For Stephen Harper, Dalton McGuinty, Jean Charest and our other first ministers, the temptation when public finances are bad is to think small.

Let’s cut a little here, trim back our vision there, and eventually things will be okay.

But Confederation provides a stirring example of why thinking big is exactly what we need to do in the face of public debt.

The 1860s were a stomach-churning time for Canadian colonialists, one of the most unsettled and exciting periods in our existence. The world was bending into shapes previously unimagined, and British colonists in North America needed to think bravely or collapse.

Forcing our hand, the British were changing from doting imperial parents to neglect.

Canada’s early colonies grew up with the privilege of British mercantile policy. In other words, Canadians had privileged access for our goods to the largest, wealthiest market in the world: the United Kingdom. Just about everyone else on the planet – American, French, Argentina – faced steep taxes on their products if they were sold in London.

With the advent of free trade and responsible government, the age of infant Canada ended and our colonial forbearers had to face the cold hard world on their own.

Losing our privileged access to Britain, Canada entered into a free trade agreement with the United States beginning in 1854. We wanted access to the American market, now that the British one no longer gave us preference.

However, the American Civil War exposed Canadians to the full terror of total war to their south, and the growing American imperialism of the 19th century was no longer aimed at Mexico but squarely at subsuming the vast territory of the North-West between the tiny British Columbia colony and those in the East.

Free trade with the Americans was a dangerous game, and one that the Americans were increasingly unwilling to play.

British footsie with the Confederates turned Northern attitudes against Canada, and calls for invasion were not rare. Irish-American raiders were marauding across the border to wreck and plunder. The Americans began to erect tariff walls against Canadian goods, ending free trade for a hundred years.

Worst of all, Canada lost the race to open the new markets in the American Midwest, and practically went bankrupt in the attempt.

As Rotman lecturer and colleague J.C. Bourque recently noted, the Rowell-Sirois Report from 1940 includes a fascinating chapter on Canada’s pre-Confederation economic origin as a collection of over-extended debtor colonies.

Commercial interests in Montreal pressed to create a seaway along the St. Lawrence River that would allow the Great Lakes to serve as the highway to the American interior. With free trade, our passageway would become the transit point on the future North American economy, creating vast wealth and opening up our own landlocked farmers to the global economy.

It would be Montreal, they thought, not New York that would be the new port to the world, a glittering financial capital growing fat on cargo and credit.

Instead of this vision, New York beat them to the punch. First the Erie Canal from Buffalo to the Hudson River opened up the Midwest to the port of New York. Then the railways consolidated the Empire State’s hold on global trade from the American interior even further.

As Rowell-Sirois state: “Successive colonial governments had been inspired by this dream with the result that government policy and public finance had been harnessed to the grandiose conception of the St. Lawrence as a trade route. In ambitious but always futile efforts to realize this great plan, the Province [of Canada] had accumulated a set of public works and a crushing public debt, both too massive for an economy limited by its own boundaries.”

Compounding the problem were a succession of expensive railway failures in the Maritimes and Upper and Lower Canada that spread this financial catastrophe across the British colonies in the East.

“The attempt at commercial integration with the interior of the continent had irretrievably failed and left behind it a burden of debt which weighed oppressively on the economy.”

The colonies were stuck.

Saddled by debt, they could have thought small and pulled back into their individual interests, allowing the Americans to open up the lands of the Hudson’s Bay colony and leaving BC an isolated naval outpost of the British Empire.

Instead, Canadians made a bold leap.

They doubled-down in betting on themselves and united the British colonies in North America into one country with the financial strength to beat the Americans into the North-West.

The decision was financially risky and not without its costs. Confederation and the National Policy of high tariffs and East-West trade increased prices and lowered our ability to compete. But it was the crucial decision that developed a new nation, separate from the United States and eventually wealthy beyond the dreams of our founders.

Now is not the time for a new National Policy, per se. Canadians have built the infrastructure that links us together and are willing and able to take on the world.

But our current financial challenges should be viewed as an opportunity to think that big.

Canada needs an Asia strategy, both to hedge our economic bets with the Americans and leverage our own cultural ties to Asia to find new markets.

We need a coherent pan-Canadian foreign direct investment strategy to maximize our attractiveness as a job creation and investment hub for global capital, involving the federal government, provinces, municipalities and business.

We need to encourage entrepreneurialism and venture among Canadians, find ways to bridge the investment gulf between start-ups and lenders, and get our corporations to put less cash on their balance sheets and more into productivity enhancement.

