to burying himself in the world Tolstoy created, daily workouts to get fit to run that marathon or climb that mountain, the need to relax would be that much less and there would be more time in the day for the family, community and himself. Therefore, one key to contented remaining years is the match between the goal and what provides real joy. After all, if one hates practicing whenever there is free time, s/he is not likely to learn ‘Twinkle twinkle little star’ leave alone the simplest Chopin prelude. The other, and no less important, key in making the best of the rest of one’s life is to contain the ambitions within limits of her/his inherent capacity. If one suffers from advanced stages of Asthma the chances of making it to the top of a mountain are remote. It is good to dream of catching a star but in real life a little practicality reduces a great deal of disappointment and goes a long way towards making it all enjoyable.
After considering these factors I have chosen to devote whatever free time I have to writing. I will write essays on social and political issues and short and long fiction, wherever the fancy takes me. With this choice I know that whenever the sword falls, not much of importance will be left in limbo. I would hope to publish my work and add to the fund of literature assembled over the ages. But if it is not deemed worthy by editors so be it. I will be disappointed but world will not lose a Shakespeare.
Retaining Canadian Ownership
In an otherwise excellent article lamenting the sale of Viterra, Eric Reguly of Globe and Mail does not point out that the companies he quoted were already largely owned by foreign, mostly American, hedge funds and run by American CEOs. These investors are driven by their short term interests and can not be expected to have Canada's interest at heart. Only way to retain Canadian companies in Canadian hands is to have ownership restrictions. We are constantly being told that we need foreign investment and can not afford such restrictions. We also need foreign workers and foreign managers for economic growth. What it amounts to is that if we want the economic growth, foreigners have to do it from the ground up. Then why lament if they own it too?
Whether we should have economic growth on these terms is an issue which needs some research: By Canadians.
Slow Economic Recovery:
The recovery observed in the first quarter every year since the 2008 collapse is due to lucky few spending their bonuses and once that is done the sales retreat again. There is an obvious reason behind slow recovery in manufacturing and service sectors and I do not know why the economists disregard it. All machinery lasts much longer than it did twenty years ago and needs to be serviced less often. My seven year old Altima runs as well as it did in the first year, something inconceivable even ten years ago. Our fifteen year old appliances do their job as well as they ever did and have not broken down once. There are very few people who replace these items just to acquire the latest models, most use them till they die. The age of an average car is eleven years because recent models last that long without many repairs and it is only going to get longer. Consumers will continue to demand cars and machines which last even longer and need servicing less frequently and manufacturers will have to supply them. With population stable, this will eventually translate into declining sales unless we stop practicing birth control. The implication of continuous quality improvement is that the economy will have to find a different avenue for growth than manufacturing to keep every one gainfully employed.
Friday, March 23, 2012
Problems at Air Canada and Aveos:
Air Canada is in the news again. Thankfully it is not for an accident or anything involving loss of life. In some ways it is an old story. The longstanding battle between the unions and the management on wages and pensions has come to the boil and the federal government has intervened once more to prevent the shut down by strike or the lockout.
Air Canada has had financial problems and poor employee morale for decades. It was nine years ago, on April 1, 2003, when the airline declared bankruptcy. The company's financial house was restructured over next eighteen months mostly at the expense of shareholders who lost all of their investment. The workers agreed to wage concessions but insisted on preserving the pensions and other benefits. Even with the wage reductions, cost structure at Air Canada stayed higher than at WestJet. More serious was the issue of deficiency in pension fund. Air Canada was allowed to postpone making this up but the liability was not diminished. The company has not
been able to adequately top up pension fund shortfalls since then and pension liability has continued to grow. This is perhaps the most serious of the problems haunting the company now. Air Canada has other so-called legacy handicaps too. They carry the baggage of pension and other agreements made when they were a federal government agency, not to mention the burden of general expectation of quality service from a 'national' airline.
In current economic environment no company, leave alone one barely staying afloat like Air Canada, can guarantee pensions related to incomes at the time of retirement several years from now. The times of economic growth and steady rise in stock market which made it possible are long gone. The companies can contribute to a plan along with the employees but they can not predict the performance of investments in the plan. Workers must recognize this reality. They can negotiate the level of contribution and the age of retirement. But the assured monthly payment for rest of the life after retirement is not a realistic hope any longer and no management can agree to it.
