Silver Donald Cameron

Archive for August, 2008

The Power to Change

Sunday, August 10th, 2008

VANCOUVER:
Last month, a splice failed in a major power cable in downtown Vancouver. The resulting explosion and fire also knocked out the utility’s backup cable, which quickly clicked off the lights for 4400 customers, including several office towers. One of the affected towers houses the Vancouver Sun newsroom, which has an Uninterruptible Power Source for just such occasions. But the UPS had only enough juice for a few hours – and the power was off for three full days.

The Sun managed to rent generators, setting them up on the street and snaking cables up to its offices, and it kept publishing throughout the blackout. Other businesses didn’t fare so well. Restaurants had to throw out masses of food. Retailers locked their doors. Professional offices closed down. The Canadian Federation of Independent Business reckoned that about 4800 small businesses were affected, and their collective loss ran to about $36 million. Stand by for a blizzard of insurance claims and lawsuits.

Now look, this happened in British Columbia, which has dammed innumerable mountain valleys to create massive hydroelectric plants, and profited for decades from exporting hydro power. If any province should be a poster-child for renewable energy, even surplus renewable energy, BC is it. Yet Vancouver Sun business writer Scott Simpson reported that BC Hydro’s “entire system, from the dams that capture water to generate power, to the wires distributing electricity to people’s homes, is maxed out.”

In fact, Simpson reported, the situation is so dire that BC Hydro has applied for permission to pay its largest industrial users to shut down their operations at peak usage periods during the winter, because it won’t otherwise have enough power to serve its residential customers. It’s already doing this on Vancouver Island. This is – forgive me – a shocking situation in a province which always promoted itself to industry on the basis of almost limitless energy supplies, and low power rates. Whoops.

So what does all this have to do with Nova Scotia? Well, despite the creakiness of the BC electrical system, “the reliability of service,” says Simpson, “is comparable to other North American jurisdictions, according to internationally established performance measures.” Which surely means that other power systems are equally stressed and comparably vulnerable to sudden serious failures. And, since all the grids are linked, the prospect of another big blackout, like the one that hit northeastern North America in 2003, are pretty good.

BC Hydro says that the problem is years of under-investment in infrastructure, and proposes to fix the problem by adding more generating capacity, upgrading transmission lines and so forth. It wants to increase rates by 15% and spend $3.4 billion on infrastructure by 2010 – which it admits is only a start.

To me, this sounds like an advance straight into the past, when rising demand for power was taken as a given, and squandering power was a way of life. But those days are gone. And there’s an alternative. The quickest, cheapest way to solve a problem like this is to reduce demand by changing the pricing of electricity.

Power companies have always priced electricity in a thoroughly perverse way. Power rates start out high, and go down as consumption increases. But the costs of generating power run precisely the opposite way. Power companies run their cheapest generators all the time, and only bring in their more expensive generators when demand increases. In other words, power companies put their lowest prices on their most expensive power. Worse, the price structure encourages customers to waste electricity.

The immediate alternative is common sense, which in this case is called “marginal-cost pricing.” Marginal-cost pricing means that your basic allotment of electricity comes at a very reasonable cost – but power rates rise steeply as consumption increases, and more steeply still in peak hours of demand.

Proper pricing induces customers to conserve energy – and to produce their own energy wherever possible. Companies start generating their own power from their own waste heat, and charging the forklift’s batteries overnight. Households buy solar hot water heaters, heat pumps and mini wind turbines. People turn off lights and run their washers and dryers just before bedtime.

In short, marginal-cost pricing rewards conservation, self-reliance and innovation, and punishes wastefulness. Overall, it reduces demand for power – and thus reduces the need for large expenditures on increasingly-costly generating systems. And the tools needed for its implementation are not power turbines, but pens and brains.

BC Hydro is said to have plans for marginal-cost pricing and conservation. It should – like all utilities – hurry those changes along. Otherwise we can expect more events like the big 2003 blackout, which shut off power to 10 million people for a day, or the 1998 blackout in Auckland, New Zealand, which lasted for five weeks. What Vancouver experienced in July should be a warning to all of us.