We need to confront the pockets of hopeless poverty in our cities, rural areas and reserves, collapsing outdated social programs that aren’t working and finding new ways to end intergenerational privation.

We need an innovation strategy that promotes excellence in our universities, investment in R&D by our companies, and makes rock stars of our leading researchers.

Canada has proven in the past it can buck the odds and build despite debt.

Let’s follow the example from Sir John A. Macdonald, George Brown and Etienne Cartier and take a gamble on ourselves again.

< http://www.theglobeandmail.com/news/politics/second-reading/andrew-steele/harper-and-mcguinty-should-look-to-sir-john-a-on-debt/article2399576/singlepage/#articlecontent >

Ask yourself this: Why did Caterpillar buy a plant only to destroy it?

The labour dispute at a London locomotive factory was nasty, brutish and short — a depressingly Hobbesian scenario in which brute strength prevailed over civilized rules of conduct.

There were no strikebreakers wielding clubs at Electro-Motive Canada, because there was no strike to break — the union was locked out on New Year’s Day. There were no replacement workers to bust the union, because the union was merely invited to slit its own wrists — by halving most wages from $34 to $16.50 an hour.

The U.S.-based owner, multinational giant Caterpillar Inc., didn’t so much humiliate 460 skilled workers as ignore them. It started and ended this negotiation with a carefully choreographed plan to pack up, shut down and leave town.

Clever multinationals — and this is one cunning Caterpillar — don’t spend hundreds of millions of dollars to buy a factory only to shutter it. So what was the plan?

Never mind Caterpillar’s cold-hearted tactics. Its clear-eyed strategy exposes our own blindness.

The big bad Americans saw past our myopia — beyond the cash value of the plant’s physical property to size up and seize the company’s intellectual property: the innovation, trade secrets, manufacturing processes and R&D residing in London.

It won’t just relocate the heavy equipment on the factory floor, but harvest the technological know-how subsidized with government incentives and writeoffs. This wasn’t bullying, it was highway robbery — with our politicians watching from the sidelines.

Caterpillar kicked those workers in the teeth, but we should be kicking ourselves for letting it acquire the legal right to do it as it pleased when purchasing the old locomotive plant. There has been much hand-wringing that foreign investment safeguards weren’t triggered, failing to ensure a net benefit to Canada with explicit job guarantees after the takeover.

But lost jobs aren’t our only loss. Be it Nortel or RIM, we need to value the technology and patents in play when foreigners start kicking the tires. The buyers are just as likely to be scavengers as investors. And if their primary goal is to spirit away our intellectual property, they will treat the ancillary human resources as an expendable asset to be stripped away, bargained down or locked out.

The $4.5 billion auction of Nortel patents last year made a mockery of the more modest valuations that the bankrupt company had put on its own treasure trove of intellectual property, nurtured by our tax dollars. Canadians always sell themselves short.

So the first lesson of the London massacre: Ottawa must be vigilant about vetting foreign investment and retaining jobs, but also mindful of valuing — and anchoring — our homegrown intellectual property. Why underwrite our companies if we willingly sell off our embedded brainpower to foreign bidders who leave Canada cash-rich, patent poor and jobless?

If RIM is one day placed in the shop window, are we ready for a fire sale of its technology? What if Bombardier — which also builds locomotives — ever goes on the auction block, patents aplenty?

Another lesson: When it comes to the economy, empathy isn’t enough. Premier Dalton McGuinty adopted a reflexively tepid tone from the start, expressing the vain hope that both sides would come to their senses. Belatedly last week, he ratcheted up the rhetoric by exhorting the plant’s owners to play fair.

But he never picked up the phone to the employer. Nor did he reach out to Prime Minister Stephen Harper to forge a non-partisan common front. When a company treats its workers like dirt, a premier should leave no stone unturned.

McGuinty and Harper must conduct a post-mortem. More Caterpillars are coming, and they will metamorphose into a plague on our intellectual property if we don’t start using our heads. I’ve argued before that globalization can bring benefits, but only if we’re smart enough to play defence as well as offence.

It’s too late to save the jobs in London. Caterpillar has closed a plant and cashiered its workers, but it has opened our eyes: it’s not just the jobs on the factory floor that are lost, but the technology that buttresses them.

A locomotive factory is gone. Now the tech train is leaving the station — with a free pass from our politicians.