Air Canada employees must also remember that the wage and benefits structure is significantly lower at competing companies, partly because their employees are not unionized; they do not negotiate the working conditions and do not go on strike. The argument of older workers that they made 'sacrifices' in 2003 and it is time they recouped some of those losses does not hold water because the employees did the minimum that was necessary for the company to operate and carry on providing them jobs. Unfortunately, the business environment for airlines has not improved since then even though the traffic has grown. The lower cost structure of the competition in Canada and cut-throat competition from other international airlines fighting for
their own survival has made it difficult to retain the market share. In this environment, and with fuel costs remaining high, the pressure to cut cost has been relentless. Fuel and wages are the biggest cost items and it is only the later that the airlines have any control over. With the best wish in the world, the management at Air Canada can not offer their employees better terms while the competitors are holding their wage costs steady. Their options come down to dying slowly and painfully or quickly after a prolonged strike or lockout and the management can not be blamed for opting for the later. The union negotiators understand this argument, but they have not been able to convince their members. Surely, fat pensions and huge
bonuses in the contracts of the executives and their reluctance to volunteer reductions they are asking of their workers may have a role in the opposition of frontline workers. No one has forgotten the huge bonuses awarded to then CEO Robert Milton and his associates after the company was restructured. This memory may be why the employees twice voted down the negotiated deals. Notwithstanding the grievances the second coming of receivership of Air Canada is very likely and this time new Air Canada, or whatever it is called, will begin afresh with new name, new wage and pension structure, no unions and new workers under new management. Till then, when Air Canada workers are sorry for themselves, they can feel better by pausing for a moment to look at the plight of investors who bought shares in the restructured company at $20 and can not sell them now for a dollar. It may be some consolation to the unions negotiating better pension deals for future employees to realize that the retirement funds who invested in Air Canada are the laughing stock of the industry and their investors can not afford to retire whatever their age.
While the employees have larger share of the blame in problems at Air Canada, the situation is different at Aveos, the company that did the maintenance work for Air Canada and that filed for bankruptcy this week. When I moved in my community thirty years ago, there were three garages repairing cars and selling gas. Now there is only one. Cars being made today are sturdier and do not need frequent repairs as they used to do. I suspect the same is true for aircrafts; they still need maintenance but much less often. To survive in a shrinking market, a company has to acquire new business by diversifying into new services or by attracting new clients. Aveos failed to do either. Even though Air Canada sent almost all of their work to Aveos, it wasn’t enough to keep four plants operating. The company failed to attract other clients and did not reorganize the operations for the reduced amount of work that was available. It carried on with excess capacity and too many employees for far too long. Rather than blame Air Canada for not creating for them work they did not need, Aveos management should focus on how they can adjust the size of operations to the available market. Perhaps the owners have concluded that it is not possible to be profitable under current circumstances and they should cut their losses and leave. If this is indeed the case, it is only fair to the workers and their main customer that they let someone else take over the operations and adjust its size to what will be profitable.
Air Canada is in the news again. Thankfully it is not for an accident or anything involving loss of life. In some ways it is an old story. The longstanding battle between the unions and the management on wages and pensions has come to the boil and the federal government has intervened once more to prevent the shut down by strike or the lockout.
Air Canada has had financial problems and poor employee morale for decades. It was nine years ago, on April 1, 2003, when the airline declared bankruptcy. The company's financial house was restructured over next eighteen months mostly at the expense of shareholders who lost all of their investment. The workers agreed to wage concessions but insisted on preserving the pensions and other benefits. Even with the wage reductions, cost structure at Air Canada stayed higher than at WestJet. More serious was the issue of deficiency in pension fund. Air Canada was allowed to postpone making this up but the liability was not diminished. The company has not
been able to adequately top up pension fund shortfalls since then and pension liability has continued to grow. This is perhaps the most serious of the problems haunting the company now. Air Canada has other so-called legacy handicaps too. They carry the baggage of pension and other agreements made when they were a federal government agency, not to mention the burden of general expectation of quality service from a 'national' airline.
