Saturday, October 17, 2009

Iris Evans: stop obstructing efficient securities regulation

Although my time with the Dept of Finance in Ottawa was relatively short, the Department was headed by no less than 4 different Ministers (3 Liberal and 1 Conservative). We (the civil service) noted to all of them in one form or another that something needs to be done about our balkanized system of securities regulation. "Balkanized" is an especially apropos adjective here since for a long time the only country with a system as fragmented and inefficient as ours was the Balkan country of Bosnia-Herzegovina; Bosnia has reportedly made some improvements in recent years.

I am not a fan of increasing federal power. Federal taxing power is far in excess of what it should be, since Ottawa collects significantly more tax revenue than it needs to fulfill its constitutional responsibilities. The feds transfer a portion of that back to the provinces, but this has fueled an ongoing political war between the central agencies and the provincial governments over how big each province's transfer should be. Securities regulation is an area which if left to the provinces creates unnecessary duplication, waste, and headaches for securities issuers both domestic and foreign. The reality is that capital markets have gone global and we need a securities regulatory system to match.

I had a reputation in Ottawa for being a stereotyped Albertan given the things I argued for around the watercooler. But when it came to fulfilling my obligation to provide non-partisan advice to the Minister, like the rest of the economists at Finance Canada what mattered was the evidence. There was a lot of consensus among us because despite the fact we had origins from all over the country almost everyone there who had input into the process of policy analysis believed that the process had to be, in a word, scientific. If academic argument and statistical data supported a particular policy, the question of whether the policy was left or right or central Canadian or western Canadian did not enter into the equation. Optics issues were for the Minister and his political people on the 21st floor to tangle with.

Except for those in Tax Legislation, few people at Finance had law degrees. It was mostly masters degrees in economics and some PhDs. There were some fellow MBAs in the Department but they were but a handful and to my knowledge exclusively in my Financial Policy Sector Branch. As someone who also had a LLB, I would advise anyone in my Division who was willing to listen that Justice ought to just draft legislation creating a national securities regulator because from my studies of constitutional law, the operating assumption that the matter was the preserve of the provinces was far from legally certain. Let the provinces led by populist politicians mount a challenge, and then dump all the evidence in the lap of the Supreme Court and expose the demagoguery for what it is. Just jawboning the provinces about working together was not working.

I am accordingly pleased to learn Friday that this is exactly what the federal government is doing. As John Ibbitson notes,
... whether it is harmonizing sales taxes or regulating the markets, this government is committed to reducing barriers to trade and investment.
Indeed, Harper has won back my vote this year because he has evidently decided to change his ways and support his Finance Minister in heeding the civil service's (often private think tank influenced) advice.

Peter Lougheed brought down the Social Credit dynasty because the SoCreds were unable or unwilling to modernize. The world was going the other way and Alberta belonged in front, not behind. In 2009, Finance Minister Iris Evans has insisted that her province "will continue to oppose, through all available avenues, including legal action if necessary, any move toward establishing a single national regulator." These remarks are more revealing of a problematic hostility to contemporary thought than her comments about child rearing, since her talk about the latter was ultimately just that: talk unattached to an identifiable government policy. On the policy of financial market regulation, the Stelmach government has taken a clear stand, a stand that is also clearly wrong in the eyes of most capital market participants. The world is going the other way.

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