Feature

Eat or Be Eaten

Roger Martin, dean of the Rotman School of Management, tells Walrus editor Ken Alexander that in the global economy Canada has one choice: be a little guppy or a big fish

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Ken alexander: This summer, amid widespread concern about foreign takeovers of key Canadian corporations and whole industries, in the Globe and Mail you and rbc president and CEO Gordon Nixon laid out a stark warning about Canada’s economic future. Arguing that we are midway through a “transformational era” (1980–2030) as significant as the core of the Industrial Revolution (1780–1830), you suggest that there will be near-total winners and losers, and that if Canada doesn’t play its cards right it will be “hollowed out.” This comparison is intriguing. Was the Industrial Revolution not a very different form of economic globalization?

Roger martin: Indeed, it was very different, but the comparison is apt based on challenges to how we now engage in productive activities and the problems and opportunities this brings. In England prior to the Industrial Revolution, the economy was largely rooted in cottage industries, wherein small numbers of employees churned out small volumes of goods using production processes that involved very little capital investment. No player in any particular industry grew to a scale necessary to do things more efficiently, engage in research and development, or invest in machinery and equipment.

In the subsequent fifty years all this changed. Firms invested in large factories with new machinery and took advantage of economies of scale. This led to efficiencies, brand names (albeit primitive ones), and in many industries competition between several large opponents, further spurring innovation. The transformation created challenges: old physical assets (e.g., little shops) and human skills (e.g., hand weaving) became much less valuable, and existing knowledge bases were rendered obsolete. It also created problems. The new factories were far more dangerous than tiny predecessor shops. Heartless businessmen exploited workers generally and introduced large-scale child labour. As a consequence, many countries resisted the Industrial Revolution. However, productivity growth and real wages (anemic for centuries) grew significantly, with incomes growing fastest in the countries that embraced change—in particular the UK and US. Wages and productivity have grown at a higher rate ever since, opening the way to much, much higher standards of living in the industrialized world.

The current period is similar in that globalization is forcing changes in the nature of production. Canada is particularly interesting because we had high tariff barriers before the Free Trade Agreement (fta, 1989) and then the North American Free Trade Agreement (nafta, 1994), and our firms had an incentive to gear their production activities (approach and capacity) to the Canadian market only. This meant lower economies of scale and less ability to amortize the costs of big investments (e.g., r&d) over a large volume of sales. Prior to the fta, Canada tended to produce companies that were national in scope (except for the resource sector, which had no tariff protection). To the extent that these companies sought to grow, it was primarily by diversifying within Canada, which is why we had big broad conglomerates like Canadian Pacific, Bell Canada Enterprises, and Domtar. These firms didn’t need managers with international experience, offices and factories around the world, or stock listings in New York or London.

As globalization proceeded and Canada opened its market to freer trade, Canadian firms faced a completely different success model—overseas operations, global managers, global economies of scale, higher R&D spending, etc.—innovations foreign to the vast majority of Canadian firms before 1989. Thus, in many respects, corporate Canada faced challenges similar to England’s cottage industry circa 1800; competitors of a sort they had never encountered before were suddenly eating their lunch.

Recent calls for protectionism and restrictions on foreign takeovers are no different than attempts to disallow the use of new production methods 200 years ago. Again, the dislocations are real and jolting, and there is no guarantee that absorbing the costs will be worth it in the end. Nonetheless, it will be a huge lost opportunity for those who do not figure out how to take advantage of globalization by changing their approach to competing.

KA: For Canada, didn’t this transformation begin with the FTA, and through it did we not essentially drop our mixed private-public approach to economic sustainability? Didn’t pre-FTA Canada subsidize certain industries (through R&D grants, tax breaks, etc.) with the expressed purpose of sustaining companies with a national scope and international potential that, because our internal market lacked economies of scale, could not do so themselves? Indeed, isn’t one of the critical flaws of the FTA and NAFTA that the importance of subsidies to the Canadian economy is not adequately articulated? Didn’t we leap into the transformation with both feet, unaware, and aren’t we now seeing the fallout?

RM: Canada took its first step toward recognizing that something was going on in the global economy with the fta. Arguably, that meant that Canada started to take appropriate action a decade after the transformational era really took off. I give Canada and Donald Macdonald high marks for bravery, but I give Canada low marks for speed. I don’t think that the characterization of Canada dropping its “mixed private-public approach to economic sustainability” is correct. There are numerous misconceptions about the Canadian economy, past and present, and one is that it is dramatically different than the US—that we are drawers of water and hewers of wood, they are industrialists; we have heavy state intervention, they are free market aficionados. The numbers just don’t support this view—not even close.

