Podcast for Inquiry S04E07: Cell phones, Cinemas, and Comestibles: Canada’s Conundrum with Monopolies, with Vass Bednar

Vass Bednar is the Executive Director of McMaster University’s Master of Public Policy program, and the co-author of The Big Fix: How Companies Capture Markets and Harm Canadians. Our conversation starts with the observation that many sectors in Canada’s economy are dominated by one or only a few firms. Vass and Leslie discuss whether that is good or bad for Canadians, including an analysis of cinemas, grocery stores, and banking. They debate the role of government, the tools it has at its disposal, and what the future might hold. 

Relevant resources:

• NICE, the Network of Independent Cinema Exhibitors: https://www.nicecinema.ca/2024/03/12/report-the-state-of-independent-film-exhibition-in-canada 
  
• Access to Markets https://accesstomarkets.org/about/ 
  
• Statistics Canada and Canadian Competition Bureau paper on markups: https://www150.statcan.gc.ca/n1/en/catalogue/11F0019M2025001 

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A video recording is also available: 

Podcast for Inquiry S02E21: Dr. Evelyn Forget believes Canadians need Basic Income

 Dr. Evelyn Forget is Canada’s foremost expert on Basic Income, and the author of Basic Income for Canadians: From the COVID-19 Emergency to Financial Security for all. Dr. Forget describes what Basic Income is, and how it differs from UBI (Universal Basic Income). She talks about the results of a Basic Income pilot conducted in Canada, and answers the question: If Basic Income is such a great idea, why aren’t we doing it already? Finally, Dr. Forget explains what a Canadian Basic Income program would look like. 

Support Podcast for Inquiry on Patreon, subscribe wherever you listen to podcasts (Spotify Apple Google Deezer Player.fm), or listen here:  

A video recording is also available:

Podcast for Inquiry S01E01: The State of Media and Journalism in Canada with Jonathan Kay

The Centre for Inquiry Canada has launched Podcast for Inquiry, a series of conversations about science, secularism, critical thinking, and humanism. I am honoured to be its host, and our first episode is a conversation with Quillette editor Jonathan Kay (@jonkay). We discuss the transformations Canadian media institutions have undergone over the past 20 years, the impact of the Internet, social media, increasing ownership concentration, legacy and current business models for the industry, and the future of journalism in Canada, especially in light of the seemingly endless cuts to newsrooms. 

Listen to our conversation here: 

Our discussion is also available in video form:

New episodes are released every two weeks.

Trans-Pacific Partnership: An open letter to Chrystia Freeland

On June 15, Minister for International Trade Chrystia Freeland held a town hall meeting in Toronto to consult with the Canadian public about the Trans-Pacific Partnership (TPP). I was fortunate enough to attend.

In addition to Minister Freeland, there were three panelists:

• Jerry Diaz, President of Unifor Trade Union
• Michael Geist, University of Ottawa Law professor 
• Daniel Schwanen, Vice President of Research at the C.D. Howe Institute

Minister Freeland opened the evening by stating she was on a listening tour, and wanted to hear what Canadians had to say about the TPP. She said she might comment at the end, but her goal was primarily to give the audience the opportunity to speak. She also said that Canada had a secret weapon - she would bring Jerry Diaz, renowned for his fierce and effective negotiating skills, to the join Team Canada at the negotiating table with other countries.

I found this puzzling - the TPP text has been completed. Further changes and negotiations are unlikely as any amendments would need to be agreed to by the other eleven participating countries. Freeland did not elaborate.

Jerry Diaz spoke next, and it quickly became clear his reputation is well-founded. His booming voice filled the hall and his passion quickly swept through the room. He complained that the Japanese and Korean economies are closed to Canadian exports. After calling the Trans-Pacific Partnership "disastrous", Diaz proclaimed that, "We [Canadian labour] are very pro-trade. But we need to protect manufacturing, like the Japanese, like the Koreans!" Rapturous applause followed.