< http://www.thestar.com/news/canada/politics/article/1126357–cohn-how-canada-let-caterpillar-strip-a-plant-clean >

Sylvia Nasar, author of A Beautiful Mind, produces books at the rate of one every 13 years. I admire her for it. The more usual rate, one every two years, is just enough to keep an author in the limelight – and when too many years pass without a book an author is generally considered to be an ex-author.

But when you are writing about geniuses – and Nasar does seem to be drawn to this class of individuals – you have your work cut out for you. And hard as it is to write about a lone genius (John Nash of A Beautiful Mind) it is harder still to write about a whole herd of geniuses, in this case the great economic activists of the 19th and 20th centuries.

Not that you would know it from the book’s title. The actual subject is something with an off-putting name: macroeconomics.

At its heart, macroeconomics is all about identifying interdependencies in an economy: correctly identify the variables and their relationship to each other, and governments can use them as so many levers to lift people out of poverty and jump-start ailing economies.

This is not an easy concept to convey. Nasar’s solution, a very felicitous one, is to write a group biography, or what academics like to call prosopography. This was a device Robert Heilbroner used in his now classic Worldly Philosophers, but where Heilbroner cast a wide net, reaching all the way back to the Middle Ages, Nasar focuses more narrowly on a dynasty of Cambridge economists: Alfred Marshall, John Keynes, Joan Robinson and Amartya Sen.

On the periphery of this charmed circle are several Americans (Irving Fisher, Paul Samuelson and Milton Friedman before he became a rabid monetarist), an Austrian (Joseph Schumpeter), and sundry individuals who have ended up (in Nasar’s estimation) on the wrong side of history: Malthus, Marx and Beatrice Webb in her Stalinist phase.

But Nasar’s isn’t simply a book about what certain people thought. It is also about how they lived, and how they were themselves moulded by the economic upheavals they lived through. These details, their depth and effortless twining, make Grand Pursuit an immensely satisfying read, as do the solid research and equally solid writing that underpin it.

But the book also succeeds on its own stated terms: to tell the story of a powerful idea. That idea, though Nasar never says it in so many words, is that the world is a better place for having had Keynes in it.

And so, while Grand Pursuit is a story with many geniuses, there is one genius who towers over them all: Keynes.

This gives the narrative a somewhat Whiggish trajectory: first everything is dark, then it is dawn and the world is abuzz with several good ideas that have not quite coalesced into a coherent theory, and, finally, sometime around high noon, we have Keynes pulling it all together and giving us a tool we can and should use to better ourselves.

The question for me is not whether this version of events is essentially correct (I believe it is), but rather whether the sun is in fact setting on Keynes. Because at a time when most economists are calling for more stimulus spending and regulation, we instead have governments, our own included, talking up belt-tightening and laissezfaire capitalism.

Nasar, I suspect, has strong and doubtless very sensible views on the subject. But she refrains from offering them and the reader is left to draw his or her own conclusions. To think, in other words.

This makes Grand Pursuit more than just a great read: it makes it a great book.

Jessica Warner teaches at the University of Toronto’s Institute for the History and Philosophy of Science.

< http://www.vancouversun.com/news/Keynes+made+world+better+place/5807386/story.html >

In A Beautiful Mind, Sylvia Nasar probed the math brilliance, and schizophrenia, of John Nash, played by Russell Crowe in the movie of the same name. Now, in her just-releasedGrand Pursuit: The Story of Economic Genius, Nasar surveys 200 years of economic thought, give or take.

She is speaking at the Rotman School of Management on Thursday, Sept. 22, at 5 p.m.

Wells: You’re brave. Grand Pursuit hauls out a cavalcade of musty economists, gives them a shake and reveals them as real people. Interesting, too. What got you hooked?

Nasar: I got caught up in the drama, the glamour of the story. When I realized that modern economics was a grand pursuit to overcome scarcity, to take charge of destiny, I thought, wow, that’s like the Golden Fleece, The Wizard of Oz, Apollo 13, Tom Stoppard’s The Coast of Utopia.

It’s not that different from A Beautiful Mind. By the time John Nash won the Nobel, a lot of people, including journalists, knew the essential facts about his life. Most reacted by finding his story depressing, even off-putting. To me, it was epic, universal, deeply romantic.

It took me a lot longer to see the evolution of modern economics in a similarly romantic light.

Wells: Charles Dickens. We wouldn’t tend to think of him as an economist, but you do. Why?