When we study this question, we divide the economy into forty-one industrial clusters— automotive, processed food, information technology, etc.—and, comparing Canada to the US in terms of what industries people are actually employed in, the top eleven are the same, and in almost the same order. The two economies are remarkably similar. Canadians’ views get skewed because we ship large amounts of resource goods across the border, and thus resources show up prominently in Canadian export statistics. America uses nearly all of its own resources.

The broadest way to measure the public-private mix is to see what percentage of economic activity flows through government hands, as measured by total tax revenues as a percentage of the gross domestic product. In the US it’s 32 percent; i.e., at some point US governments get their hands on 32 percent of economic activity and do something with it—build things, provide services, take it from one and give it to another, etc. In Canada it’s 37 percent. Is this differential indicative of a meaningful difference in the level of state involvement? I don’t think so. If we compare Canada’s industrial heartland, Ontario, to America’s three most prosperous industrialized states (Massachusetts, New Jersey, and New York), we get even smaller differences—Ontario (37 percent), Massachusetts (34), New Jersey (35), and New York (36). For Ontario to have matched New York’s spending level in 2004, it would have had to reduce spending by a mere $7.7 billion.

Both countries support certain industries because they think those industries are important, there are political considerations, and so forth. We heavily support Bombardier because we want an aerospace industry and because it is Quebec-based. The US has always supported Boeing—which would have long since withered away if not for its lucrative defence contracts—because it wants an aerospace industry and needs leading-edge military hardware. We both heavily support the information technology and pharmaceutical industries through r&d tax credits and massive government investments in university research. These three industries are favourites of developed countries, who all play the same game of attempting to make sure they produce internationally successful companies. Whether that game is sensible and whether Canada plays it well are different and important questions, but it is not helpful to think of us having an unusual approach, either before or after nafta.

With respect to inadequate definitions of subsidies, I am afraid I am a bit of a cynic. On trade, America has the desirable market and it will always set the rules it wants, ad hoc if necessary. Critical industries will be forever subsidized in weird and wonderful ways around the world, and the resulting suits will keep trade lawyers well-fed for the foreseeable future. As a trading nation, we simply have to live and work with this reality. Certainly we leaped in with both feet without knowing exactly what the landing would look or feel like—a proud moment for an oftentimes timid country—but thank goodness we gave a number of Canadian firms the chance to operate in a freer trading environment as the global economy was emerging. Does it mean all will succeed? No. But we had fourteen billion-dollar-plus world-leading Canadian companies in 1985 prior to the fta and we have thirty-nine today. If that is “fallout,” I can live with it.

KA: Isn’t the FTA a misnomer? Free trade is the absence of tariffs and government regulations that hamper the exchange of goods and services. Didn’t the FTA opt out of this free market free-for-all because each country—especially Canada—wanted to protect certain aspects of its economy while securing access to external markets? It seems to me that we did reasonably well on the latter, not so well on the former. For this reason, I am less sanguine and more cynical about the US flouting trade panel rulings. Isn’t the key question still whether a country has the right, if not the responsibility, to restrict foreign corporate competition? I would have thought, for instance, that Canada’s mining sector was pretty secure, but ownership is shifting to foreign hands and we can only guess at the longer-term fallout. Furthermore, doesn’t chapter eleven in NAFTA preclude placing restrictions on foreign access and ownership? Given the obvious enthusiasm for Canada’s energy resources, wouldn’t a certain “Canadian exceptionalism” have been prudent for this sector? Isn’t it a bit warped that we can’t charge Americans more than Canadians pay for oil and gas?

RM: Yes, Free Trade Agreement is a misnomer, but it’s standard practice in politics to give a bill a name with just enough truth-likeness to enable its proponents to use an evocative exaggeration. So I don’t get fussed about fta or “Operation Just Cause” or, for that matter, “Crest Complete.”

Countries have a basic choice when contemplating more liberal trade: let trade dominate sovereignty or let sovereignty dominate trade. The members of the European Union (EU) traded sovereignty over borders, currency, economic policy, etc., to achieve far freer trade. If unanticipated and negative patterns of economic activity develop with respect to an EU country, that is basically tough luck because most of its sovereignty levers have been bartered away. Option two is what Canada did in the fta and nafta, partly because the notion of trade dominating sovereignty had virtually no public support. So, yes, we signed a convoluted agreement that allows any party to say, “Hey, I don’t like what’s happening, I am going to invoke clause X.”