In current economic environment no company, leave alone one barely staying afloat like Air Canada, can guarantee pensions related to incomes at the time of retirement several years from now. The times of economic growth and steady rise in stock market which made it possible are long gone. The companies can contribute to a plan along with the employees but they can not predict the performance of investments in the plan. Workers must recognize this reality. They can negotiate the level of contribution and the age of retirement. But the assured monthly payment for rest of the life after retirement is not a realistic hope any longer and no management can agree to it.
Air Canada employees must also remember that the wage and benefits structure is significantly lower at competing companies, partly because their employees are not unionized; they do not negotiate the working conditions and do not go on strike. The argument of older workers that they made 'sacrifices' in 2003 and it is time they recouped some of those losses does not hold water because the employees did the minimum that was necessary for the company to operate and carry on providing them jobs. Unfortunately, the business environment for airlines has not improved since then even though the traffic has grown. The lower cost structure of the competition in Canada and cut-throat competition from other international airlines fighting for
their own survival has made it difficult to retain the market share. In this environment, and with fuel costs remaining high, the pressure to cut cost has been relentless. Fuel and wages are the biggest cost items and it is only the later that the airlines have any control over. With the best wish in the world, the management at Air Canada can not offer their employees better terms while the competitors are holding their wage costs steady. Their options come down to dying slowly and painfully or quickly after a prolonged strike or lockout and the management can not be blamed for opting for the later. The union negotiators understand this argument, but they have not been able to convince their members. Surely, fat pensions and huge
bonuses in the contracts of the executives and their reluctance to volunteer reductions they are asking of their workers may have a role in the opposition of frontline workers. No one has forgotten the huge bonuses awarded to then CEO Robert Milton and his associates after the company was restructured. This memory may be why the employees twice voted down the negotiated deals. Notwithstanding the grievances the second coming of receivership of Air Canada is very likely and this time new Air Canada, or whatever it is called, will begin afresh with new name, new wage and pension structure, no unions and new workers under new management. Till then, when Air Canada workers are sorry for themselves, they can feel better by pausing for a moment to look at the plight of investors who bought shares in the restructured company at $20 and can not sell them now for a dollar. It may be some consolation to the unions negotiating better pension deals for future employees to realize that the retirement funds who invested in Air Canada are the laughing stock of the industry and their investors can not afford to retire whatever their age.
While the employees have larger share of the blame in problems at Air Canada, the situation is different at Aveos, the company that did the maintenance work for Air Canada and that filed for bankruptcy this week. When I moved in my community thirty years ago, there were three garages repairing cars and selling gas. Now there is only one. Cars being made today are sturdier and do not need frequent repairs as they used to do. I suspect the same is true for aircrafts; they still need maintenance but much less often. To survive in a shrinking market, a company has to acquire new business by diversifying into new services or by attracting new clients. Aveos failed to do either. Even though Air Canada sent almost all of their work to Aveos, it wasn’t enough to keep four plants operating. The company failed to attract other clients and did not reorganize the operations for the reduced amount of work that was available. It carried on with excess capacity and too many employees for far too long. Rather than blame Air Canada for not creating for them work they did not need, Aveos management should focus on how they can adjust the size of operations to the available market. Perhaps the owners have concluded that it is not possible to be profitable under current circumstances and they should cut their losses and leave. If this is indeed the case, it is only fair to the workers and their main customer that they let someone else take over the operations and adjust its size to what will be profitable.
Friday, March 16, 2012
Our Healthcare Dilemma
The growing share of healthcare in federal and provincial budgets is a source of alarm and given the political nature of the issue it is not going to go away. The costs continue to balloon because the population is growing older and new life prolonging drugs and surgical procedures are very expensive. Health care now consumes nearly half of the total expenditures in all provinces and annual increase far exceeds the rate of inflation. Consequently, investments in other necessary items, education and infrastructure for instance, are declining every year. This is unsustainable and measures to contain the costs must be devised and implemented. To make the situation worse, the demand for services exceeds the capacity in the system from primary care physicians to emergency hospital care and patients have a long wait before receiving essential care. Simply put, there are not enough medical professionals to go around. Although more are being trained, the shortage of staff remains acute.