Nasar: The core of economic genius is an exercise of imagination, seeing that what seemed to be fixed and frozen could be altered. That humanity could escape the age-old sentence to nasty, short and brutish lives, that nations could make their own destinies. So it made sense to begin with Dickens, whose name is synonymous with imagination and who was in the capital of the world, London, where it all started. He didn’t invent the new economics, but he could see it was needed.

Wells: You say Dickens’s purpose in writing A Christmas Carol was the conversion of capitalists. What did he seek to convert them to?

Nasar: Well first of all he was calling for a new economics that didn’t see the interests of different social groups as diametrically opposed. Pre-Alfred Marshall, economics was kind of a zero-sum game. If I did better, then you wouldn’t, and that’s what Dickens was protesting. . . . He was an optimist. He loved technology. He felt he was living in this miraculous age of technological progress and social progress and he wanted to see that shared more widely.

Wells: Your examination comes off as quite fun as you weave in Karl Marx.

Nasar: Marx is a fun character. What he really got in a sort of very visceral sense was that there was this huge explosion in the productive capacity of the world. All of a sudden it was clear that the English economy was producing at a level that was unprecedented in history. In addition to getting richer, there were also countries that were becoming more interdependent, so ideas and technology and people and capital were moving across borders. He and (Friedrich) Engels were brilliant journalists.

Wells: I didn’t actually get that from the book.

Nasar: Even though the economics is ridiculous, he captures a lot of true things about the world with a kind of vividness that many others didn’t. I should add that of course some enterprising scholar recently went into the Horace Greeley archives and discovered that Engels co-wrote every single column that Marx wrote (for the New York Tribune).

Wells: Well, he couldn’t make a deadline.

Nasar: And he had terrible writer’s block. I have to say that there was a self-serving motive in my fascination with that. I felt a lot of sympathy.

Wells: You mentioned Alfred Marshall. He plays a central role for his breakthrough thinking on competition and productivity.

Nasar: He figured out how most people in the world would get out of poverty as a result of increasing productivity and higher wages. It sounds like an almost trivial discovery. Marshall identified the single thing that could be affected in many, many ways, primarily through the activities of managers and owners of firms whose job it was to organize production and who were driven by competition to constantly look for ways to do more with what they had. But there were also other ways, including one that sprang from Marshall’s observation that there was a class of workers, clerks, shopkeepers, white-collar workers that was growing very, very fast and that those people with a little bit more education than the ordinary labourer earned much higher wages. All of a sudden it meant that (poverty) was not a fact of nature, this was not immutable.

Wells: Were you at all surprised by the role assumed by enterprising women economists at this time?

Nasar: Of course I was. It turns out there were an awful of (women), often widows, who made their living and got themselves out of desperate situations after their husbands died by writing full time. Some of them wrote about economics. A lot of them wrote about social conditions. Even in the last half of the 19th century women’s work was being transformed, women were being pulled into the labour force and not just into factories but also into these white-collar professions, which were growing even faster than factory occupations. The other thing I thought it showed was that economics was everybody’s business in England.

Wells: One of your most vibrant portraits is of Beatrice Potter Webb, who drew firsthand observations by interviewing London dock workers. She was a reporter, she was a social observer, she was an economist.

Nasar: And she was beautiful.

Wells: She played a central role in pushing for a minimum wage.

Nasar: These are her ideas. I credit her with inventing the think tank. She wasn’t a politician, she wasn’t an academic. She saw her role as collecting data and making observations. She also understood that for all that information to have any use, she had to reach conclusions and think about what could be done. When politicians decided they needed them you know they would have to turn to her. That’s exactly what happened.

Wells: We need to mention the marquee economists that you refer to. Joseph Schumpeter and his championing of the entrepreneur.

Nasar: He had a resurgence in the ’90s for the obvious reason that all of a sudden the really interesting businesspeople were not the head of GM or IBM but Steve Jobs and (later) the Google guys. I was struck by the fact that he tried so many long shots. He had a really big ego and he made a lot of mistakes and he burned a lot of bridges. He ruined a lot of relationships. And of course he destroyed his finances by speculating on margin.

Wells: Irving Fisher was both an entrepreneur — he invented the Rolodex — and an economist who wisely cautioned about the ill effects of over-speculation. Yet he held onto his own company’s stock through the crash of ’29, which meant financial ruination. Crazy? Blind sided?