He then stated that "Canada imported about 190,000 automobiles from Japan; Japan imported 100." He provided similar numbers about Korea. This left me puzzled, on a couple of fronts:

• Japan drives on the left side of the road, so its vehicles have the driver's seat on the right. The country manufactures cars specifically for North American (and European) markets with the steering wheel on the left. Unless Canadian manufacturers produce cars specifically for Japanese markets, why should we expect them to import our vehicles in any significant quantity?
• If the real issue is trade barriers, and not attempting to sell products unsuitable for the target market, wouldn't an agreement to ease trade be beneficial? There may be other reasons to consider the TPP a "disaster"; but if so, why focus on the current disparity of the number of cars Japan and Korea export to Canada vs. what they import?

Michael Geist spoke next. Freeland mentioned in her opening remarks that she read his entire "The Trouble with the TPP" series, and that her staff would race to understand each post within minutes of publication because "they knew they would be getting questions about them." He mentioned several structural problems with the TPP. "Canada was at a disadvantage throughout the negotiations," Geist said. Because Canada joined the talks late, it had to agree "not to be the lone holdout" on any part of the text. This turned out to be "not just a theoretical limitation" - Canada was forced to "cave" on several provisions in the Intellectual Property chapter when it was the sole objector.

Geist then described how the TPP would mandate changes to Canada's criminal law and Internet governance. Although Canada currently complies with international Internet intellectual property treaties, TPP countries would have to adopt US standards for protecting digital rights management technologies, including new (to Canada) criminal provisions.

"The Trans-Pacific Partnership is best thought of as a meta-treaty," Geist then argued, "because it incorporates the ratification of nine other treaties." Finally, he addressed TPP's investor-state dispute settlement (ISDS) mechanism. "CETA's [Comprehensive Economic and Trade Agreement - a proposed free-trade agreement between Canada the European Union] ISDS is the gold standard, according to Minister Freeland. Why doesn't the TPP have the same protections for all parties?"

"I'm here to argue in favour of the TPP," was the opening statement from Daniel Schwanen, the final panelist. "We have to ask ourselves - are we in or are we out?" He likely underestimated the extent of the audience's hostility to his position. "OUT!!!" the crowd shouted back, emphatically.

For a person dedicated to defending the TPP, his endorsement was surprisingly lukewarm. "Incomes will be raised on average as a result," he claimed. "Not a lot, but a bit." He didn't address any of the particular concerns raised by Jerry Diaz, nor the structural issues brought up by Michael Geist. His brief address was centred on the economic benefits of a generic free trade agreement, with nothing (beyond naming some of the countries that are part of the agreement) that was specific to the TPP. He closed with, "There will be losers from the TPP, but they will lose anyway - and they will lose less if we are in. There will be many more winners." He received some polite applause.

The microphones were then opened to the audience. There were dozens of people who wanted their voices heard - I was one of them - and every single individual was vehement in their opposition to the Trans-Pacific Partnership. Throughout, Minister Freeland sat and listened attentively, smiling and nodding consistently. I have no idea what her opinion of the TPP is.

I prepared the remarks below to read to Minister Freeland. I extemporaneously omitted about a third to reduce duplication with issues already raised by Michael Geist. There were gasps of horror as I read the first paragraph below, and a spontaneous ovation as I finished the third.

Ms. Freeland,

My name is Leslie Rosenblood, a constituent of your riding, University-Rosedale. I am generally against tariffs and protectionism and believe free trade is beneficial to all parties involved.

The Trans-Pacific Partnership is primarily an intellectual property treaty. Secondarily it functions as a profit protection plan for multinational corporations. Only incidentally does the TPP lower tariffs and trade barriers.

Therefore, as an anti-protectionist, pro-free trade citizen of Canada, I am staunchly against our participation in the Trans-Pacific Partnership.

The major thrust of the TPP is the regulation of intellectual property. It demands that Canada extend copyright protection by twenty years – retroactively. While some level of copyright is legitimate to properly reward creators for their successful efforts, I have two major issues with the changes TPP demands of Canada’s copyright regime:

1. At the life of the author plus 50 years, Canada already provides ample compensation to its writers, and their descendants. We are currently in compliance with existing global treaties and consistent with a majority of TPP countries, including Japan and New Zealand. No academic study has concluded that extending copyright protection for another twenty years would increase incentives to create by any meaningful extent. We would be extending a government-mandated monopoly for no societal benefit.
2. The increase is retroactive. There is no rational basis for this. By implementing the Trans-Pacific Partnership, Canada would create a decades-long desert during which no Canadian works come into the public domain. Marshal McLuhan will not write a single additional word by extending copyright to life plus 70 years; yet we are contemplating depriving publishers, scholars, and historians unfettered access to important cultural works.