There are two possible solutions to rectify the imbalance in capacity and demand. First, and the preferable one, is to improve the operating efficiency of the system. Instructions on how to achieve higher efficiency levels often come from the top and some serious mistakes have been made. Major studies to determine system wide solutions are necessary and must continue. But we also need small committees of professionals working locally to improve efficiency in their organization which are appropriate for skill levels available to them. The means of implementation and dissemination of the proven techniques, including the financial assistance for new and improved equipment, should be generally accessible without complicated procedures.
Higher efficiency will mitigate but not solve the problem. The other approach, unpleasant at first glance, is reducing the demand. In the long term this can be achieved by improving the dietary habits and encouraging physical fitness. The studies in the United States and New Zealand have shown that the children brought in dysfunctional families are six times more likely to suffer from chronic diseases all their lives starting from childhood. Therefore, effective policies that alleviate poverty, drug addiction, unwanted pregnancies and unemployment and provide job training to men and women living in deprivation can reduce medical care costs by improving the health of children in such families.
Other steps are required till effects of social engineering are felt. The demand can always be reduced by making it unaffordable to some. However, Canadians will rightly find such system abhorrent. A better way may be to provide incentives to reduce or eliminate unnecessary care as well as putting in place some value measures in provision of the care. Are the tests requested by a patient really advisable? What is a stay in extensive care worth in terms of the prolonged life; by a month, a year or ten years? What quality of life would it be after the medical intervention? Rather than making ad hoc decisions we need to have in place a generally applicable protocol. The system should set limits to the extent of care it would provide for specific cases in terms of tests and treatment; giving patients the option to buy the care beyond this limit. Thus, if a test is unnecessary in the doctor’s opinion or a certain treatment, be it drugs or surgery, will extend the life but the quality of life would be poor, patients can receive that care but only by paying for it. Such a system would be labeled a two-tier system and many Canadians would instinctively oppose it. But they might be persuaded if it were explained that the second tier allows all Canadians to receive first class care they need when they need it and a higher tier has always been available to the rich in hospitals and clinics south of the border.
To meet the ever escalating cost, all but the poorest citizens should pay a supplementary tax on income or consumption which is entirely devoted to health care. This tax should cover the healthcare costs above a threshold in the government budget; say 40 percent of general revenue. The rate of this tax can fluctuate based on the anticipated healthcare budget. In order to maintain transparency it is critical that this tax be levied by the healthcare administration and not by the politicians. This system is preferable to a user fee because it will spread the payment over a wide base and will not be disastrous to the family in case of a serious illness.
None of the suggestions proposed here – higher efficiency, elimination of unjustifiable treatments and a supplementary health tax - would be enough by itself and a combination of all three is needed to make the system sustainable. One can only hope that the political will to impose strong measures to solve problems of this magnitude exists.
The growing share of healthcare in federal and provincial budgets is a source of alarm and given the political nature of the issue it is not going to go away. The costs continue to balloon because the population is growing older and new life prolonging drugs and surgical procedures are very expensive. Health care now consumes nearly half of the total expenditures in all provinces and annual increase far exceeds the rate of inflation. Consequently, investments in other necessary items, education and infrastructure for instance, are declining every year. This is unsustainable and measures to contain the costs must be devised and implemented. To make the situation worse, the demand for services exceeds the capacity in the system from primary care physicians to emergency hospital care and patients have a long wait before receiving essential care. Simply put, there are not enough medical professionals to go around. Although more are being trained, the shortage of staff remains acute.
There are two possible solutions to rectify the imbalance in capacity and demand. First, and the preferable one, is to improve the operating efficiency of the system. Instructions on how to achieve higher efficiency levels often come from the top and some serious mistakes have been made. Major studies to determine system wide solutions are necessary and must continue. But we also need small committees of professionals working locally to improve efficiency in their organization which are appropriate for skill levels available to them. The means of implementation and dissemination of the proven techniques, including the financial assistance for new and improved equipment, should be generally accessible without complicated procedures.