Nasar: Irving Fisher was an incorrigible optimist, like most great inventors, explorers, entrepreneurs. Like Maynard Keynes, for example. But an early misadventure in currency trading had taught Keynes that he could be perfectly right about market fundamentals but still go broke long before the market returned to them. Fisher, who, by the way, was probably right about the fundamentals, hung on partly because he’d never lost money on stocks before and because he had a sister-in-law who did him the dubious favour of bailing him out. So Keynes cut his losses much faster.

Wells: What was Fisher’s single greatest contribution to the art of economics, or is it a science?

Nasar: Fisher pioneered the systematic study of the relationship between money, prices and interest rates and the “real” production and employment. He showed that inflationary booms and deflationary depressions, which appeared to be opposites, were both due to monetary disturbances and could be treated with monetary policy. If a science is a method for breaking down big complicated problems into smaller, more tractable ones and for dealing with them one at a time systematically, I’d say sure, it’s a science.

Wells: You gave a talk recently in which you said material reality is malleable, we can learn to affect it to make things better. Shouldn’t we be able to affect a better economic outcome by now?

Nasar: The fact is we’ve come a tremendously long way and it’s important to understand that. Somewhere between complacency and smugness and self-congratulation and this mindless pessimism that we occasionally have attacks of, particularly in recessions, there’s a place that’s neither of those. A realistic understanding of where we are will really help us.

Wells: There are 14 million people unemployed in the U.S. You can see where what you call this “mindless pessimism” comes from. What comfort can the study of economics offer, if any?

Nasar: Mindless means assuming that today’s bad times will never end, which is as purely emotional as betting, in 2006 and 2007, that the boom times would never end. Learning where we’ve come from and how we got here should give us confidence because we’ve been there before. We not only survived but went on to even better days. Sweden had a terrible financial crisis in the early 1990s and so did South Korea in the late 1990s. They suffered acutely but they didn’t become permanently poor. As bad as things are now in the U.S., it’s not 1930. In the midst of a global slump, living standards are 10 times higher on average than in Jane Austen’s day. Lives are two and a half times as long. Think of acquiring some understanding of economic ideas and facts as cognitive therapy, a way to temper emotion with logic and facts. Blind panic is probably why the economic debate in the U.S. sounds so vicious right now.

Sylvia Nasar is Knight professor at Columbia University’s graduate school of journalism.

< http://www.thestar.com/news/insight/article/1055341–seeing-modern-economics-as-a-grand-pursuit >

Striking Canada Post workers had to be legislated back to work or this year’s Summerside Lobster Carnival would have been a fiasco. As of Monday, applications for the spelling bee, parade and other festivities mailed in from across P.E.I. totalled a mere 10, compared with more than 40 last year.

“We’re scared that there are some entry forms somewhere in Canada Post and they aren’t getting to us,” said organizer Catherine Dickson.

After public-employee strikes that embittered Torontonians, a year-long strike at Vale S.A.’s former Inco operations in Sudbury, and simultaneous work stoppages this month at Canada Post and Air Canada, Canadians can be forgiven in thinking we’re entering a new era of labour disruptions.

But that’s not the case. A few reasons why:

Inflation is at harmless levels. Inflation is the chief driver of wage demands that culminate in work stoppages. But apart from recent spikes in gasoline and housing prices, inflation has been quiescent for two decades now, never rising above 5 per cent in the past 10 years. Inflation is currently running at a 3.3 per cent annual rate. The strike-prone 1970s, when it seemed Canada Post was more often on strike than on the job, were characterized by double-digit inflation, which peaked at 12.9 per cent in 1975.

Workers then were understandably determined to keep up with a spiralling increase in their cost of living, even as their own wage demands contributed to the spiral.

The economy remains in recession. Officially, the recession ended more than a year ago — as measured by a resumption in GDP growth — but try telling that to Canada’s 1.5 million unemployed.

Canada’s jobless rate of 7.4 per cent is intolerably high. That compares well enough with America’s 9.1 per cent jobless rate. But the unemployment rate in Germany is 7.0 per cent and in Australia a mere 4.9 per cent. Canada’s high jobless numbers obviously weaken the bargaining power of all workers, given the surplus in labour supply.

Union membership has steadily declined over the past three decades, to a current 30.8 per cent of the non-agricultural workforce. The comparable figure for the U.S. is a mere 12.3 per cent. The sharp drop in union membership is cited as a leading cause of the flatlining of inflation-adjusted middle-class incomes in Canada and the U.S.

Employers are taking a hard line. A 17-month strike at Caterpillar Inc. in 1994 marked a turning point in North American labour relations. Employers had been loath to “take a strike,” fearing permanent loss of market share while their plants were idled. Cat took the 1994-95 strike — the longest on record — and striking workers eventually returned to work without a contract. Employers have been playing hardball ever since.