Similarly, history shows that increasing patent protection does not lead to increased investment, research, or innovation in Canada; for example, despite meeting pharmaceutical company demands for additional patent protection in exchange for agreements to provide high-value jobs in Canada, drug company research and development in this nation, as a percentage of sales, has steadily decreased in recent decades.

Extending patents to cover the time required to approve them, and the additional, special data protections given to biologics, is nonsensical – it will increase costs to Canadian companies, consumers, and the Canadian government. I agree that patents are a necessary restraint of trade to incent and reward innovators. Patents must be temporary to allow the next generation of inventors to have as large a pool of knowledge, tools, and techniques to draw from as possible as they make discoveries, acquire insights, and create technologies. This in turn will lead to further research, entrepreneurship, and economic growth.

As a government with a Ministry of Innovation, Science, and Economic Development, surely you must realize that sustainable economic growth comes from widely distributed opportunities, not avenues of profit available to only a few. That is why competitive markets serve the public better than monopolies or oligopolies.

The secondary effect of the Trans-Pacific Partnership would be a corporate profit protection plan. Companies that innovate and produce goods and services that people want at a price that is both compelling to consumers and profitable to provide, deserve their riches. Business is, however, an inherently risky undertaking – and it is only a fiercely protectionist mentality that can justify offloading risk onto governments. Laws, regulations, and taxation levels change over time – and companies should be able to adapt to new circumstances. Obtaining putative future profits today - from governments - via treaties that enshrine current business practices as sacrosanct is the opposite of how a market economy should function.

Minister Freeland, you noted in an interview with Maclean’s earlier this year that the Canada-EU Trade Agreement was “gold-plated” and that “The core notion of having a dispute-resolution process is not to supersede that right to regulate — it is to ensure that governments don’t discriminate against foreign investors.” This may apply to CETA, but the TPP opens the door for corporations to sue participating governments for regulating according to the public interest if predicted future profit streams are potentially diminished as a result.

Canadian investors have an awful track record with existing investor-state dispute settlement bodies, losing over 90% of their cases. Our record defending complaints is not much better – Canada may be forced to pay half a billion dollars to Eli Lilly because the company disagreed with a Canadian court’s ruling about the validity of two patents. Canada can expect to be subject many more such payments if we join the TPP.

It is not in Canada’s interest to expose itself to enormous liability for every future legal or regulatory change.

We already have free trade agreements with the United States, Mexico, Chile, and Peru – five of the twelve countries in the TPP. We have ongoing free trade negotiations with Japan, the largest remaining TPP economy. While I welcome lower tariffs, marginal improvements in trade with distant countries such as Australia and Brunei are not worth – not by several orders of magnitude – the enormous costs involved in accepting the TPP’s numerous protectionist and anti-competitive provisions.

For the sake of an innovative, dynamic, and prosperous Canada – Minister Freeland, I urge you not to ratify the Trans-Pacific Partnership. 

The land of the rising sun has become a fading star

Japan's economic prospects are dismal.

Since being surpassed as the second largest economy in the world (a position it held for over two decades) in 2010, it has fallen far behind China in nominal GDP, and will likely fall far further in the years to come.

There are two overriding factors determining this grim conclusion: debt and demographics.

Japan's national debt is over one quadrillion yen (ten trillion USD) - more than twice its GDP.

Debt servicing costs are projected to be over 23 trillion yen in 2014, while total tax revenues (after a major tax hike in the latest budget) will be 50 trillion yen. Thus nearly half of government revenues go straight to paying off interest on the debt. And this is with rock-bottom interest rates: as of July 25, 2014, Japan pays just 0.53% on ten year bonds (0.15% for five years and a stunning 0.06% for two).

On its face, Japan's financial situation is precarious.