Higher efficiency will mitigate but not solve the problem. The other approach, unpleasant at first glance, is reducing the demand. In the long term this can be achieved by improving the dietary habits and encouraging physical fitness. The studies in the United States and New Zealand have shown that the children brought in dysfunctional families are six times more likely to suffer from chronic diseases all their lives starting from childhood. Therefore, effective policies that alleviate poverty, drug addiction, unwanted pregnancies and unemployment and provide job training to men and women living in deprivation can reduce medical care costs by improving the health of children in such families.
Other steps are required till effects of social engineering are felt. The demand can always be reduced by making it unaffordable to some. However, Canadians will rightly find such system abhorrent. A better way may be to provide incentives to reduce or eliminate unnecessary care as well as putting in place some value measures in provision of the care. Are the tests requested by a patient really advisable? What is a stay in extensive care worth in terms of the prolonged life; by a month, a year or ten years? What quality of life would it be after the medical intervention? Rather than making ad hoc decisions we need to have in place a generally applicable protocol. The system should set limits to the extent of care it would provide for specific cases in terms of tests and treatment; giving patients the option to buy the care beyond this limit. Thus, if a test is unnecessary in the doctor’s opinion or a certain treatment, be it drugs or surgery, will extend the life but the quality of life would be poor, patients can receive that care but only by paying for it. Such a system would be labeled a two-tier system and many Canadians would instinctively oppose it. But they might be persuaded if it were explained that the second tier allows all Canadians to receive first class care they need when they need it and a higher tier has always been available to the rich in hospitals and clinics south of the border.
To meet the ever escalating cost, all but the poorest citizens should pay a supplementary tax on income or consumption which is entirely devoted to health care. This tax should cover the healthcare costs above a threshold in the government budget; say 40 percent of general revenue. The rate of this tax can fluctuate based on the anticipated healthcare budget. In order to maintain transparency it is critical that this tax be levied by the healthcare administration and not by the politicians. This system is preferable to a user fee because it will spread the payment over a wide base and will not be disastrous to the family in case of a serious illness.
None of the suggestions proposed here – higher efficiency, elimination of unjustifiable treatments and a supplementary health tax - would be enough by itself and a combination of all three is needed to make the system sustainable. One can only hope that the political will to impose strong measures to solve problems of this magnitude exists.
Friday, March 9, 2012
Iran's Nuclear Development:
There is a general belief in the West that Iran is developing a nuclear bomb while the Mullahs insist that the facilities are being built for peaceful purposes. It has made Israel and all the Western governments very nervous. To dissuade the rulers, various sanctions have been imposed on Iran but they have had no effect. According to some media reports Israel is now set to attack the nuclear facilities of Iran with or without the support of the U.S.
I suggest that the only reason Iran is developing a nuclear capacity, if indeed it is, is because Israel already has it. Islamic countries in the Middle East have good reasons to worry about expansionist aims of Israel. Their view of the situation, rightly or wrongly, is that the Jews expelled Arabs in 1948 and have annexed the territories of their neighbours twice since then; have showed no interest in negotiating a piece deal with Palestinians and have been building the military capacity, including nuclear weapons, far greater than they would need for defensive purposes. No coercion will change this impression and one way or the other populist governments of Islamic countries will continue working towards military parity with Israel. This does not mean that continuous wars in the area are inevitable till one of the two sides is annihilated. It does mean that huge imbalance in the strength of two sides does not auger well for peace.
Israel does not have to weaken itself to begin the process that could reduce tensions in the region. Rather than threaten strikes which may or may not work and could easily backfire, Mr. Netanyahu can suggest that Israel will abandon its nuclear arsenal and start negotiations with Palestinians if three conditions were met:
1. Iran unconditionally gave up any intention to develop nuclear weapons.
2. Iran allowed international observers to monitor its nuclear development to ensure that it is exclusively for peaceful purposes.