Vis-à-vis American exceptionalism, I am more resigned than sanguine. I don’t like it but I can’t sit here and deny it. Nor can I imagine any trade agreement with the US that would cure our sovereignty anxieties. That doesn’t mean that we shouldn’t fight the Americans in court whenever they do a softwood-lumber-style mugging, but I just don’t expect the fta/nafta to solve the trade-versus-sovereignty conflict.

Certainly a country has the right to restrict foreign competition (unless it has bargained that right away, as the EU members largely did). However, if we restrict foreign competition others will take notice, and if they think we are engaging in actions that disadvantage them, they will retaliate. For Canada, this is tricky. The EU, US, and Japan are much bigger markets for us than we are for them (and Brazil, Russia, India, and China will all be much bigger soon.) So who has more to lose in a trade-restriction pissing match—the relatively small internal market or the much larger internal market? Canada, obviously. Size matters, and the three countries that did the best economically before the dramatic lowering of tariff barriers in the late twentieth century were the US, Japan, and Germany, the world’s three largest and most homogeneous home markets. If we’re going to apply a restriction, it had better be for something really useful.

With respect to the Canadian mining sector, I am never pleased when we lose internationally competitive companies. However, let’s remember that in its history, Canada has produced just six mining companies that achieved both $1 billion in annual revenues and top-five revenues in its industry segment globally—Barrick, Cameco, Falconbridge, Fording, Inco, and Teck Cominco—and that four of these are still firmly in Canadian hands. (Those who wish to exaggerate the “hollowing out” problem add Alcan and lower the ratio to four of seven, but if people view Canadian mining as digging stuff out of Canadian soil, Alcan does not qualify. It digs in Africa and South America, taking advantage of cheaper labour and abundant supply, and smelts the hell out of it in Canada, taking advantage of cheap power.) But let’s imagine that the mining sector does go. Is this worse for Canada than losing another sector? Those saying “yes” say so because we’re good at mining, we should protect our abundant mineral resources, and we have a global leadership position in the industry’s capital markets.

Except for a small concern about capital markets, I see the exact opposite. If I had to lose a sector, I would put mining nearer the top of my list than the bottom. It is not a growth industry in Canada. The growth in mining is in the developing world, because land and labour are far cheaper, and by and large environmental laws are far more lax. As such, Canada, with its high labour costs and relatively strict environmental-compliance laws, no longer has a natural advantage. Our rich deposits are great, and we aren’t a mining basket case, but to think of mining as a sector in which we have huge advantages is far-fetched.

As a thought experiment, compare two of Canada’s recently sold global leaders, graphics-chip maker ati (acquired by California’s amd) and Inco (acquired by Brazil’s cvrd). Let’s say we got into some catastrophic situation and wanted to reassert control over the operations of these companies. We race off to amd and tell them that we are going to tax every damn chip they make in Canada at 50 percent of the selling price since we helped fund ati with r&d tax credits. And we race off to cvrd and tell them that we are going to tax every damn pound of nickel they take out of their Canadian Inco mines at 50 percent of the selling price. Who would worry? Only cvrd. amd would simply close down its operations in Canada, not pay a penny of tax, and cost Canada scads of jobs. cvrd would pay the tax, because it can’t move Sudbury and Voisey’s Bay to Brazil. Canadian mining is safe because it is about mining in Canada. I would trade losing Inco and Falconbridge for keeping ati in a heartbeat.

On the capital-markets front, it may prove difficult to maintain Toronto’s position as a premier mining-finance centre, but Houston remains the global centre of many oil-sector-related industries even though the bulk of Texas oil ran out long ago. Given our ability to control oil and gas royalty levels, I’m not overly worried about the foreign acquisition of our Canadian energy producers. Do I like it? No. But it isn’t at the top of my list of concerns.

With respect to charging Americans more than Canadians for oil and gas, these products trade at prices based on the global value of a barrel of benchmark crude, adjusted for refinery margins that differ based on localized supply-and-demand conditions. We could have Canadians pay less by giving them a government-subsidized discount from globally influenced levels, I suppose, but this would promote a greater use of fossil fuels, give the greatest net subsidy to those driving the biggest vehicles and ultimately the cost of the subsidy would displace spending on education and health care. I don’t see the upside there.