Japan has been able to meet all debt payments and fund its deficits at such low rates of interest because its populace saves a significant portion of its income, and funnels a large percentage of those savings into Japanese bonds. Of large economies, Japan is an outlier in that the vast majority (over 90%) of its national debt is held domestically.

Which is why Japanese demographics matters.

Japan is aging, perhaps faster than any other nation. According to the Japanese Statistics Bureau, the number of Japanese 65 years and older [Excel] will steadily increase for the next twenty years, while the number of those aged between 15 and 64 declines, year after year. Using these numbers as an (imperfect) proxy for retirees and workforce, the stage is set for an inevitable crunch. (The following scenario may happen tomorrow or in ten years, but there is no way to avoid this impending crisis.)

With fewer workers, barring a miraculous increase in productivity, GDP will flatten or fall. Aggregate wages in Japan will also decline (likely at a greater rate, as younger workers are paid less than older ones) which will lead to lower overall savings. Since Japanese savings are the source of almost all purchases of Japanese bonds, the Japanese government will no longer be able to fund its ongoing deficits (41 trillion yen in 2012, with no significant decrease on the horizon), never mind its maturing debt, while paying virtually no interest. 

Drastic spending cuts and/or dramatic tax increases sufficient to eliminate the deficit (7.6% of GDP last year) in the near term would almost certainly plummet the country into a severe recession. The economic downturn would lower tax revenues and raise government social program expenditures - thus returning Japan to a deficit position. 

With an enormous and increasing debt, coupled with a flat or declining GDP, Japan will one day (soon) reach a crisis point. As I see it, Japan will have three options:

1. Default in part or in full on outstanding debt.
2. Raise the interest rates paid on government bonds.
3. Have the central bank print money to buy bonds at a (much) lower interest rate than the market demands.

I view an explicit default as very unlikely. Doing so would destroy the wealth of the Japanese populace, who hold almost all national debt. It would be both contrary to the national interest and political suicide. 

Japan could raise interest rates, but this too is unlikely. Consider the effect of an increase of just half a percent on the interest rate Japan pays on its 10 year bonds. Even in the unlikely scenario that Japan runs balanced budgets for the next decade, this small rate rise doubles what the country must pay in interest every year, resulting in a situation where over 80% of taxes collected will go solely to paying interest on the national debt as bonds mature. This is clearly a recipe for national bankruptcy, leading to scenario 1 (default), which Japan will go to great lengths to avoid. 

This leaves printing yen - having the central bank buy bonds, in massive quantities, both to make up for the shrinking numbers of people buying bonds and to keep interest rates near zero. Rapidly increasing the money supply will lead to a rapidly depreciating currency. Since Japan has been a net importer since 2011, in the short run a lower yen will further deteriorate the country's financial position, as they must pay more yen for its imports (primarily energy products). Last year, Japan's trade deficit was 13.8 trillion yen (US$137B) - with a rapidly depreciating currency, the number of yen leaving the country will sharply increase. This is not good for Japan.

There is one silver lining in this scenario, which unfortunately comes with its own cloud. As the yen falls in value, Japan's mighty manufacturing capabilities become more cost competitive globally. This will improve Japan's balance of trade, and reduce one major source of capital flight. But if Japan takes full advantage of a weak yen to increase its exports, it will do so largely at the expense of its neighbours, including Indonesia, Vietnam, Korea, and - especially - China. Sino-Japanese relations are already deteriorating on multiple levels, including territorial claims, historical grievances, increasing militarization, and political rhetoric favouring nationalistic fervour over regional and international cooperation. Currency devaluation would exacerbate these tensions. In addition, the yen is one of the most widely traded currencies globally, and markets around the world would be rocked by a sudden drop in the value of the yen. Given the current context, deliberately depreciating Japan's currency could lead to a much broader regional economic or political conflict.

But let's set aside geopolitical and global currency market considerations and remain focused on Japanese economics. Devaluation of the yen will be considered a beggar thy neighbour tactic by other Pacific countries. Some will likely take steps to devalue their own currencies in response, seeking to maintain their share of global imports. Thus Japan would suffer all the negative effects of a weak currency (now shared with several regional nations) with few of the desired benefits. Any increase in Japanese exports is likely to be limited and short lived due to the reactions of other nations.

