Lethbridge Herald, The (Newspaper) - June 3, 1974, Lethbridge, Alberta
4 THE LETHBRIDGE HERALD Monday, June 3. Foreign ownership policy steps forward Soviet oil production A situation is developing in the Soviet Union which provides several analogies to the Canadian situation in regard to energy resource development. Since the October war and its revelations about the world's dependency on oil, the Russians have been taking a hard look at their own resources (the Soviet Union is second only to the U.S. in oil at their internal energy demands, and at their need for western technology, coupled with their need for hard currency to pay for it. The result was made clear at a recent news conference in Moscow; Russia is going to develop its own resources for its own use. This kills Japan's chance of getting oil from Siberia in the foreseeable future, although talks have been underway for years about Japan's investing billion in a pipeline from Irkutsk in return for oil. At first the Russians spoke of exporting 40 million tons a year to Japan. Some months ago they reduced this figure to 25 million tons. Today, they are saying, "What Soviet problems have been both compounded and alleviated by the increased price of oil. Like Canada, Russia has imported cheap Arabian oil while at the same time it exported some of its own production. Last year, the oil it exported to the west, about half of its total exports, earned it about million and represented its biggest single source of foreign exchange. Since it can no longer count on cheap Arabian oil, the U.S.S.R. must limit its exports in order to satisfy internal requirements. The bad news is that home consumption has been rising at about eight per cent a year while production has increased at about six per cent. The good news is that the sharp increase in the price it is getting for its oil abroad means that it is not under such pressure to increase those exports in order to get the money for further development of oil production. Russia's main oil reserves lie in western Siberia and Kazakstan in unhospitable country where drilling, pipelaying and just plain living are difficult. Experts agree that it will take western hardware seismic equipment and computerized field units to locate deep-lying holes. If there is a Goyer in the Politburo, with grandiose development plans, he hasn't surfaced yet. The Communists are taking the cautious approach and uttering such familiar phrases as "the wealth of future generations must not be sold for short- term benefits." Grounds for optimism Surprising as was the coup in Portugal, it is more surprising that the direction taken by the military junta has been so enlightened. In fact the change is so dramatic that it is hard to believe it is real or that it will last. A willingness to investigate all possibilities for decolonizing the African territories is the most remarkable aspect of the new regime. The first step in achieving that goal has already been taken in the London talks seeking a ceasefire in the war in Portuguese Guinea. Promise of a referendum in Mozambique to determine the wishes of the people there regarding the future has also been given. Those who think immediate independence should be granted the territories will perhaps be impatient with this, seeing it as merely a stalling tactic. But it would be irresponsible to grant independence before arrangements are made for a governing body that had the confidence of a majority of the people. Chaos could- result otherwise. All indications are that the new Portuguese government is moving in the right direction and moving rather quickly. Snags could develop and positions be reversed but for the moment it is reasonable to be optimistic about the permanence of a more open society in Portugal and a new day for the African territories. RUSSELL BAKER Passing the bucks At our house we have been discovering the latest economic miracle. It is called the "pass through." At first it looked like the keenest idea to emerge from the economic science since the Caesars came up with bread and circus. The bills would come in and each creditor would be asking or 20 more than he had skimmed us for the previous month. "What's we asked a brilliant economist. "We're getting nothing more fo our money than we got last month, but we're paying or more." "Why." he said, with a smile at our ignorance of the economic science, "those are pass throughs. As the "costs of doing business rise, those costs are simply passed through so no business suffers any loss on account of spirsling costs." "A fantastic I said. "Rising costs really won't cost anybody anything, since they're just passed right on through." The family got pretty excited about this when I explained it at dinner that night. We had just had a particularly big oil bill, maybe 80 per cent higher than last year's oil bill for the same period, and there had been a good bit of depression about it. The chief of provisions had said if we were going to go on paying bills that big, we were going to have to give up meat, which was also getting pricey, or let the electric company people cut off the lights