3. Other countries in the region signed and promised to abide by non-proliferation treaty.
Iran can not turn down this offer without confirming the worst fears of its enemies and alienating her remaining friends. In that case there will be much greater support for the attack to destroy the facilities. On the other hand, if good sense were to prevail, Iran would accept the offer and the possibility of a war in the region will be averted, not only now but for some time in the future.
If there were a win/win situation here is one. Will Netanyahu be able to convince his motley group to do it? Let us hope so.
Set of Rules for Governance of Canada:
1. Government of Canada has been replaced by Harper government.
2. Absolute majority in parliament, though far from it in votes, gives a Prime Minister the right to push his narrow agenda, no matter what harm it does to the country.
3. The ministers don’t lie or play tricks; it is some junior official in a back office.
4. If caught with a hand in the cookie jar, throw the jar at the person making sure s/he learns a lesson and never snoops on you again.
5. Cut the services to those most in need and where it will do the most long term damage because these are the people who voted against you.
6. Protect the jobs and benefits of your cronies irrespective of costs. After all it doesn’t come out of your pocket.
7. Make sure every pronouncement promotes your party and puts down the opposition parties whatever the truth.
8. Use government funds to promote your party and its candidates in the next election.
9. Encourage your supporters to sabotage fair elections at home while extolling democracy abroad.
10. Avoid the high road; why risk of falling down. No one can bring you down from the low road.
There is a general belief in the West that Iran is developing a nuclear bomb while the Mullahs insist that the facilities are being built for peaceful purposes. It has made Israel and all the Western governments very nervous. To dissuade the rulers, various sanctions have been imposed on Iran but they have had no effect. According to some media reports Israel is now set to attack the nuclear facilities of Iran with or without the support of the U.S.
I suggest that the only reason Iran is developing a nuclear capacity, if indeed it is, is because Israel already has it. Islamic countries in the Middle East have good reasons to worry about expansionist aims of Israel. Their view of the situation, rightly or wrongly, is that the Jews expelled Arabs in 1948 and have annexed the territories of their neighbours twice since then; have showed no interest in negotiating a piece deal with Palestinians and have been building the military capacity, including nuclear weapons, far greater than they would need for defensive purposes. No coercion will change this impression and one way or the other populist governments of Islamic countries will continue working towards military parity with Israel. This does not mean that continuous wars in the area are inevitable till one of the two sides is annihilated. It does mean that huge imbalance in the strength of two sides does not auger well for peace.
Israel does not have to weaken itself to begin the process that could reduce tensions in the region. Rather than threaten strikes which may or may not work and could easily backfire, Mr. Netanyahu can suggest that Israel will abandon its nuclear arsenal and start negotiations with Palestinians if three conditions were met:
1. Iran unconditionally gave up any intention to develop nuclear weapons.
2. Iran allowed international observers to monitor its nuclear development to ensure that it is exclusively for peaceful purposes.
3. Other countries in the region signed and promised to abide by non-proliferation treaty.
Iran can not turn down this offer without confirming the worst fears of its enemies and alienating her remaining friends. In that case there will be much greater support for the attack to destroy the facilities. On the other hand, if good sense were to prevail, Iran would accept the offer and the possibility of a war in the region will be averted, not only now but for some time in the future.
If there were a win/win situation here is one. Will Netanyahu be able to convince his motley group to do it? Let us hope so.
Set of Rules for Governance of Canada:
1. Government of Canada has been replaced by Harper government.
2. Absolute majority in parliament, though far from it in votes, gives a Prime Minister the right to push his narrow agenda, no matter what harm it does to the country.
3. The ministers don’t lie or play tricks; it is some junior official in a back office.
4. If caught with a hand in the cookie jar, throw the jar at the person making sure s/he learns a lesson and never snoops on you again.
5. Cut the services to those most in need and where it will do the most long term damage because these are the people who voted against you.