Thus Japan is trapped in a vise, largely of its own making. Both its demographics and debt profile were foreseeable for decades, but no effective remedial action was taken to counteract these trends. It saddens me, because I lived in Japan (nearly twenty years ago now) and have great admiration for its history, culture, and people. But with its shrinking workforce, aging populace, enormous debt, and continuing deficits, all roads lead economic disaster for Japan.

As Ernest Hemingway wrote in The Sun Also Rises:

"How did you go bankrupt?" Bill asked.
"Two ways," Mike said. "Gradually and then suddenly."

Twenty five years ago, Japan was a seemingly invincible economic colossus that struck fear in the hearts of businesses and industry worldwide. Now, I believe its days of going bankrupt gradually are nearing their end.

I hope I'm wrong.

Postscript:

My argument is based on the following assumptions:

1. The average savings rate of the Japanese worker will remain roughly the same. (This is a conservative assumption, as historically it has been quite high compared to other wealthy nations; if the savings rate changes, it is far more likely to decrease than increase.)
2. The investment mix for Japanese savings will not change substantially in the coming years. (Also a conservative view, as Japanese savers historically (and presently) significantly overweight their portfolios with domestic bonds, which fund the national deficit and maturing debt.)
3. Japan will not accept large scale immigration to offset its declining workforce over the next two decades.
4. Japanese real wages and productivity, already high by global standards, will not increase dramatically over the next 20 years. They will do so, at best, gradually - a few percentage points per annum.
5. As people retire, they will become net spenders, not savers.
6. International investors will not significantly increase their purchases of Japanese bonds at current interest rates.

When the bottom line is the only line, it's a problem

Last year Apple was being widely criticized in the press for its practise of funneling billions of dollars to Ireland to minimize the taxes it paid. During the height of the controversy, an MBA classmate of mine (and current Apple employee) wrote, "Avoidance is not evasion. One is legal, the other isn't. If you want corporations to pay more tax, close the loopholes."

This led to an interesting discussion about the differences between legality and morality, and what role (if any) corporations play in the latter.

His first rationalization for Apple's behaviour was pointing out, quite accurately, that most global corporations minimize and defer their taxes through numerous tricks and schemes. If governments would just "close the loopholes", he proposed, corporations would pay more.
 
Doing so, however, is not so simple. Businesses routinely threaten, browbeat, cajole, and blackmail jurisdictions to create precisely the legal conditions that allow tax avoidance on a massive scale. Companies such as Apple are in no way passive entities, merely following the rules laid out for them. To say otherwise is inaccurate and perhaps dishonest. Furthermore, while "Everyone else is doing it!" is an accurate observation, it is not a moral justification.

But why, he then asked, should there be a moral component to any corporate calculation? After all, "US corporations exist with basically a singular purpose, to increase shareholder wealth/value."

This was covered in our MBA - Milton Friedman believed that anything a corporation did beyond maximizing profits was a deviation from its sole true purpose and supremely unethical. This included donations to charities, supporting basic scientific research, or contributing to general education at any level. Only if the expected return from such activities (for example, the favourable publicity resulting from sponsoring some worthy cause) exceeded other potential investments should a company consider doing so.

While presented in class as one perspective of many (and an extreme one at that), apparently it has been taken to heart by some. 

This leads to a larger issue - when one fully optimizes on a single variable, everything else falls by the wayside. Optimization is a powerful mathematical tool, but there can be disastrous effects if it turns out that more than one factor is significant. Maximizing farming biomass output per hectare in isolation will ignore (for example) potential massive increases in water and fertilizer inputs, leading to water table depletion and downstream pollution. Factories to this day tend to pollute air, land and water when doing so is cheaper than paying a fine if they are caught - despite the fact it is orders of magnitude cheaper to contain toxic waste at its source than to clean it up once it has diffused into the wider environs. (The weakness of environmental regulations and their lax enforcement are often significant factors for a company determining where it will build a large manufacturing facility.) This principle was brilliantly illustrated by Edward Norton's character in Fight Club:

A new car built by my company leaves somewhere travelling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one.  