because they were also demanding a bigger share of the income. I explained that this kind of thinking showed how dumb the family was about the economic science. What we were dealing with, I told them, was a simple matter of rising costs, and the new thing in economics was to just pass those costs right on through, so they didn't cost us anything. The sense of relief ran high until the end of month, bill paying time, when we took down the check book, added up the bills and observed that total bills due exceeded funds on hand by some 1200. The figured, was our cost rise for the month, and the thing to do was to pass it through. I phoned my economist. We had a risen cost of I told him, and wanted to know how to go about passing it through. He said I was some kind of half-wit. For the pass through to make any economic sense at all, he said, there had to be one person at the bottom of the system who was not entitled to a pass through. Otherwise the >ass through would be passed right back to the top as another rising cost which would be ussed through again, and so on ad infinitum until the whole economic science was to farce, which would discourage >right young men from going into economics and developing even newer more brilliant ?oncepts than the pass through. The whole family went gray when I gave it to them straight from the shoulder. "The >ass through stops I said and, to get their Aff the flonr reminded of the famous sign on Harry Truman's desk: buck stops here." "That's said a very wise woman. "The buck doesn't stop here. These days it doesn't even pause here." "Isn't anybody deeply I asked, "by the knowledge that we we precious few are all that's making it possible for the greatest corporations in the world to meet rising costs without those costs costing them Nobody was moved by that, but what was even more disagreeable was our risen cost of which was going to cost us a good bit more than to come up with, on account of the bank's habit of passing on the rising cost of producing hundred dollar bills. At the risk of sounding naive, I told my economist the other day that while I thought the pass through was doubtless an interesting idea, it needed more developing. We ought to take it one step further, and develop the "pass buck." With the pass back, when you get your monthly pass through from the electricity company, say, you would simply decline to go to the bank for the added money and, instead, pass the bill for the added cost back to the company. They, in turn, would pass it back to the oil folks or the coal people, who would pass it right on back up to the banks, or the machinery makers, or the Arabs, or whoever had passed the risen cost through to them in the first place. This way it would wind up back where it belongs. If they tried to turn it into a pass through again and started sending it back down, the economist could explain that the pass back has to stop someplace and that there is a lot of heroism and civic pride to be had for a rich man able to boast, "the pass back stops here." My economist said economic science wasn't ready yet for the pass back. Short memory By Doug Walker Our granddaughter, Jennifer Bowrey, age five, spent the Victoria Day weekend with her parents at our place. The wet weather meant that she wasn't able to go outside without coming back with a lot of mud on her feet so the house soon was a bit of a shambles. "I think Jennifer must be messier than most kids her observed Uncle Paul. His sisters, who are several years older than Paul and remember when he was a little guy, quickly jumped on him. Nobody couJd be messier than he was, they declared, recalling that when we ate in the living room we parked his high chair in the doorway with papers spread all around it. It isn't long ago either that Paul's room eeneraliv looked like a refuse dump. By W. A. Wilson, Montreal Star commentator OTTAWA-The landmark aspect of the government's decision to take over de Havilland Aircraft, and probably Canadair as well is the willingness at least to acknowledge that foreign ownership can be a dead hand, destroying an industry's vitality. This new facing of facts will probably outweigh in the end every other aspect of the deal. All first steps are the hardest to take. The second and third come more easily and there is no obvious reason why this would not be true when it is a matter of accepting economic realities. Since the Second World War, the general government attitude towards foreign control of Canadian industry has been that it was either a good thing, absolutely essential to Canadian de- velopment, harmless or perhaps a problem in certain sensitive areas. This over-all approach has been slowly eroded, mainly by the extension of the feeling that foreign ownership might be disadvantageous in such key areas as banking, communications, uranium production or even football. As this area of concern has expanded the motivating fear has largely been that foreign ownership might operate in some positive way that was harmful to Canadian interests. In the case of the two air- plane companies, however, the new factor is the recognition that