Governments have turned pro-employer. Labour laws of every description — from organizing a bargaining unit in the first place to traditional prohibitions against employers bringing in “scabs” or replacement workers — have been steadily eroded not only by conservative governments but centre-left ones. Strikers have always enjoyed little public support. With that in mind, the Harper government threatened strikers at both Air Canada and Canada Post with back-to-work legislation, and the principle of collective bargaining rights be damned. Thus Air Canada’s 3,800 striking airport check-in agents and call-centre staff settled with management after a brief three-day strike. And the time elapsed since more than 40,000 Canada Post workers began rotating strikes to their return to work, expected Friday, will be 22 days, a small fraction of which affected the country as a whole.

Canada Post and Air Canada are sick puppies, and they have lots of company. They are struggling with fundamental change in their business models. Canada Post admirably has chalked up 15 consecutive years of profit, which looks awfully good in comparison with an effectively insolvent United States Postal Service (USPS), which lost $8.5 billion last year and is on track to lose another $6.4 billion this year.

But Canada Post’s profits are slender and shrinking, only $281 million in 2009 earnings — the latest reported year — on revenues of $7.3 billion. That’s a miserable return on invested capital.

Revenues in its core business of “transaction mail,” or letters, keep falling, a victim of cyberspace, principally email, but also social networking. The consistent black ink on Canada Post’s bottom line has come almost entirely from wringing costs out of its workforce of 71,000 employees.

Air Canada has lost $513 million over the past four years, returning to profitability last year with meagre earnings of $107 million on 2010 revenues of $10.9 billion.

Both corporations are saddled with unfunded pension liabilities — the biggest stumbling block at the bargaining table for both.

This is a widening crisis for all “legacy” employers, public and private. You can’t bargain away demographics, and legacy employers — such as 144-year-old Canada Post and 74-year-old Air Canada — now have more retirees than active employees.

Each has hit the wall in its ability to continue with guaranteed, or “defined benefit,” pension payouts. Each is attempting, with great resistance from workers, to switch to “defined contribution” schemes in which employer and employee contribute to pension funds which, fingers crossed, will generate enough investment income to cover retiree obligations.

The good news for would-be contestants in the Summerside Lobster Carnival is that the deadline for applications has been extended from Monday to Tuesday. And anyone calling organizer Catherine Dickson to say their application “is in the mail” is very likely to be believed.

< http://www.thestar.com/article/1012225–olive-strikes-losing-historic-leverage >

As a trade unionist, I am puzzled about the motivation behind labour movement commentator’s identification of “corporate greed” as the cause of social and economic exploitation. It is merely the symptom of philosophical liberalism that fosters an economic practice that privileges self-regarding behaviour, which is expected to lead to public virtue.

I hope that 21st century trade unionism is not shamelessly pandering to pragmatism and euphemism by using terms such as “corporate culture” or “corporate greed” instead of capitalism to name the system that produces gross inequality. Let’s call a spade a spade and not an earth-inverting horticultural implement used for digging.

It is my hope that the people who write about political events that occurred during the Great Depression and the post-war years will recall that it wasn’t the kind consideration of governments in North America and Europe that brought about social and economic reform measures.

It was the mobilized power of the working-class fired by the possibility of different kind of economic and social system that forced the hand of the political elite. Socialism was a source of alternative ideas.

Contrary to John Cartwright’s assertion and white-washing of history, the post-Depression laws never “struck a balance between the power of corporations and the rights of workers.” If that was the case, the rate of unionization would been in the 60 or 70 per cent range, racialized and women workers would not have faced job classification apartheid or workers would have exercised substantive control over their work-life.

However, by the mid-1970s, the capitalists and politicians, especially in the Anglo-American liberal democracies had full confidence that they no longer needed the co-operation of organized labour to pursue an anti-communist agenda at home and abroad. The former went to work in attacking social programs and the right of workers to unionize their workplaces.

Ajamu Nangwaya, Toronto

Mark Carney, governor of the Bank of Canada, neatly summed up this week what a growing number of financial leaders are saying about Canada’s banks: “Our system is better.”

From the World Economic Forum, which ranked it the soundest in the world, to U.S. President Barack Obama’s reverent musings and Prime Minister Stephen Harper’s gloating on the eve of the G20 meetings in London this week, the Canadian banking system is being feted for its resilience amid the economic mayhem.

