The Potash Contradiction: Cracks in neo-liberal ideology?

By Murray Dobbin
Murray Dobbin's Blog

I have argued that ideology makes you stupid and if you have power it makes you dangerous. One of the best examples is the idiocy of more and more tax cuts with the supposed goal of making Canadian business internationally “competitive.”

First, tax rates regularly come about 6th or 7th down the list of factors that actual CEOs look at when deciding whether or not to invest. For large firms, the tax bill often makes up less than 2 percent of total costs. Secondly, huge amounts of the revenue raised by taxes actually go to things that actually do make Canadian business internationally competitive: advanced education, efficient infrastructure, abundant energy supply, Medicare (and the healthy workers it maintains), a stable society. Medicare, for example, saves the Big 3 auto companies $1500 per automobile compared to costs in the US (where unions have to bargain for company health plans in their contracts).

The drama playing out around the Potash Corporation of Saskatchewan suggests that just maybe some of these neo-liberal ideologues are finally coming to their senses and realizing that it matters if they have revenue. Premier Brad Wall, the leader of the Saskatchewan Party is an extremely right-wing politician, basically a retread of Grant Devine the former Conservative premier who almost destroyed the province in the 1980s. He drove the province’s debt through the roof by gutting oil and gas revenues.
Ironically, it was also Grant Devine who privatized the then crown-owned Potash Corporation. By doing so he robbed the province of billions in profits that could have made Saskatchewan almost as wealthy as its Alberta neighbour.

But now conservative Wall is rejecting the take-over of PCS by the giant BHP Billiton Corporation of Australia. For a free-market politician constantly singing the Open for Business hymn, this is a dramatic turnaround. The reasons are interesting, too. It is all about government revenue. A Conference Board of Canada study commissioned by the province calculated that the province would lose at least $2 billion in tax revenues over 10 years. The province adjusted that to $3 billion – because BHP will borrow billions to pay for the deal and deduct the interest costs from its taxable income.

It gets even worse. BHP plans to kill the marketing agency that keeps the price of potash relatively high. That, along with BHP’s pledge to run its two planned mines at full capacity no matter what the market conditions, means Saskatchewan is slated to lose $5.7 billion.
The right-wing premier has been making statements worthy of the Allan Blakeney, the NDP premier who nationalized the potash industry back in 1975. Stated Wall: “The potash resource doesn’t belong to any company. It belongs to the people of Saskatchewan. We will protect the economic and strategic interests of the people of Saskatchewan.”

Globalization isn’t dead yet but it is facing contradictions it cannot solve with the simple application of the old Washington Consensus model – privatization, deregulation, free trade, tax cuts and slashing social programs. There is enormous pressure on countries now to protect themselves from the ravages of transnational corporate power and the likelihood of another financial meltdown in the future. Allowing all the major mining companies in Canada to be scooped up by foreign companies is now looking foolish even to those who yesterday were trumpeting them as part of the wonderful capitalist system.

The borderless world is redrawing national boundaries many thought were gone for good. Currency wars, competition for real investment (and not just mergers and acquisitions), sovereign debt crises and falling consumer spending all have governments dusting off their governance tools – even as they slash spending which will exacerbate their national problems.

Even more interesting from an ideological point of view is Wall’s other reason for trying to kill the deal (a power only Ottawa has). Wall stated bluntly that he didn’t trust BHP to keep even its inadequate promises. Referring to extravagant promises made by the buyers of other mining giants in recent years, Wall stated: “These are promises and in every single takeover of a natural resources company in our country of late, promises have been made and promises are broken and Investment Canada has been letting the companies off the hook.”

Maybe Wall just likes being premier of a “have” province. With all three of the province’s key natural resources – oil and gas, uranium and potash – booming, Wall’s status amongst provincial premiers is high. But by intervening so openly in the “marketplace” in what can only be called a hostile attitude towards investment, he is breaking the faith with all the other ideologues still genuflecting. Once that faith is broken, the precedent has been set and other provincial premiers are going to be asked what they will do the next time a major company is threatened. Wall is opening a political can worms.

Stephen Harper will be thinking about that when he makes his decision about the deal in early November. Wall is close to Harper and the pressure will be considerable to do as he asks and kill the deal. Harper is a calculating politician. He might just consider the Conservative seats in Saskatchewan safe no matter what he does. But there are a couple of seats that could easily go NDP, giving the party a foothold again in the province of its birth. He also has to consider seat-rich Ontario where the next election will likely be won or lost. Still smarting from the broken promises of earlier deals, allowing this one to go forward would remind Ontarians that Harper doesn’t give a damn about them or anyone else.