Perfect corporate logic. Horrific moral consequences.

Forbes magazine calls Friedman's call to maximize shareholder value to the exclusion of all other considerations "The world's dumbest idea", and notes its all too real results:

The corporate world is plagued by continuing scandals, such as the accounting scandals in 2001-2002 with Enron, WorldCom, Tyco International, Global Crossing, and Adelphia, the options backdating scandals of 2005-2006, and the subprime meltdown of 2007-2008. Banks and others have been gaming the system, both with practices that were shady but not strictly illegal and then with practices that were criminal. They include widespread insider trading, price fixing of LIBOR, abuses in foreclosure, money laundering for drug dealers and terrorists, assisting tax evasion and misleading clients with worthless securities.

Corporations do not exist in a vacuum. One cannot discard all considerations unrelated to maximizing profits merely because doing so may complicate a calculation. There is a social dimension because corporations (including Apple) derive enormous benefits from government expenditures:

• Transportation infrastructure (airports, harbours, rail lines and roads) is generally built and maintained with tax dollars. Among other things, this allows corporations to ship products and move people around the globe cheaply. 
• Functional governments enforce the rule of law, including an independent judiciary to maintain consistent application and oversee the enforcement of contracts if necessary.
• Municipal, regional, and national police forces create and maintain safe(r) environments for factories, workplaces, and security of employees and tangible assets during and outside the working day.
• Emergency response, such as fire and ambulance, are almost universally government funded and run services.
• Most American Apple employees were educated in the US, in government funded primary, elementary, secondary, and post-secondary institutions.

One can see corporate influence on US tax policy by corporate taxes collected over time as a percentage of GDP. In the United States, corporations and individuals paid roughly the same amount in 1939 (actually, corporations paid slightly more - the last time this was the case). Ten years later, individuals paid 39% more. In 1959, individuals paid more than twice the taxes (2.14x) of corporations. This trend continues over the years - by 1979, individuals contributed more than three times what corporations did to government revenues; in 1999, it was nearly five times as much. 

In 2009, over 86% of the tax burden came from individuals. This trend cannot continue much further.

Corporations should include ethical considerations into their calculus - if for no other reason than enlightened self-interest. If a sufficient number of large companies and wealthy individuals become as successful as Apple in manipulating then exploiting the tax codes of various countries, our entire economic system will collapse into itself.

People in the developed world depend on corporations for so many crucial aspects of life - food, communication, drugs, equipments, products, and much else - that elements of corporate behaviour that jeopardize the stability, health, or longevity of societies in which they participate should be viewed as immoral.  The problem is not just that corporations behave unethically (though many do); it is that we (society) have created a system where harmful, detrimental corporate behaviour is implicitly (and in some cases explicitly) rewarded. The system must change if we are to avoid a catastrophic implosion; corporations are a single (major) player in a large, complex game. 

Perhaps we need to broaden the corporate mandate to include more than making money for shareholders; perhaps enforceable and genuinely global agreements on taxation and regulation would minimize the "loopholes" so expertly exploited by multinationals. 

At a minimum, we need to start having the conversation.

Organic farming: good practice or good marketing?

I remember reading a MAD Magazine cartoon when I was a child. A couple were deciding where to get fish and chips for lunch. The woman reads one option: "Fish and chips. $3.25." In the next panel, she reads the other possibility: "Specially selected prime fillet of halibut, lightly encrusted with homemade bread crumbs and deep fried to perfection in beer batter. $3.50." "What's the difference?" asks the man. "A lot of adjectives and twenty-five cents," is her reply.

I have long harboured a suspicion that foods labelled organic (especially in large supermarket chains) are little more than greenwashing - a way to get concerned wealthy customers to pay (much) more for meat and produce. At a minimum, coining the term "organic" to describe a particular method of farming is a brilliant marketing coup. It implies that any foods that do not follow its rules are inorganic. It's not just a North American phenomenon; in Germany, such foods are labelled "Bio" (with the convenient implication that other edibles are somehow non-biological).

But even if "organic" truly means a different farming technique, what are the benefits?

