Don’t sing the blue-ribbon blues about Alberta’s future finances

Robert McGarveyDuring an early-morning chat over the fence, Chuck seemed more subdued than usual.

“Just read the blue-ribbon panel’s report on Alberta’s finances,” he moaned, referencing the provincial-government-commissioned report led by former Saskatchewan finance minister Janice MacKinnon, “and it’s bad. We’re in debt up to our necks, the oil business is up the tubes and after decades of trying, we can’t seem to diversity our economy. So we’re basically screwed.”

“I thought MacKinnon’s red jacket was a nice touch,” I laughed. “Chuck, this blue-ribbon report is political, Janice MacKinnon was brought in to justify the UCP’s austerity agenda. It’s all very predictable.”

“Yeah, I get that and I’m OK with MacKinnon’s political affiliations. The Conservatives promised this in the election. You’ve got to admit it buddy, the party’s over.”

“Yeah, this particular party is over,” I agree. “But they’re going to have to cut health care, education, capital spending and public sector compensation – that’s opening Pandora’s box.”

“Well, there’s plenty of dead wood and inefficiencies in those bureaucracies,” Chuck responded.

“I agree. You know my theory: bureaucracies are like people. They have an excruciating birth and then a heady growth phase. Eventually they level off at maturity. Finally – after about 70 or 80 years of existence – they start to stiffen up, get calcified. Bottom line is we have to spend more and more to get less and less.”

“So are you saying you’re in favour of privatization?” he says, his eyes rolling. “I can’t believe I’d see the day.”

“I didn’t say that, but I wouldn’t rule it out entirely, Take health care for instance, I’d support some restructuring, but I’d be damn sure to preserve the core principles of a taxpayer-supported, single-payer system, operating in the public interest at all levels.”

“Don’t you need government for that kind of thing?”

“No, not at all. For example, I honestly think our not-for-profits and charities could play a much bigger role. These organizations are run very efficiently and are dedicated to advancing the public interest. Properly supported, they’d do a better job at a fraction of the cost of the health-care bureaucracy or private-sector for-profit corporations.”

“Ok,” said Chuck, “impractical, but, yeah, I see where you’re going here. I still can’t believe a liberal like you is compromising on health care. Wow.”

“You haven’t heard what I’d do with the universities,” I laughed. “You won’t believe it, but it’s all about leveraging intangible assets.”

“What the heck do intangible assets have to do with all this?”

“I’ve said this before, but let me remind you: you can’t diversify an economy without altering the flows of investment capital. Capital market reform is a necessary precondition to diversifying Alberta’s economy.”

“Yeah, yeah, OK, but get specific: what would you do to make that happen?”

“Well, you know Chuck, capital flows through assets, because the stored value in assets provides security for investors’ principle.”

Chuck was just about to interrupt when I launched on.

“In Alberta, we spend about $4 billion a year on primary research and development, most of it in our universities. And what’s our return on that investment? Almost nothing.

“According to statistical averages,” I went on, “for every $100 of research-and-development investment, we should be generating about $10 worth of asset-quality intellectual property.”

“Where are you going with this?” Chuck droned. “I thought most of that R&D was useless, isn’t it?”

“No,” I said, “not useless at all, but locked in intangible assets that we don’t identify, don’t capitalize and therefore can’t take as security for debt or equity financing purposes.”

“So what are you saying?”

“I’m saying if researchers took the time to identify the intangible assets they’re generating, and started to capitalize them on their corporate balance sheets, I could show them how to leverage those assets to raise the finance they need.”

“Yeah, like who’s going to take security in an intangible? You’re dreaming buddy.”

“Well, if that intangible asset had an insurance policy like one from the Canadian Mortgage and Housing Corp. guaranteeing the principle, almost any bank would. And if the government were to underwrite that insurance, I can show them how to earn a royalty on those technology businesses’ gross revenues, even if the technology leaves the province.”

“So let me get this straight. We could get technology royalties to replace our depleting oil and gas royalties? Not a bad idea, for a liberal.”

“Well, Chuck, we’re in tough, but we don’t need to flush ourselves down the toilet; we just need to start getting smarter about how we do things.”

Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.

Robert is a Troy Media Thought Leader. Why aren’t you?

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