Now, a study by a highly respected U.S. economist provides further grist for the adoring throng.

The research paper, Global Banking Rubble: Analyzing the Decade of Western Bank Value Destruction, for a Washington non-profit organization, reveals that conservatively managed, risk-averse and government-coddled Canadian financial institutions have made significant gains for the past 10 years, while their swashbuckling U.S. and British counterparts have steadily declined in value.

According to the study, led by Jan Vanous, a Yale University-trained economist and former senior economist and research director at Wharton Econometric Forecasting Associates, the market value of Canada’s major chartered banks increased about 85% since 1999, at a time when the aggregate market capitalization of the top 50 international banks declined by 26%.

“Canadian banking is in great shape in relative terms,” Prof. Vanous said in an interview with the Financial Post. “Canadian banks have shown significant value creation over the last decade.”

The top five Canadian chartered banks, for example, have experienced a 99% increase in their market capitalization since 1999, despite being “more restrained” by strict government regulation and a prohibition on domestic mergers that forced them to grow organically. Major Canadian banks now account for 6.68% of the value of the world’s 50 top banks, up from 2.48% in 1999.

More significantly, the top “value-destructing” global banks in the United States, the United Kingdom, Switzerland and Japan wiped out “a staggering 56%” of market value during the past decade. In fact, the study estimates the top 20 “destroyers” eliminated US$1.06-trillion in market capitalization between May, 1999, and mid-March, 2009.

Consider that in 1999, U.S. banks accounted for 42.93% of the total market value of the 50 most valuable financial institutions in the world.

Today, the study says, that figure has been slashed in half, to 21%. Ditto for the once-mighty British banks, which accounted for 14.87% of the world’s most valuable banks a decade ago, and now represent 8.04% of that value.

“The destruction of value among the U.S. and British banks is mind-boggling,” declared Prof. Vanous, whose research is part of a non-profit project to develop a warning system about asset-price bubbles and market distortions for the University of Michigan.

“There is little doubt the rest of the world could learn a good deal from how banking is done in Canada,” Prof. Vanous told the Financial Post, “especially U.S. bankers who normally tend to look down on their Canadian counterparts as pedestrian.”

Over the years, Canada’s banking system has been much maligned for its notoriously conservative culture and government oversight. But that caution developed out of necessity, after its own eerily similar Wall-Street-style collapse nearly a century ago.

The five major Canadian banks that survive today — from the 52 that existed in 1891 — are the descendants of institutions that adopted prudential policies as the best defence against Canada’s boom-bust economic cycles.

During its first 56 years — 1867 to 1923 — this country’s banking system saw the collapse of about one-quarter of all Canadian banks. Stakeholders in failed banks lost an average 47 cents on the dollar, and generated political fallout for MPs and governments.

The banks were not audited by government and most bank boards paid too little heed to what management was doing. The outrage Canadians expressed after bank collapses roused the curiosity of U.S. business leaders, who were baffled by such uproars. Writing anonymously in New York City’s Bradstreet’s in March, 1888, one Canadian bank executive explained to Americans that the “unusual stability required by the Canadian people in their institutions” meant that bank failures caused “much sensation and distrust” in Canada.

That “unusual stability required by the Canadian people” was felt keenly by Canada’s first government in 1867, which promised to create a safe banking system.

Instead, Ottawa gave Canadians the 1871 Bank Act, which amounted to a collection of banking pointers rather than enforced regulations. Soon after the First World War, the cracks in Canada’s unregulated banking system grew too big to ignore.

In 1914, Canada had been a debtor nation. Four years later it was lending what today would amount to billions of dollars to the British to finance the purchase of war supplies and agricultural produce from Canada.

The number of Prairie farmers grew by 114%; acres under cultivation in Canada climbed from 48.3 million in 1911 to 70.8 million by 1921. Between 1913 and 1919, Canada’s national income soared from $2.4-billion to $4.2-billion and inflation was running at more than 20% a year when the war ended.

Armed conflict had created an economic bubble.

Between the Armistice in November, 1918, and January, 1919, 200 new bank branches opened across Canada. There was approximately one bank branch for every 3,500 people — today that number is closer to one branch for every 5,000.

Consumer financing took off: Loans for cars were granted, driving up the demand for autos; people borrowed money to invest and speculate on land — and the leverage grew.

Canada’s financial reckoning began in the summer of 1920, when the bubble finally burst. Peace-time could not generate war-time demand for Canadian produce and manufactured goods.