It is important to keep healthy eating habits distinct from the discussion about which method of food production is healthier. There is no question that snacking on celery or an orange is healthier than munching on potato chips or a chocolate bar. But are organic apples better for you than conventional apples? The answer is not at all clear to me.

Many proponents of organic produce claim that it is safer than conventional products. In 2008, 22 Canadians died from conventional meat products contaminated with listeria. But buying organic does not protect one from the rare case of deadly infectious agents in our food supply. In 2006, organic carrot juice was contaminated with botulism in Canada and the United States, and spinach contaminated with E. Coli was traced back to an organic food supplier in California.

I find the claim that organic meat is healthier than conventionally raised livestock to be plausible. It makes intuitive sense to me that a chicken, pig or cow eating its customary diet (e.g., cows grazing on grass instead of being fed grains) that is allowed free movement throughout its life (instead of being confined to the smallest possible cage from birth to slaughter) will be a healthier animal overall and that this would be reflected in some way in its nutritional value when eaten by humans.

Somewhat to my surprise, the best scientific analysis I could find on this question, conducted by the UK Food Standards Agency in July 2009, states, "There is currently no independent authoritative statement on differences in the putative health effects of organic and conventional produced foodstuffs." Furthermore, there appears to be no discernible difference in  nutritional content: "There is currently no independent authoritative statement on the nature and importance of differences in content of nutrients and other nutritionally relevant substances (nutrients and other substances) in organically and conventionally produced foodstuffs." However, the authors clearly state that their conclusion is based on the best available reliable data, which is, at present, scarce. The study did not include external factors in its analysis, such as comparative environmental impacts or the potential effects of residual pesticides (herbicides, insecticides, and fungicides) on conventionally grown foods.

For the moment, I am neutral on the effect of pesticides on human health. I assume that, overall, any risks of eating small quantities of residual pesticides on properly rinsed fruits and vegetables are roughly balanced by the benefit of not ingesting potentially harmful insect parts and fungal spores.

For me, the broader impacts food production are more compelling to consider. Our animal husbandry practices are almost perfectly designed to generate, sooner or later, an infectious agent unaffected by all available antibiotics. A September 2011 joint letter from the American Medical Association, American Academy of Pediatrics, American Public Health Association, Infectious Diseases Society of America, and others indicates that as far back as 1970 the Food and Drug Administration warned "that antibiotic use in food‐producing animals, especially in subtherapeutic amounts, was associated with the development of drug‐resistant bacteria". Yet today, "FDA data showed that 80 percent of antibacterial drugs were sold for use in food animals in the United States". Is the very real possibility of an untreatable pathogen evolving from our farming policies worth cheaper meat?

Similarly, are higher crop yields today worth a potentially disastrous infestation of pesticide resistant insects? This isn't merely a low-probability, distant, abstract risk. It's happening today: "Rootworms in four northeast Iowa fields have evolved to resist the natural pesticide made by Monsanto's [genetically modified] corn plant." Combine this fact with our increasing tendency to plant vast monocultures (when was the last time you saw any corn at your supermarket other than peaches and cream?), and we have created an environment in which it is only a matter of time before a locust (or weed or fungus) that specializes in devouring one of our favourite foods will evolve to be unaffected by any of the techniques in widespread use intended to curb their impact.

One of the recurring themes during my business studies was that the single most important business concept is economies of scale. It is the fundamental source of competitive advantage for any major enterprise. But something I read on a friend's blog last year disputes this precept and I have found it compelling: for many industries (including farming), cost advantage comes not from economies of scale, but by maximizing economies of externalities: "We have made efficiency our highest priority, and have allowed it to trump kindness, adequate nutrition, meaningful work, clean air and water, peace, and beauty. It is the foundation of our system, and it leads logically to exactly the crises we are in. We do not have economies of scale; we passed those long ago, probably around the time that our fields became so big that the bees couldn’t fly to the middle of them. What we have instead are economies of externalization. Things are not affordable (for us) because they are cheap to produce in such massive quantities. They are affordable because somebody else is picking up the tab. Whether it is the farmer who takes all the risk and barely squeaks out a profit from 500 dairy cows, or the dead zone off the coast from the river runoff, and the fishers who can no longer fish there, the urban peasant who moved to a slum for a better life because their land was sold off to grow cash crops, or the species of orchid that went extinct when that towering giant in the rainforest was cut: the costs are there. We just aren’t paying them."

