|Montreal, December 21, 2002 / No 116|
by Harry Valentine
During the week of December 9, 2002, Canada's federal minister who initiated the national gun registration program (resulting in a $1-billion debacle), Allan Rock, unveiled a new governmental industrial investment strategy. The government has decided to become a minor investor in a new high-tech venture being undertaken by two of Ottawa's telecommunications players, a venture that will make extensive use of broadband internet services. The state will provide 20% of the research and development funding, while the entrepreneur will put up the other 80%.
A segment of the population has unwittingly already invested heavily into
this project, through a very indirect form of "taxation" that began a decade
ago and involved state meddling in the economy. The past record of state
involvement in the telecommunications and high-tech sector is that of an
opportunistic political and economic debacle that government officials
have kept well covered up.
Well covered up debacle
In an economy unfettered by central bank monetary manipulation, businesses continually test market demand for their products and services by fluctuating prices. This can be seen on a weekly basis in supermarkets. Price increases typically reduces sales (demand) while price declines increases sales (demand) for a wide range of products. From this information, supermarkets can accurately establish what quantities of which products to stock on the shelves, balancing supply and demand without overstocking and without running out of supplies. When government injects excess paper money into the economy through low interest rates, an aberration occurs whereby sales of certain items increases while their prices are rising. Businesses often respond to such market signals by increasing production or by raising prices further to test market demand, which happened with high-tech stock prices throughout the earlier years of the recent high-tech boom.
The inflationary policies that were initiated in the USA and Canada during the early and mid 1990's, coincided with new breakthroughs in telecommunications and computer technology. New money quickly flooded into high-tech and telecommunications stocks, even as stock prices rose. Even marginal and shaky high-tech start-up companies easily found investment and venture capital. During the mid and late 1990's, Alan Greenspan and his associates were convinced that inflation and the business cycle of boom and bust had finally been resolved. New technological innovations and information sector services were being proposed, initiated and offered as fast as new money entered the market, raising high-tech stock prices even higher.
The consumer price index remained virtually unchanged as high-tech stock prices spiraled to new heights. Most mainstream economists and government advisors bought into Greenspan's interpretation of market developments concerning the new economy, that is, that inflation and the business cycle had become obsolete. The Canadian government responded by investing heavily into high-tech and telecommunications research, encouraging many miles of new fibre-optic cable to be laid across Canada. The excess boosting of the money supply in both the USA and in Canada created distorted market signals pertaining to a seemingly unsatiable demand for high-tech products and services. The distorted market signals ultimately thwarted the ability of high-tech's business planners to accurately forecast market conditions in their sector. Massive malinvestments were subsequently made into technologies and services for which real long-term market demand may have been quite small.
Higher cost to taxpayers
As the new millennia dawned, rumblings of a possible economic bust began in the high-tech and telecommunications sector. Numerous shaky start-up companies that began on easily available money, political support and skyrocketing high-tech and stock prices, ran into difficulty. Insufficient sales indicated that they may have overestimated real customer demand for their products or services. Their investors began selling off their stock holdings, resulting in drastic drops in their stock prices. Many telecommunications, high-tech and dot-com companies began closing their doors and laying off staff as their sales and their stock values plunged. Even big reputable companies like Nortel and JDS Fitel had been misled by the false market signals, resulted in their stock values plunging.
By September 2002, Newsweek magazine reported that of all the new fiber-optic laid in North America, only 3.9% was actually being used. The remaining 96% was referred to as dark fiber, that is, it is buried underground and not being used. Some of this new long-distance cable has no repeaters for several thousand miles, allowing for easy transmission of broadband internet signals. The Ottawa telecommunications entrepreneur who recently accepted a partnership with the government sees possible future business opportunity in this broadband internet sector. While the government wishes to portray itself as a minor partner in this venture by investing $60-million of taxpayer revenue, the cost to taxpayers is actually much higher.
The taxpayers who invested heavily in the stocks of such companies as JDS Fitel and Nortel, as well as numerous other high-tech and telecommunications ventures that have either drastically downsized or gone out of business, are the ones who have already paid indirectly for much of the infrastructure that will form the backbone of this new project. None of the earlier investors may expect to recoup any of their lost investments, courtesy of state meddling in this sector, under the guise of the partnership between government and business. The state now has the audacity to come forward offering $60-million of taxpayer revenue to partly fund this new broadband telecommunications venture, again under the guise of the partnership between government and business. It is also making the same claim it made at the peak of the high-tech boom: that it is doing something worthwhile for the future social and economic well-being of the nation. Political behaviour in this regard has become reprehensible.
High propensity for political intrusion
No judgement can be made on the entrepreneur who now proposes to make use of the availability of fiber-optic cable capable of carrying broadband telecommunications signals. When one business or a group of businesses go bankrupt, other related surviving businesses usually do purchase the left-over inventory and put it to productive use. This is quite normal, acceptable, responsible, productive and innovative entrepreneurial behaviour. The success record of entrepreneurs acting in such a manner is an indication that they often do come up with something very worthwhile to offer. In a business environment that would be free from political intrusion, the features and possibilities resulting from the entrepreneur's innovative endeavours would otherwise have a widespread beneficial effect, without negative repercussions. Except that this venture is tainted by political intrusion, a factor which has the potential to precipitate future social and political turmoil when the new technology is used.
Presently, broadband fiber-optic telecommunications connect America to India's "silicon valley," located at Bangalore. Hundreds of college and university educated information sector professionals already work for American companies from their offices in Bangalore, connected via broadband internet to offices and campuses in America. Several hundred more work for American companies in customer support and call-center services, also from campuses in Bangalore. Lower cost cybercare medical health services could soon become available from Bangalore, to private clinics in the USA and even in Canada. Using broadband internet technology as well as advanced cyberspace programs, it becomes possible to train physicians in the practice of cybermedicine and distance surgery. It also becomes possible to certify doctors with an international accreditation, in a similar manner as the Microsoft MCSE testing and certification.
The expansion of broadband internet services has the potential to cause very major social and economic changes in the future. In a business environment that is free from political intrusion, these changes may be peaceful, productive and very positive on a very large scale. The propensity for political intrusion and political interference from Ottawa is very high. Given Ottawa's long record of such political intrusion, it has the potential to be more detrimental in the long term than to have any net benefit.
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