foreign ownership was operating against Canadian interests in a negative way by failing to develop the potential of two companies which could have been making a greater contribution to the Canadian economy. In announcing the takeover decision, Alastair Gillespie, the minister of industry, used such phrases as "the growth and development has been impaired by the fact that they are foreign-owned and "little independent authority to make "not moti- vated to rationalize their Canadian operations." The willingness to see all of this does represent forward movement. It is not very long since either a Liberal or a Conservative government would have done its utmost to avoid these conclusions. Either would cheerfully have put their hands into the taxpayers' pockets, up until now, to pull out the money for a propping-up order for unnecessary airplanes or for some new grant of assistance. These would have come easier than a public admission that obviously might have application in other industrial areas in this country. The new, open-eyed approach is in the better late than never category but it does provoke some sour "What's it today: Feeding the multitudes with five loaves and two fishes or just beating inflation Indexing is poor answer to inflation By Bruce Whitestone, syndicated commentator The effects of inflation in undermining all rational calculations have long been apparent in business and industry, and now the consequences on individuals are becoming evident. Everyone is trying to keep one step ahead of inflation. Increasingly, many policymakers are suggesting a new course of action, one which is, at first glance, vastly attractive. The proposed remedy is the widespread use of escalator clauses to minimize the effects of inflation. Loans, mortgages, bank accounts, in effect all kinds of assets would rise automatically by the same amount as the increase in the cost of living index. Thus, a deposit in a bank account would earn the usual rate of interest, but, in addition, the account would have its nominal value written up by the rate of inflation over the period. In other words, the 'price tag for goods or services would be adjusted by the same percentage as the increase in the consumer price index. Theoretically, this would be more acceptable (to politicians al than changing our fiscal and monetary affairs. After all, what politician wants to recommend that government spending be curtailed, taxes raised, or that money supply growth be curbed? The only trouble with indexing is that it does not work, and would only postpone the day of reckoning. Brazil is often cited as an illustration of the feasibility and desirability of indexing. What lessons can be learned there? Foreign investment capital has been the mainstay of the Brazilian economy. Without huge inflows of capital from the United States, Japan, and West Germany, Brazil would not have been able to prosper in the past decade. Without some kind of stability, foreign capital eventually will shy away from investment there. Yet the Brazilian currency is being devalued repeatedly so the cost of all imported items 1974 ty NEA inc "Golly whiz heck darn it all phooev has risen as tne external-value of the currency declined. In other words, continuing devaluation courts a perennial price spiral, as depreciation of a currency abroad inevitably leads to its depreciation at home. There are other difficulties with indexing as experienced in Brazil. Official price indices, upon which indexing is based, have their own shortcomings and in Brazil they have been misleading. There the index, based only on the prices prevailing in the general area of Rio de Janeiro, now excludes the cost of meat and milk because, these prices rose "too Then, sooner or later indexing has to take place at a faster and faster pace. Yearly adjustments must be succeeded by quarterly, monthly and weekly adjustments for inflation as the rate of inflation accelerates. (It should be noted that in Germany in the horrendous inflation it suffered in the 1920's. indexing took place daily not only to take into account the previous inflation, but also the future, anticipated inflation. This guaranteed that wage and inflation rates snowballed.) With this background, it b surprising that some continue to advocate indexing in one form or other for Canada. For example, workers in Canada are attempting to get a cost of living allowance in their own contracts. Historically, cost of living clauses, once accepted by employers, are taken for granted by workers who then demand wage increases comparable to those won by unions that do not have "indexed" wages. Some have suggested that the government of Canada issue savings bonds whose principal or interest would rise parallel to the inflation rate. 9t S Lethbrtdpe. Alberta J.ETHBH1DGE HERALD CO LTD Proprietors anC PtfbMhers Second Glass Man Registration No 0012 CLEO MOWERS, Edflor and Publisher OONH PILUNG Managing Edlor DONALDS OORAM General Manager ROY f MILES Advertising Manager DOUGLAS K WALKER Editorial Page Editor ROBERT V FENTON Circulation Manager KENNETH 8ARNE7T feusmess Vlansaer HERALD SERVES THE SOUTH"