6. Protect the jobs and benefits of your cronies irrespective of costs. After all it doesn’t come out of your pocket.
7. Make sure every pronouncement promotes your party and puts down the opposition parties whatever the truth.
8. Use government funds to promote your party and its candidates in the next election.
9. Encourage your supporters to sabotage fair elections at home while extolling democracy abroad.
10. Avoid the high road; why risk of falling down. No one can bring you down from the low road.
Friday, March 2, 2012
Ontario and Quebec Unite:
The verbal jousting between new Alberta premier Alison Redford and Dalton McGuinty, third term Premier of Ontario, goes deeper than the ink on paper. For thirty eight years that I have lived in Canada, economies of the West and Ontario have consistently gone in opposite directions. When oil price is high, Alberta prospers but the manufacturing in Ontario suffers a double whammy of higher energy cost and rising Canadian dollar. The situation is more extreme these days because the up cycle in oil prices has lasted longer than usual. It shows no sign of turning and the misery in Ontario’s industrial heartland is acute.
Federal governments in the past represented Central Canada more than the West and they tended to follow policies which alleviated Ontario’s plight, often at Alberta’s expense. Current government in Ottawa has a strong Western bias and under the guise of supporting free enterprise it is being singularly unhelpful to the suffering workers in Central Canada.
Not only are the leaders of current Federal government short-sighted, they are guided by crazy extreme ideology borrowed from the Tea Party types south of the border. It would be foolish to expect them to work in concert with Ontario to improve the situation. Only option for Ontarians, other than mass migration to Alberta and Saskatchewan, is to join Quebec and start a campaign for Central Canada separation from the Federation. Separation movement in Quebec has been regaining strength lately and it would have a better chance of success if the two largest provinces with similar economic interests skip over the language barrier and work together to form a strong industrial union whose prosperity would not be constrained by Petro-currency of the blue-eyed sheikhs.
Return to Gold Standard:
Kelefa Sanneh (New Yorker, February 27) mentions in passing Republican hopeful Ron Paul’s wish to return the U.S. dollar to gold standard. There can be no doubt that since the abandonment of gold standard, the Central Banks have flooded the system with new money to create a false sense of prosperity. Unfortunately, mountains of cash have led to the situation where manipulating money is far more rewarding than using it productively and the traders at Goldman Sachs make billions even when the economy is in disarray and unemployment is in double digits. Sustained development over long term needs a financial system where money is made by inventing and making useful products, not by shuffling it around. In this system the banks use the money deposited with them for loaning to profitable enterprises and they don’t have much left for trading on risky ventures. Ignoramus on economic and political matters though I am, I do believe that if all the money that has been pumped over last thirty years to keep the economy ballooning were soaked up somehow and future oversupply constrained by instituting some standard for printing new money, the cycle of bubble and collapse will be eliminated.
Stocks ‘R Us:
The financial media is full of reports on what pension and hedge funds and their managers are doing with their money implying that the readers should do the same. I am afraid that in this field just as in most others, what works for giants does not necessarily work for dwarfs. There are things one can do with a billion dollars, like buy enough shares in a company to push the management around, which most investors can’t do. On the other hand, a small investor places small bets in a larger field and has more flexibility.
Investment philosophy and goals depend on the size of investment. Big hedge funds and pension funds can not consistently grow by 10 percent but a small fund can. That is because a patient investor with a few thousand dollars can buy shares of growing companies that trade infrequently for a couple of dollars which would never be on the radar of a billion dollar fund. For example, investors who bought a few thousand shares of Boyd Collision or Intertape Polymer a year or two ago have quadrupled their money. Such gains easily offset losses in investments that do not work out.
Big funds relate their performance to the market indices while an ordinary Joe saving for his retirement merely wants his investments to stay ahead of inflation after taxes year after year. It is no consolation to an average investor that the TSX lost more in a bad year. There is no rationality when the spectre of deprivation in old age looms. When general markets are falling, a small investor wishing to minimize the losses in the portfolio should stay away from darlings of large traders. Preference for ‘income’ over ‘growth’ stocks reduces the volatility in the portfolio because steady income stabilizes the price to some extent and makes up for small drops in price when they occur.
An investor must be aware of the political and economic winds that are blowing. While local calamities like earthquake or floods do not have a significant lasting impact, a major war or a long recession can be disastrous. However, before you sell all your stocks and stack your dollar bills under the mattress, remember that most disasters, including economic ones, eventually bring inflation and the best way to stay ahead of inflation is to own carefully selected relatively indestructible assets.