KA: Isn’t a high degree of economic and cultural sovereignty preserved for EU members because there are so many economies of roughly equal size (and because decision-making is by consensus, the oft-ridiculed Brussels “talk shop”)? You seem to be arguing that there is little choice: go global or go home . . . and eventually rot.

RM: It would be news, I believe, to most Europeans that they have maintained a “high degree of economic and cultural sovereignty” following the creation of the EU. Culture, yes, in part because culture changes slowly; economic sovereignty, no. That said, the size distribution, not unlike the size distribution of the fifty American states, does make for a more balanced system than Canada versus the US giant.

In the modern economy, the price to pay for economic isolationism is huge. What isolationist economy in the last sixty years has performed anything but miserably? I can’t think of one. And it has been thus for a long while. The stock market crash that ushered in the Great Depression, an economic reversal that is almost unimaginably horrific in today’s terms, happened the moment the Smoot-Hawley Tariff Act was passed in committee and was certain to pass in the full Senate and House in due course. That act, which didn’t come close to eliminating trade but did swing the pendulum back toward a more closed trade environment, precipitated a massive worldwide depression. I can’t come up with any argument that says that Canada could go into a more protectionist phase without dreadful consequences. If the US couldn’t do it without blasting a huge hole in its own foot, why would we think we could or should?

KA: I disagree with you about the causes of the Great Depression—runaway stock market speculation, enormous and growing wealth disparity as the Roaring Twenties were coming to a close, and shareholder anxiety that the castle of capitalism was built on air, spelled doom, I believe.

RM: No one can be definitive on the causes of the Great Depression, so your view is in many respects as legitimate as mine. However, I would discourage you from believing that overheated stock markets are correlated with subsequent economic contractions. They aren’t, at least for economic contractions over the last century in North America. One consistent precursor is the shrinking of the money supply in advance of the beginning of an economic contraction while the economy is still growing. In many respects, the biggest problem for a growing economy occurs when central bankers declare—whether true or not—that the stock market is overheated and slam the brakes on liquidity in the economy.

KA: Does economic globalization mean—pace Thomas Friedman, at least this far—that the world is flat, that nation-states are (and will continue to be) much diminished by the requirements of transnational corporations and the need to build massive trading blocs. (And doesn’t your “spiky world”—nodes of high corporate activity and success—erupt from Friedman’s flat, and somewhat homogenized, Earth?) If I am reading you correctly, one need not own the means of production in order to ensure sovereignty, that as long as Canada has oil and gas in the ground and valuable rocks there will be suitors and we will benefit.

RM: It’s true that you don’t need to own the means of production to ensure sovereignty. There are lots of aspects of sovereignty, and having valuable material in or on your land helps enormously. Chile expresses its sovereignty to a greater extent than Paraguay because it has much more in the way of metals and minerals, ocean ports, and an income level four times higher.

The Thomas Friedman notion of a flat world and the Richard Florida notion of a spiky world are not entirely inconsistent or at odds. The infrastructure underlying the global economy is flattening—i.e., most countries are adopting the same “operating system” of capitalist democracy; university education is globalizing so you can get an engineering degree in China and India that teaches the same material as in North America; labour markets are globalizing. However, the industrial clusters that build on that flattening infrastructure are getting spikier. So the world is in different ways getting simultaneously flatter and spikier.

Certainly there are entry fees to joining the global economy, and we have paid some of them in our trade pact with the US. It’s a tradeoff. On one hand, we could make within our own borders all the goods and services we consume and in doing so maintain some important aspects of sovereignty. On the other hand, we could make some things and trade for others, and give up other aspects of sovereignty. Sovereignty follows productivity. It wouldn’t feel very sovereign to have to beg the imf for bailouts or the World Bank for infrastructure investments. So I am inclined to give up the sovereignty of making economic decisions in a vacuum to get the sovereignty that comes with having the resources to be a player on the global stage. And in the back of my mind, I must admit that I like one aspect of the diminution of sovereignty that comes from having intensive global trading: sovereignty and isolationism make it much easier for countries to fight wars; interdependence makes it hard.

KA: Are you suggesting that my concerns about the investor-state clauses in chapter eleven of NAFTA and, for that matter, chapter six, which gives the US access to our energy reserves, are legitimate but beside the point—that these types of provisions are simply what joining the global economy require? I am not convinced that our “right to control oil and gas royalty levels” is secure, or that the quid pro quo from corporations isn’t simply: “You can have your royalty levels, but in return we get massive government capital for mega-projects,” like the Alberta model.