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Tumult in the Cannabis Trade

Sunday, August 3rd, 2008

VANCOUVER:
Who would have thought that cavalier lending practices in the US Sunbelt would damage the second-largest industry in British Columbia?

No, I’m not talking about forestry and lumber. I’m talking about dope. BC Business magazine reckons that marijuana production is BC’s second largest industry, contributing $7.5 billion dollars and 250,000 jobs to the province’s GDP – less than construction, but more than forestry. Most of the product is exported to the United States. The RCMP estimates that marijuana is being grown in about 20,000 BC homes, not to mention sizable farms in the Interior and large-scale commercial operations in former warehouses and industrial buildings. One academic study concluded that if marijuana in BC were legalized, the province would see $5 billion in additional legal business activity, and could collect $2 billion in taxes.

The ranks of BC marijuana producers have also broadened remarkably. Cannabis cultivation is no longer the exclusive preserve of organized crime, though organized crime certainly continues to thrive in the fetid netherworld of prohibition. Today, however, marijuana production has become a sideline for thousands of otherwise law-abiding middle class citizens.

As a recent BBC report put it, “Much of the revenue derived from BC Bud, as the cannabis crop is known, goes on paying college fees, perhaps buying a second car or making that holiday to the Caribbean just a little bit more affordable.” As a result, “the trade is so large that the police in BC are faced with an impossible task.”

Indeed they are, and the job is getting harder. The RCMP drug section in Greater Vancouver once employed more than 100 officials, but it’s now down to 60. The number of tips they receive about grow-ops has also fallen, from 615 in September 2003 to 207 in December 2007.

Does that mean that the number of grow-ops have fallen? Probably it has, says Marc Emery, a leading cannabis advocate and leader of the BC Marijuana Party. For one thing, the rising Canadian dollar has hurt the competitiveness of BC Bud, just as it has hurt film-makers, the forest industries and furniture manufacturers.

In addition, the downturn in the US economy has induced many Americans to try their hands at growing their own pot. Marijuana plantations have been turning up in the National Forests, while laid-off workers and homeowners facing foreclosure have been converting their basements and spare rooms into grow-ops. Even a tiny operation using only a couple of high-intensity lights can earn $20,000 a year for the owner – in cash, and tax-free.

“It certainly is enough to tide people over, no problem,” says Emery, “And two lights are not going to get you into trouble either.”

So there you have it. Predatory and foolhardy lending practices in the US lead to a wave of foreclosures. Wary consumers stop buying. Workers get laid off. Desperate for cash, the victims of the downturn try their hand at illicit agriculture. At the same time, the rising loonie makes BC Bud less competitive, so Canadian growers find their markets contracting.

What’s so striking about this story is that it really is not a story about crime and the law. It’s a business story, and almost all accounts of the situation treat it that way. In theory this whole industry is illegal, but in practice it’s so big that the police can’t even begin to control it. Any serious attempt to enforce the law would require an army of policemen, and gobble up so much public money that governments would almost have to abandon such other concerns as health care and education.

So the business is completely unregulated, and the only controls on it are the controls imposed by the markets themselves. As with any business, unfavourable market conditions do affect the industry. Adverse exchange rates and increased competition drive prices down and eliminate marginal producers.

Nevertheless, the market is huge and hungry. It reaches into every social class and every age group, though a recent study from the University of Alberta apparently revealed that marijuana is particularly popular among educated, middle-class Canadians. Do they wish to break the law? Probably not. But do they think this law deserves to be obeyed? Obviously not.

In short, the law has essentially made itself irrelevant. If anything, the law benefits the business. To a large extent, the industry is profitable precisely because it is illegal. All entrepreneurs take risks, but if the risks include jail time, only the boldest entrepreneurs will enter the business – and they’ll demand a premium for the extra risk.

The net result of our irrational policies is that we enrich the criminals, criminalize ordinary citizens, and control illegal drugs far less effectively than we control alcohol and tobacco. If those are the effects we want, these policies are perfect.

