At the risk of sounding like a broken record, a cliché which will completely vanish from use and comprehension in roughly three decades, successful societies and economies have the following 3 characteristics: 1) strong adherence to the rule of law; 2) strong individual property rights (to include intellectual property), and; 3) the strong development of its human capital. To be sure, you might be able to limp along on 2, and even 1 over a short period of time. However, the most successful, dynamic, and equalitarian will have all 3. Exclamation point, and end of discussion.
This doesn’t necessarily mean the laws have to make sense to the outside observer; only that they aren’t capricious, that they are known by all, that the “punishment” fits the crime, and the authorities enforce them equally, evenly, and without malice. For instance, it is well known most types of chewing gum is against the law in Singapore. Let’s just say Goh Chok Tong had his reasons. However, everyone knows it, and the penalties can run upwards of $2,000 for offenders (not caning as is the popular misconception). As a result, there is very little chewing of chicle gum in the country. Sure, it might seem silly to us, but it isn’t to them.
The second characteristic, strong individual property rights, might seem pretty straight forward. Obviously, no one will want to do business in an area where the government wantonly expropriates personal property. That is basic human nature. People will not produce at their highest potential when they are not able to keep a meaningful portion of the output. Students of history can point to the great Leap Forward in China and the combined effects of ‘dekulakization and collectivization’ in early Soviet Russia as proof.
Finally, the strong development of human capital is relative to the needs of a particular time and place. For instance, it wouldn’t make much economic sense for, say, Luxembourg to train its workforce to focus on large-scale, commercial agriculture. There just isn’t the physical space in that geographically small country. Nor would it make much sense to focus on pig farming in Saudi Arabia, forestry in Kuwait, commercial fishing in Mongolia, or tourism in present-day Afghanistan or Yemen. The development of human capital must always be focused on the immediate and potential long-term needs of the local economy. This requires constant reform and adjustments as market conditions change, which they always do.
With all of this in mind, I have been watching and reading the recent events in Canada with great interest. In case you haven’t been following the news, Canadian truckers began converging on Ottawa late last month to protest vaccine mandates for truckers who cross the US border. At least, that was the original purpose of the protests, as they later morphed into demonstrations against that country’s COVID-19 restrictions in general. Not surprisingly, those protesting began to ‘feed off one another,’ and the whole thing became something of a real nuisance, with truckers blocking major travel and distribution arteries with the United States.
That is the last thing a trade reliant economy like Canada needs at this time, as its combined cross-border transactions with the US totaled $718.4 billion in 2019 when total Canadian GDP was roughly $1.71 trillion. That works out to be, drum roll please, 42.0%. As Norville “Shaggy” Rogers might say: “zoinks, Scoob!” Obviously, Ottawa doesn’t want a group of angry truckers to throttle its economic recovery, and I can’t say as though I blame it.
So, no one should have been surprised when the authorities decided “enough was enough,” and started removing protestors and their vehicles from major border crossings. This leads to a somewhat philosophical question: “does your right to protest supersede my right to earn a living?” Viewing the world solely through an economic lens and keeping the 3 characteristics of a healthy economy in mind, the answer is an emphatic no, almost by definition.
After all, not all protests are legal, and, as we all well know, many turn into riots and looting. In those instances, they have violated 2 of the 3. Obviously, a kneejerk argument might be: what if people are protesting inequalities and even violations of the 3 characteristics themselves? What say you there, small feller? Well, I would counter this reasoning with an old adage: “do two wrongs make a right?
Don’t get me wrong. In a free society, people should have the ‘freedom of speech’ and the ability to protest. Nothing I have written here today should be taken to imply I feel otherwise. However, your grievances are not more important than my individual rights. As such, I have no issue with taking steps to end the protests.
However, I am not so sure about what Prime Minister Justin Trudeau did next.
This past Monday, Trudeau invoked Canada’s Emergencies Act, the first time any Prime Minister has done so since its enactment in 1988. In order to avoid reinventing the wheel, let me simply cut & paste some pertinent parts from an article on Bloomberg.com written by Brian Platt and the awesomely named Theophilos Argitis:
“What powers does the act give Trudeau?
The Emergencies Act invoked by the prime minister provides the federal government with broad powers to prohibit public assembly, mobilize police, order private companies to provide essential services and mandate financial institutions to freeze accounts. In this instance, Trudeau is using all of these powers against the trucker-led protests. He’s banned public assemblies that can “reasonably be expected to lead to a breach of the peace” around parliamentary buildings and other government buildings, critical infrastructure, war memorials and “any other place as designated by the Minister of Public Safety and Emergency Preparedness.” He’s also mandating banks and other financial institutions to freeze accounts of individuals participating in the protest, while choking off funding to the organizers.
What does it mean to be able to commandeer services?
One problem authorities have had to deal with is a reluctance by towing companies to assist with the removal of vehicles and semi-trailers that have been used in the blockades. The tow truck companies are worried about damage to their equipment or retribution from protesters. These orders will compel them under threat of fines or jail time to assist the police. The federal government is similarly “commandeering” banks and insurers by forcing them to stop providing services to protesters.
How extensive are the financial measures?
The measures apply to the full breadth of the nation’s financial sector, whether federally regulated or not: foreign banks, credit unions, insurers, trusts, loan companies, security firms, portfolio managers, payment facilities and crowdfunding platforms. These companies must cease dealing in any way with individuals involved in illegal protests, including providing any access to digital currencies. Effectively, anyone deemed participating in these public assemblies will become de-banked. In addition, companies involved in crowdfunding or other electronic payment platforms will need to register with Canada’s financial intelligence agency.
What powers is Trudeau providing to police?
Police are getting additional tools to get what is now deemed unlawful assembly under control. Officers have the ability to prevent supplies of everything from food to fuel (which is needed to keep vehicles and tents warm in freezing temperatures). Police can block anyone attempting to travel to or enter the area, and arrest those who refuse to comply. The government is also prohibiting anyone from bringing children to the protest, a reflection of the fact children are known to be sleeping in some of the trailers on site. What the government won’t be doing is sending the military to help, as officials have said it would unnecessarily escalate the situation and that police have the proper training to make arrests.”
Hmm. If this seems like one step short of martial law, I think you could make a sentient argument it is. Of particular distaste, to me, is the commandeering of services and freezing of all financial assets. Obviously, that runs afoul, in a major way, of the concept of strong individual property rights. Further, the unpredictable and inconsistent application of this Act runs completely counter to the concept of the rule of law. After all, predictability of the law is the very essence of the rule of law.
Clearly, no shortage of people will take umbrage with my reasoning, undoubtedly arguing for the ‘greater or public good.’ I get it, and I freely admit the strict adherence to the 3 characteristics can be extremely difficult, at times counterintuitive, and sometimes seemingly unfair. However, ‘we’ can always change laws, and the best way to be fair is to be consistent, transparent, and free from malice. In essence, you can’t have the rule of law unless you enforce the rule of law.
Obviously, you could write a doctoral thesis on this topic, and still run out of room. However, where the rubber meets the road, I believe Canada has stepped onto a slippery slope or out onto thin ice by invoking these so-called emergency powers. You can’t enforce the rule of law by inconsistently applying, and you don’t property one person’s individual property rights by taking away someone else’s.
After all, tomorrow it could be your stuff they want.
As always, I hope this newsletter finds you and your family well, and may your blessings outweigh your sorrows not only on this day but on every day (and don’t forget to listen to our Trading Perspectives podcast)!
Chief Economist
As always, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.