Banks began to falter led by feckless executives. Among the first was the Merchants Bank of Canada, the fourth largest bank in the country at the time.

D.C. Macarow, a suave banker well-known in Montreal’s gilded social circles, became the Merchant’s chief executive in 1916. Competition between the banks was fierce and Macarow risked large loans to unproven enterprises.

In 1920, he approved loans to two questionable firms from $800,000 to $6-million. It soon became apparent the loans would not be repaid. This, plus heavy losses incurred at other branches in 1920 and early 1921, moved the bank’s president, Sir Montagu Allan, to have an independent audit undertaken.

The inspection revealed that Macarow and a small number of other senior managers had gambled with the bank’s future and lost. Millions were written off, leaving little provision for coming losses that would surely hit as the economy spiralled downwards. Behind closed doors, a deal to merge the Merchants with the larger Bank of Montreal began with the minister of finance’s approval.

When the merger was announced on December 16, 1921, Merchant bank shareholders were shocked to learn they were much poorer than they thought. More importantly, the heated public reaction meant the old political rules — leaving banking to bankers — were now untenable.

The Financial Post at the time editorialized that the Merchant Bank fiasco demanded a thorough investigation and that the Bank Act was “defective.” Calls for an investigation turned to public outrage when criminal prosecutions against Macarow and Allan were dismissed in court.

Ottawa’s response inadvertently culled the weak and insolvent banks that continued to operate after the Merchants demise.

The Bank Act was to be revised with new standards and enforceable regulations. Assets had to be marked-to-market and all Canadian banks were expected to operate according to conservative principles — that is, to ensure they fulfilled their primary duty to remain solvent. Independent audits were to be standard, performed by firms prohibited from taking retainers or any extra work from banks they were reporting on.

The revised Bank Act was passed by Parliament and went into force on Oct. 1, 1923.

But before it did, the law unleashed a wave of panic in many bank boardrooms.

The Winnipeg-based Union Bank of Canada announced it was writing off millions in losses that just months before it had characterized as valuable assets. Similarly, Toronto-based Standard Bank of Canada wrote off millions that it too had previously classified as valuable assets.

The Bank of Hamilton chose a different path. Rather than admit it had been massaging the books, its management sought a quick merger with the larger Canadian Bank of Commerce.

Similar scenarios involving other banks played out in Montreal.

However, one bank was beyond help — the Home Bank of Canada. Based in Toronto with most of its 72 branches located in Ontario and western Canada, the relatively small Home Bank had been a fraud since it was chartered in 1903, and catered largely to working-class families. Their savings were used to finance ludicrous ventures such as Casa Loma, the castle-like home that the eccentric land-speculator, hydro-developer Henry Pellatt erected in Toronto. Pellatt couldn’t repay his loans; neither could a large number of the firms and individuals to whom the Home Bank had lent working people’s money.

With the revised Bank Act in hand, the Home Bank’s management shuttered the bank in August, 1923, ensuring they would avoid criminal conviction under the new federal rules.

Canadians were enraged. A Royal Commission was eventually struck as compensation was demanded for depositors, who in the end lost 68 cents on the dollar.

The Home Bank failure led to Ottawa’s imposition of government bank inspection on all banks in 1924, laying the foundation for the regulatory system now being celebrated around the world.

Canada’s major five banks are reaping the rewards of that conservative culture nurtured so long ago.

Few would have predicted that Canadian banks, long derided as among the least autonomous because of strict government oversight, would emerge from the global mayhem as the most independent international players.

“One could say we were over-regulated, but our solution is going to lead to us having the most free-enterprise financial sector in the world,” beamed Prime Minister Harper to the British press at the G20 summit in London this week.

Today, Canada’s major banks remain profitable and are still paying dividends to shareholders, while their global competitors are being bailed out with taxpayers’ money. While their American peers were loading up their books with toxic mortgages, Canadian banks appeared leery of the housing market risks.

Although Ottawa has committed to buying $125-billion worth of insured mortgages, increasing banks’ capacity to lend, but has only spent $40-billion of that so far. The move is not expected to cost taxpayers a penny. In fact, most analysts predict Ottawa will eventually make money on those assets.

Another sign of their growing strength: All five major Canadian chartered banks currently rank among the top 50 in the world; all five are listed in North America’s top 12 and two Canadian banks — Toronto-Dominion Bank and Royal Bank of Canada — are among the seven major global financial institutions that currently enjoy a coveted triple-A credit rating from Moody’s.