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The Economics of Unhappiness

Sunday, August 3rd, 2008

July 27, 2008

What is the purpose of the economy?

Most of us would say, I suspect, that the economy exists to make people comfortable and happy. If so, then it’s logical to believe that the more the economy grows, the happier people will be. That’s why government and industry are always promising greater and faster economic growth.

But what if economic growth doesn’t promote happiness? What if economic growth – beyond a certain level – creates unhappiness? Is “more” always better?

That’s the question behind Bill McKibben’s recent book Deep Economy. An outstanding environmental thinker and writer, McKibben is the author of the landmark book The End of Nature. His new book leads McKibben in some fascinating directions.

Our obsession with economic growth, says McKibben, makes sense for poor people – but not for wealthy ones. For a poor person, “more” means better food, better housing, better clothing, comfort in the winter, access to art and music and learning.

Because this is true for poor people, and was true for most of our ancestors, we assume that it’s also true for us. But it’s not. Research from a new field called “behavioural economics” shows that once your basic needs are nicely met, greater wealth does not bring greater happiness.

The religion of economic growth, says McKibben, is facing three great challenges. First, economic growth is now producing “more inequality than prosperity, more insecurity than progress.” The US economy has grown enormously in the past 30 years, but the median wage has not grown at all. The bottom 90% — that’s right, 90% — of US taxpayers actually earned slightly less in 2005 than they did in 1979. All the additional wealth has been captured by the top 10% of taxpayers.

Second, it’s become increasingly clear that we’re running out of energy, and bumping against the limits of the world’s capacity to absorb our wastes. Economic growth may (or, more likely, may not) be giving us a few more dollars of income – but it is also giving us foul air, toxic food, empty oceans and ravaged landscapes. None of that breeds happiness.

Third, says McKibben, we have increasing evidence that happiness is not just a subjective feeling, but a measurable state of mind – happiness shows up as specific kinds of activity in the brain – and the main things that create happiness are not economic in nature. The best predictors of happiness are thing like being healthy, being married, being engaged in one’s community. Nothing to do with wealth at all.

In fact, increasing wealth correlates strongly with increasing misery. Every year, the National Opinion Research Council polls Americans and asks whether they are very happy, pretty happy, or not too happy. In 1946, the US was the happiest developed country on earth. Forty years later, it was tenth among 23 nations. The number who say they are “very happy” has slipped steadily since the 1950s. And the same is true in other developed countries such as Japan and the UK. As incomes increase and possessions accumulate, rates of alcoholism, suicide and depression also rise. One report, says McKibben, showed that the *average* American child in 2000 showed higher levels of anxiety than children under psychiatric care in the 1950s.

In short, says McKibben, today’s Americans have much more stuff – and much less happiness.

Why? And what’s the solution?

First, let’s recognize that in developed countries, economic growth is not a solution; it’s a problem. Things are already far too big, far too wasteful, and we’re no longer in touch with our own lives.

Take food, for instance. It makes no sense to ship food products an average of 1500 miles to our tables, when it’s perfectly possible to grow more nutritious, less toxic and better-tasting food close to home. That’s the way we produced food in the past, and as energy costs soar, it’s probably the way we’ll produce it in the future. There will be huge opportunities for agriculture in places like Nova Scotia.

Or take housing. We have ever-larger homes with ever-smaller families in them, in locations that are viable only if gasoline is cheap. Or take electricity, which we produce in big dirty plants and then transmit for thousands of miles, suffering heavy losses along the way. Or take entertainment. Maritimers still know how to produce their own entertainment, but most other regions have forgotten.

The future, McKibben argues, will feature localized economies, short supply lines, more intelligent use of resources, more co-operation, less individualism and much less growth.

We might choose to make such changes because we perceive that our current lifestyles are really wrecking the world. Or we might be forced to make such changes because the rising price of resources, notably energy, simply prevents us from continuing on our unsustainable course.

McKibben’s argument is much simpler. Our obsession with individual wealth is making us miserable. Why wouldn’t we simply choose to be happier?

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