RM: I’m not convinced that our right to control oil and gas royalty levels is totally secure either, but having oil and gas resources is an insurance policy. Since we are a large net energy exporter, we have much greater energy reserves than we need. If we didn’t trade them, we would be reducing our economic welfare. So trade is an imperative. And within a well-functioning trading regime, we wouldn’t jack up the royalties and thumb our nose at the world, in particular at those foreigners who have invested in our resources. However, if that well-functioning trading regime breaks down, and countries start playing nasty games, we still have the resources and the royalty tool. Make no mistake: folks would be irate if we used it. But there is a difference between them being irate versus what would be the case if we tried to discipline them for bad behaviour relative to, say, ati.

I do think the Alberta model is to attempt to reinvest the royalty windfall to promote the growth of an industry that has made it one of the richest places on the planet. That is probably very smart.

KA: I keep thinking of the Auto Pact, a trade agreement that was balanced, created sustainable tertiary industries, and was good for Canada and superb for Ontario—a deal that seems impossible today.

RM: I agree. Following World War II, the US, I believe, left things on the table for others both in terms of trade and the economy and in international affairs. The Marshall Plan and the reconstruction of Japan did not extract all the benefits for America that they could have. Rather, the US demonstrated considerable largesse. Of course, both projects helped the US by helping the world economy, but they were not negotiated like collective bargaining agreements. The Auto Pact belongs in the same category. It was the right and sensible thing to do, even if Canada needed it a lot more than the US did. Yes, that was a much kinder and gentler era.

KA: The fact that the Alberta oil industry has been massively subsidized is often overlooked. Likewise, Imperial Oil and others see golden decades of Arctic development through the extraction of natural gas in the Mackenzie region (and offshore), if only the state could provide the necessary infrastructure grants, solve jurisdictional battles, and pave the way. Indeed, the public-private discussion is alive, if not well, and many believe that “the next big thing,” green technology, requires massive government leadership and investment. But to ride this green wave, do you think we must remove corporations from the progressive tax ladder, stop treating them as individuals (but tax those individuals reaping millions to the hilt), and let them get on with business?

RM: I also agree with you here. The simplest way to be a phenomenally rich economy is to have massive energy resources within your borders combined with democratic capitalism combined with few citizens. That is the formula for two of the richest places on the planet, Norway (pop. 4.6 million) and Alberta (pop. 3.4 million). Outside this extremely rare model, there is only one way that any country has gotten rich: through a substantial level of productive government involvement in the economy. Those who argue for getting rich and prosperous by eliminating government’s role in the economy, or by dramatically curtailing it, are making a theoretical or ideological argument, not an empirical one. There is no empirical evidence to support such a view. The richest states in America—i.e., the richest jurisdictions of 5 million people or more in the world—all have government involvement in the economy that is barely distinguishable from Ontario’s. Government investment in basic and higher education, infrastructure, and scientific research is absolutely essential to a prosperous economy. The key factor determining prosperity is how intelligently governments extract money from the economy for the resources they need and how intelligently they spend that money.

So when I talk about how we should tax corporations, I am not making an argument about the size and involvement of government. I am making an argument about the intelligence with which governments in Canada tax corporations. Currently our taxation IQ is double digit—in a word, pathetic.

Nor am I arguing that we should tax corporate income less because Canadian corporations are well-managed. On the whole, they are managed too conservatively. However, I pay little attention to folks making such arguments who are running companies that compete only on a domestic basis. They are doing the easy thing, and by and large they are part of the problem, not of the solution. I do pay attention to what Jacques Lamarre, Peter Munk, Jim Balsillie, and Dominic D’Alessandro say, because they have all had the intestinal fortitude to take their firms aggressively into the global marketplace and turn them into global leaders.

KA: Your notion of corporations as value-neutral legal structures that require the freedom to innovate strikes me as a tough sell when we’ve got people like Thomas S. Caldwell, chairman of Caldwell Securities, writing in national newspapers, “As time went on, many companies became publicly traded corporations and their leadership fell to managers, increasingly disconnected from the personal risk of financial ruin should the business fail. Ownership and management became separated. Increasingly, power accrued to corporate managers who saw themselves as elite, entitled not only to inflated compensation as hired hands, but also to the rewards of ownership without risk, with options or bonuses related to profits and/or stock price improvements . . . At no time were shareholders given a ghost of a chance to counter these events. To take this broad view of the power shift from owners to managers into the present, one need only look at the current sellout of great Canadian corporations . . . To hear managers described as risk-takers is a joke. Given the national advantages of many of our major corporations, as well as our goodwill throughout the world, Canadian companies should be on the buying side of events, not the selling side.”

