Wednesday, August 25, 2010

The Truth Doesn't Always Show Up

I recently read Harvey Cashore's book The Truth Shows Up, and was fascinated by the amount of attention he'd given the story of Karlheinz Schreiber and Brian Mulroney. So when I came across the Executive Summary of the Oliphant Report (the handier version of Commission of Inquiry into Certain Allegations Respecting Business and Financial Dealings Between Karlheinz Schreiber and the Right Honourable Brian Mulroney: Report Volume 1: Executive Summary (opens a pdf of the executive summary)) I had a little bit of background to make some sense of the book.
    Back in the day, Airbus Industries was desperately trying to break into national markets held almost exclusively by Boeing Aerospace, and one of those markets was Canada. Specifically, Airbus wanted a chance to provide AC with the new aircraft it required. This would give them some legitimacy in the North American marketplace. In order to get to Air Canada, Airbus first cut a deal with Max Ward's Ward-Air. Max Ward wouldn't have purchased the aircraft on offer from Airbus, but for a sweetheart of a deal they offered him, making it impossible to turn down. This led to Airbus being able to approach Air Canada and pursue a deal. Air Canada ended up buying from Airbus a number of unsuitable aircraft, which were eventually sold to the Canadian military who neither needed nor wanted them, but the deal allowed AC to get out with a minimum of financial loss. But the poor old Canadian taxpayer ended up being stuck with the bill, as usual. And Airbus, having broken into the market, has since gone on to great success.
    In order to cut the deal, Airbus relied on Karlheinz Schreiber, who developed significant relations with members of the Conservative Party establishment in Alberta and, ultimately, across Canada. Schreiber dispensed large amounts of cash to various and sundry war-chests (both to individuals and to the parties) in order to curry influence and favour. And it worked. Eventually he became tight with the lawyer from Baie-Comeau; Brian Mulroney.
    During Brian's rise to power, it was reported by various sources that his win against Joe Clark at the PC leadership convention in 1983 had been managed by flying and/or busing in large numbers of "instant delegates"; people who had never been members of the Progressive Conservatives, but had their memberships paid for just in time for them to vote at the convention. Karlheinz Schreiber has since claimed  that it was his $50,000 contribution that paid for those" instant delegates" and their transportation to Winnipeg. Whether this happened or not has never really been investigated (Clark actually came out against anyone following up on these reports, feeling, I would suppose, that confirming the rumours would tar the Progressive Conservative Party as a very sleazy operation). Oliphant, in the Report, actually addresses this story, remarking that he was "struck by [Schreiber's] proclivity for exaggeration as he described the nature of his relationships with people, particularly those in positions of influence and power. Furthermore, with respect to Mr Schreiber's testimony regarding the leadership review, there is no evidence on which I was able to rely to support this testimony. Because his evidence is self-contradictory, I found Mr. Schreiber's evidence respecting the leadership review to be unreliable." (page 8, Report). Mr. Cashore, in The Truth Shows Up, suggests that there might be a bit more to this story, and at the very least it should be pursued. After all, the suggestion that a foreign national (as Mr. Schreiber was) may have influenced the outcome of the Canadian political process might be something to look into. But I do understand the reluctance of the Canadian political establishment to pursue the issue, as it might actually expose the tremendous influence wielded by the US political right since, well, forever, but particularly the last thirty or so years. In particular, the seed capital for the Alberta (later Western) Report and the impetus behind the birth of the Reform Party.
    But even more interesting is Oliphant's commentary on the source of the $1000 bills Schreiber passed to Brian Mulroney on three separate occasions.
    The issue of where the money came from is important. Airbus has acknowledged that they did use schmiergeld (slush or bribe monies) when dealing with foreign governments around the time of the sale of aircraft to Air Canada. There still remain questions around the AC sale--was anyone paid off, if so, how much, and who received the schmiergeld. This is the question that has been haunting Brian Mulroney since his time in office. Did a sitting Prime Minister take a bribe from a sleazy representative of a foreign firm--something we might expect from a banana republic, but surely not in a nice developed-world liberal democracy like our own.
    Both Mulroney and Schreiber agree that yes, Brian was paid significant cash money to do something. But they don't agree on how much or just what services were rendered for the money. Both agree that Brian was doing work hyping the "Bear Head" project for Thyssen (a German arms manufacturer looking to establish a manufacturing facility in Canada in order to be able to export weapons to countries off-limits to German based companies). But it is clear in the Oliphant Report that Brian did nothing on the Bear Head file to earn somewhere between $225,000 and $300,000.
    Oliphant's Report agrees that Mulroney was paid out of an account coded "Britan," but is very clear that it is impossible for this account to have funds from Thyssen in it. Rather, the Report concludes that the "funds that made up the Britan account can be traced back to commission payments made to IAL by Airbus Industries in connection with sales of aircraft to Air Canada." (page 23, Report) Harvey Cashore's book on the topic delves a lot deeper into the question of Schreiber's accounts and the source of the funds in them--and where those funds eventually went. Such as how much went to Frank Moores and Mulroney confidant Fred Doucet as well as to Brian.
    But Oliphant could not pursue the question of Airbus during the Inquiry. The mandate of the Inquiry made it clear that Airbus was off the table, so seeing Brian paid out of the "Britan" account, and clear evidence from the forensic accountants that the money in the "Britan" account came from Airbus made no never mind. Oliphant couldn't pursue the question.
    But what does it matter anyway? In Germany, very connected and powerful people have ended up in jail over Airbus' actions. In Canada, a former Prime Minister has had his reputation tarnished (and honestly, could it be any blacker than it already was?). And as far as the public is concerned, the story is about over. We paid Lyin' Brian just over two million dollars for damage done to his reputation--even though he's admitted that he did take money from Schreiber after all. Questions of undue influence in Canadian politics by foreign nationals have been tabled. And whether government officials were bribed or not are to be ignored. the status quo, after all, is sacrosanct in Canada.