The verbal jousting between new Alberta premier Alison Redford and Dalton McGuinty, third term Premier of Ontario, goes deeper than the ink on paper. For thirty eight years that I have lived in Canada, economies of the West and Ontario have consistently gone in opposite directions. When oil price is high, Alberta prospers but the manufacturing in Ontario suffers a double whammy of higher energy cost and rising Canadian dollar. The situation is more extreme these days because the up cycle in oil prices has lasted longer than usual. It shows no sign of turning and the misery in Ontario’s industrial heartland is acute.
Federal governments in the past represented Central Canada more than the West and they tended to follow policies which alleviated Ontario’s plight, often at Alberta’s expense. Current government in Ottawa has a strong Western bias and under the guise of supporting free enterprise it is being singularly unhelpful to the suffering workers in Central Canada.
Not only are the leaders of current Federal government short-sighted, they are guided by crazy extreme ideology borrowed from the Tea Party types south of the border. It would be foolish to expect them to work in concert with Ontario to improve the situation. Only option for Ontarians, other than mass migration to Alberta and Saskatchewan, is to join Quebec and start a campaign for Central Canada separation from the Federation. Separation movement in Quebec has been regaining strength lately and it would have a better chance of success if the two largest provinces with similar economic interests skip over the language barrier and work together to form a strong industrial union whose prosperity would not be constrained by Petro-currency of the blue-eyed sheikhs.
Return to Gold Standard:
Kelefa Sanneh (New Yorker, February 27) mentions in passing Republican hopeful Ron Paul’s wish to return the U.S. dollar to gold standard. There can be no doubt that since the abandonment of gold standard, the Central Banks have flooded the system with new money to create a false sense of prosperity. Unfortunately, mountains of cash have led to the situation where manipulating money is far more rewarding than using it productively and the traders at Goldman Sachs make billions even when the economy is in disarray and unemployment is in double digits. Sustained development over long term needs a financial system where money is made by inventing and making useful products, not by shuffling it around. In this system the banks use the money deposited with them for loaning to profitable enterprises and they don’t have much left for trading on risky ventures. Ignoramus on economic and political matters though I am, I do believe that if all the money that has been pumped over last thirty years to keep the economy ballooning were soaked up somehow and future oversupply constrained by instituting some standard for printing new money, the cycle of bubble and collapse will be eliminated.
Stocks ‘R Us:
The financial media is full of reports on what pension and hedge funds and their managers are doing with their money implying that the readers should do the same. I am afraid that in this field just as in most others, what works for giants does not necessarily work for dwarfs. There are things one can do with a billion dollars, like buy enough shares in a company to push the management around, which most investors can’t do. On the other hand, a small investor places small bets in a larger field and has more flexibility.
Investment philosophy and goals depend on the size of investment. Big hedge funds and pension funds can not consistently grow by 10 percent but a small fund can. That is because a patient investor with a few thousand dollars can buy shares of growing companies that trade infrequently for a couple of dollars which would never be on the radar of a billion dollar fund. For example, investors who bought a few thousand shares of Boyd Collision or Intertape Polymer a year or two ago have quadrupled their money. Such gains easily offset losses in investments that do not work out.
Big funds relate their performance to the market indices while an ordinary Joe saving for his retirement merely wants his investments to stay ahead of inflation after taxes year after year. It is no consolation to an average investor that the TSX lost more in a bad year. There is no rationality when the spectre of deprivation in old age looms. When general markets are falling, a small investor wishing to minimize the losses in the portfolio should stay away from darlings of large traders. Preference for ‘income’ over ‘growth’ stocks reduces the volatility in the portfolio because steady income stabilizes the price to some extent and makes up for small drops in price when they occur.
An investor must be aware of the political and economic winds that are blowing. While local calamities like earthquake or floods do not have a significant lasting impact, a major war or a long recession can be disastrous. However, before you sell all your stocks and stack your dollar bills under the mattress, remember that most disasters, including economic ones, eventually bring inflation and the best way to stay ahead of inflation is to own carefully selected relatively indestructible assets.
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