Wednesday, December 17, 2008

Distrubing news from Newfoundland

This morning I read a report in the newspaper that the government of Newfoundland and Labradour is going to expropriate the assets of AbitibiBowater in the province. This is Danny Williams' response to the closure of the pulp and paper mill in Grandfalls-Windsor.

I do not even know where to begin with this.

Should the mill be operated if it is losing money? Should AbitibiBowater be forced to produce a product that is not enough demand? Will the province now run the mill at a loss?

It is wildly dangerous for government in intervene in this manner in the market. It kills investor confidence. Who is going to want to invest a couple of hundred million in Newfoundland if the government may suddenly take it away? There will be no private investment in pulp and paper in Newfoundland and this means the mills will get older and less efficient over time. They will not be able to compete.

I am also afraid of where this action will lead in the rest of the country. I expect there to he a dramatic rise in the demands from the left for the government to expropriate resource sector companies. I am afraid where it will lead the BC NDP and their approach to the economy.

The era of state ownership of business is thankfully over. I know there have been throw backs to the past lately, but this has been really all about government temporarily taking over the assets of bankrupt companies. State onwership was a disaster for the companies, reduced government income, and made the economy weaker in general.

I had thought Newfoundland and Labradour was finally out of the era of being Canada's welfare province, but it seems not to be the case. This reminds me of the dumb ass approach Newfoundland and Labradour took to Voisey's Bay.


Anonymous said...

“Should the mill be operated if it is losing money?” Absolutely not!
“Should AbitibiBowater be forced to produce a product that is not enough demand?” Absolutely not!

“Will the province now run the mill at a loss?” Absolutely not! Williams did not expropriate the mill.

Should AbitibiBowater be able to sell off assets belonging to the people of NL? Absolutely not!

Danny Williams has done what any good CEO would do and protected the interests of his shareholders.

In the past provincial governments have traded access to resources in exchange for employment. Companies and communities have shared in the positive benefits from this exchange. If a company is no longer able to provide benefits to the communities then control of resources must be returned to the province.

These resources may then be offered to others that may be able to put them to use to provide employment to the owners, the citizens of the province. If the markets for products made from these resources are not viable then leave the resources for future generations to benefit from.

The goal is not to compete or create the cheapest pulp/paper. The goal is to derive the maximum benefit to the province and its people from the use of its resources. If pulp & paper is not the best use of the resource then find another.

The first responsibility of a corporation is to act in the interest of its shareholders and to hell with the casualties and externalities.

If AbitibiBowater is not longer able to stand by their commitments made under the 1905 Lease agreement then I can see no reason why they should have future resources rights granted to them under the same agreement.

The logic of his decision is, in my opinion, elegant and sound.

"You came in with none of those resources, you leave with none of those resources, we wish you well." – Danny Williams

Bernard said...

I fail to see how this action by the Newfoundland government is going to do anything to improve the situation.

So now Newfoundland has made it impossible for AbitiBowater to re-open the mill when the time is right. No one else will step in to build a mill there when the risk of the loss of the resources is so high.

I am not sure what the government thinks someone will offer them for access to the resources. As long as Danny Williams is premier the government is going to get virtually nothing for the trees.

Gard Falls-Windsor is not going to see a return of these jobs or any jobs related to timber anytime soon.

The government is not going to get resource revenues and Grand Falls-Windsor is going to take a huge property tax hit.

I am shocked that no one is holding the union to account for their hard nosed approach to the situation. Did they think not having a mill was a good idea and would make life better for them?

Newfoundland needs to rid itself of Danny Williams as soon as possible because he seems to only be interested in making Newfoundlanders poorer than they are now.

Anonymous said...