Commission of Inquiry into Certain Allegations Respecting Business and Financial Dealings Between Karlheinz Schreiber and the Right Honourable Brian Mulroney: Report Volume 1: Executive Summary
The Honourable Jeffery J. Oliphant: © Minister of Public Works and Government Services Canada 2010

The truth shows up : a reporter's fifteen-year odyssey on the trail of Brian Mulroney and Karlheinz Schreiber
Harvey Cashore Toronto : Key Porter Books, ©2010.

Monday, August 23, 2010

Building Stuff--and Societies

    In the Globe and Mail (Monday, 26 July 2010, pp A1, A8) Douglas Saunders writes about Birmingham, England and the current economic conditions there. His way in to the story is through a small manufacturer, The Acme Whistle Works, which he describes as "an anachronism: a bustling, noisy Victorian factory" . Saunders reports that although employment at the factory is only 68 people, it is the district's second-largest employer. The current international economic crisis has hit Britain's industrial cities even harder than the rest of the county (currently, unemployment in Birmingham is running at about 10.8% overall and 15.4% for men (at least officially. Actual unemployment usually runs much higher than the official statistics)).
    The reason for this is fairly straightforward, and something I've written and talked about before: the hollowing of the economy by exporting manufacturing jobs overseas. At the end of 2008, as the international monetary system came within a whisker of crashing (a situation not yet avoided--see Spain and Greece), there was an outburst of anger over the bailout of the North American auto sector. I argued then that bailing out the auto sector was a very good idea--without the jobs connected to auto-making (well-paid, unionized jobs) it might well crash the Central Canadian economy and, by extension. the national economy as well. Stephen Harper held his nose and approved the bailout. This was the right thing to do; the loans provided a needed boost of confidence in both the manufacturing and financial sectors, and GM has apparently already paid off their line of credit with the Canadian government.
    Douglas Saunders, in his report in the G&M, describes what happened in the manufacturing centre of Birmingham: the removal of government support for the manufacturing sector (not only financial support, but political support; where there were no trade missions selling British products abroad, but also a campaign suggesting that manufacturing had no future in England, which had the effect of removing private sector financial interest in manufacturing), and the expansion of government support for knowledge, finance, and service industry at the expense of manufacturing (replacing rather than supporting the sector). The Labour governments of the day under Blair and Brown poured billions of pounds into "urban rehabilitation," kick-starting the New Economy in places like Birmingham.
    There was a problem with the New Economy, but for 15 years the boom times papered it over. The benefits of the New Economy don't spread through society like the benefits from a maker economy do. To quote Doug Saunders: "Eighty-five per cent of the employment created during that recovery took the form of government jobs, jobs in privatized, former government sectors, or jobs in the service industries that provided for government. At its heart, Birmingham didn't have an economy of its own--its boom was mostly just poor service jobs and government spending."
    Manufacturing jobs, particularly unionized ones, move working-class people into middle-class tax brackets, and spark a propagating wave of consumer spending and wealth creation. Service jobs don't. Service jobs are a race to the bottom, halted only by minimum wage laws. That's why the "Asian Tigers" went after the manufacturing sector--it generates wealth. Knowledge and financial services also generate wealth, but for a much smaller portion of society, and when combined with a decline in manufacturing and a rise in outsourcing,  exports the broad wealth creation as well.
    It's all well and good to talk about upgrading the workforce to participate in the "New Economy." But it overlooks the fact that so much of the workforce is  male and (at best) high school educated. A quick scan of YouTube shows that these people aren't stupid--building a pulse jet and attaching it to a go-kart or kayak may be insane, but you can't be stupid when you do it. But what we are is monkeys, and as such, we like to muck about with our hands. We make things. Things from sticks to pull termites out of their nest so we can eat them, to backyard, Volkswagen-launching trebuchets with no purpose at all except to throw cars around.
    But with the export of manufacturing to progressively lower-waged countries, no one has yet explained to me where the new broad-spectrum wealth creation is supposed to come from.  If I design something cool, I'll send it off to be manufactured in a low-waged economy, and then it will be shipped back here for people to buy. But that generates wealth for me, but not a lot for the rest of my fellow citizens. Retail sales of the whatever generate wealth at the top and minimum wages at the bottom. I hire a maid and a nanny, I don't pay manufacturing job wages, I import low wage help from overseas. Nowhere in that system is there a middle class--there are only the rich and the poor and a small group of hard-core hustlers who want to become rich.
    Yet it is the nation of shopkeepers and small businesses (remember, in Canada small business is rated at under one million a year in sales) that generate a middle class, and its a middle class that generates demand for middle and higher margin items.