The new corporation seems like an abstraction, a strange, almost mythological beast that we hear about only when discoveries of off-balance-sheet financing are made, or when someone like Conrad Black is dragged into court. What is this new corporation? And, as compared to the old fourteen, are Canadians getting genuine value from the thirty-nine Canadian-based corporations surging ahead in the global economy? The general view is that the best jobs are located at the head office. If this is true, doesn’t it indeed matter where the head office is? What are shareholders these days holding shares in? And in the event of a serious downturn, do we have bedrock corporations whose status is based not on paper transactions, but on producing real stuff that people need? Some are speculating that we are in for a big fall because, as in 1929, growth is not based on economic fundamentals but rather on simple speculation, and because the wealth divide is as acute now as it was then. Others argue that the service-and-information-based economy is inherently vulnerable because so many of the jobs are easily shipped offshore. Roger, who is in charge?

RM: With respect to your concerns about corporate behaviour, certainly cracks are becoming ever more prominent in the (largely) post-World War II experiment with widely held, professionally managed, publicly traded corporations. The capitalist world, especially the US, has taken it on faith that this is the best, if not only, model, and it acts as if it has been around forever. It isn’t and it hasn’t. The assumption that well-disposed boards of directors, who are assumed to be unique individuals born without self-interest genes, will make sure that professional managers, who are assumed to have been born with self-interest genes, will run their corporation for the maximum benefit of shareholders is a fantasy. This is why we are now seeing what may be the eclipse of the publicly traded corporation, something that business professor Michael C. Jensen predicted decades ago. The broad problems with business organization aside, Canadians need to understand that their corporations are run by dramatically less well-educated managers than their US counterparts. If a particular Canadian manager is in the distinct minority of Canadian managers and actually has a university education, it is much less likely to be in the discipline of business. If we are in a knowledge-based economy where education increasingly matters, Canadian executive suites are not well-equipped to compete.

Why then should we not tax corporate income? Because it doesn’t make sense. There is no logical rationale. The only rationale is if we think corporations are like rich people, only richer. People argue that I am being impractical, that such an approach is not “politically saleable.” Five years ago, while on the board of a major Canadian public company, I was told that while it was fine in theory to argue that we should stop giving quarterly earnings guidance to analysts, such a move was impossible because that is what everybody else did and it would never change. Well, five years later, any company that gives quarterly earnings guidance to analysts is considered neanderthal and stupid.

Corporate-income taxation is going the way of quarterly earnings guidance. It is dumb, and a massive global game of corporate tax arbitrage is going on as we speak, whether we like it or not. Our only choice is whether we want to be ahead of the curve or behind it. I can’t and won’t stop arguing this point because whiny people say that it would be hard to change. The truly hard thing is living with the consequences of profoundly bad decisions.

Could there be a big fall coming for the global economy? Are we in Canada vulnerable? Absolutely. There has never been nor will there ever be economic certainty and security in the world. A previously unimaginable, debilitating, and demoralizing economic downturn happened less than a century ago. We must remember that the position of the most prosperous country in the world is always shifting, and that the source of value creation in the global economy has changed from agricultural goods to manufactured goods to services. Yes, with each change there have been massive winners and losers.

Who is in charge? Nobody. That is the bizarre beauty of our modern economy. Lots of folks have an influence over parts of the puzzle, but nobody controls any meaningful piece on their own. Some like to paint corporations as über-powerful, but consumers decide whether or not to buy their products. Politicians pull important strings, but they can always be unceremoniously punted in five years or less. The electorate is supposedly in charge, but it has a difficult time figuring out how to act in concert. Basically, it is a volatile world with no one truly and utterly in charge.

In the face of this picture, there are only a few useful things to do. First, don’t shoot yourself in the foot. There are too many bullets coming from elsewhere to be distracted dodging your own. For countries, getting into needless dust-ups and overexpansion are two favourite foot-blasting approaches. Second, keep pressing forward. There is greater danger from standing still and hoping the status quo will prevail than from innovating and being wrong. On this front, the self-satisfaction of having the best and most perfect model is the great enemy. Third, keep the faith. Most economic projects take a while to become obvious successes; the ones that don’t are often flashes in the pan. The American economic project took at least a century to begin to look like a winner.