This is the tragedy of the commons writ large. Much of the the cost savings (narrowly defined as what customers pay for meat and produce at the till) in food production in recent decades come from becoming more and more effective at externalizing the effects our farming practices. As 16th century Swiss scientist Paracelsus noted, "The dose makes the poison." Excrement in low quantities is fertilizer. Runoff from farms (loose topsoil, excess pesticides, unabsorbed fertilizer, animal excrement) at the scale of our industrial agriculture leads to massive contamination of land and water ecosystems. Farms (along with heavy industry) are responsible for huge waterways such as China's Yellow River becoming unsuitable for any human use - drinking, bathing, fishing, or watering crops.

It's not just polluted water - there are a number of other problems that make our current practices unsustainable. While focusing on biomass (plant or animal) yields per hectare, we have tacitly ignored the fact that we are degrading our environmental capital:

• Groundwater reserves are being depleted much faster than they are naturally replenished (leading to ever-deeper wells being bored);
• The amount of energy and water required for each unit of farmed biomass has increased (through increased and often overuse of fertilizers and irrigation systems);
• Topsoil is being eroded (in Iowa, there is only half of the topsoil that existed 100 years ago, leading to "serious problems for farming, surface water, plant and animal life, and residents");
• Rivers, seas, and ever-increasing areas of our oceans are proving uninhabitable to most marine life (the Gulf of Mexico has a dead zone of over 6,000 square miles, primarily as a result of "runoff of fertilizers, soil erosion, animal wastes, and sewage");
• Massive centralization of food production has led to enormous transportation costs (both financial and environmental) being built into our global food production systems. In addition to the above problems, linking our food and transportation industries so intimately inherently makes food prices more volatile. Every gyration in the price of oil due to political events in the Middle East are reflected in spiking and crashing market rates for staple foods. 

This is a complex problem. I am not sure that the methods of "organic" horticulture are able to feed a hungry planet of seven billion (and growing) people. But continuing on our current path invites multiple disasters: antibiotic resistant pathogens; pesticide resistant insects, weeds, or fungi; depleted groundwater reserves; topsoil erosion; polluted land and waterways; massive dead zones in river deltas and oceans; and likely others.

Farmland is finite, so good yields are essential. Promoting policies that will substantially increase the cost of staples will result in large numbers of the world's poor going hungry. We must find a way to feed today's population without compromising our ability do so in a few decades.

Why does a business have to grow?

Profit growth is an obsession of industry analysts and pundits. Every day there are headlines in the business sections of newspapers and websites along the lines of, "Company X revenue and profit growth disappoints, shares plummet Y%." Another way to state the same thing is, "Firm X had more sales and is more profitable than last year, yet is worth less today than yesterday."

I've never understood the rationale behind why a company must continually grow in order to be considered successful.

Let's assume that a company has revenues of $10 million, and a respectable net profit of $1 million. (Feel free to add or subtract a zero or two to make this company larger or smaller.)

Let's further assume that there is no inflation or, if you prefer, these numbers grow or shrink at the rate of inflation or deflation.

Note that this does not imply a static business model. Our hypothetical company will make investments to reduce its costs and deal with competitive pressures that reduce its margin. It will adjust its product portfolio over time and periodically introduce new services. The net effect of all this change, however, is financially neutral: real revenues remain constant and the firm is consistently but not increasingly profitable.

My question is: What's wrong with making a million dollars of profit on revenues of ten million every year? Why is growth of these numbers deemed a necessary element of success for a corporation?


Such a company would be savaged on the stock market, and I do not understand why.


I asked this question during a class discussion during my MBA studies, and received many responses that made no sense. Only one answer, while still unsatisfactory, was at least coherent. A classmate told me that since this firm's competitors would be striving for growth, it risked being left behind and eventually being swallowed up by its much larger rivals.

There must be something more, though. There must be some justification for an unrelenting focus on growth beyond, "Everyone else is doing it!" But I don't know what it could be, and haven't been able to come up with anything plausible.

Can you help?