
How Not to Build a Country: Canada’s Late Soviet Pessimism - molteanu
https://palladiummag.com/2019/09/19/how-not-to-build-a-country-canadas-late-soviet-pessimism/
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claudeganon
While the article is kind of slog in the beginning to establish its context,
this struck me as especially true/relevant:

“When innovative companies begin making decent profits, landlords raise the
rents to adjust for the new ability to pay. As a result, these additional
wages are neither reinvested, nor reflected in the disposable income of
employees. This is the dynamic behind the mystery of stagnant wages. When
workers in a particularly well-paid sector begin pouring into a city,
landlords likewise raise the rent to absorb these incomes. It isn’t
gentrification, but absorption through monopoly power.”

The housing affordability crisis is really a crisis of land owner cartels,
especially in major urban centers. Short of some massive investment in public
housing, there’s not much that can be done to course correct.

~~~
mieseratte
That’s not a cartel, that’s a free market. It’s not as if two or three
landlords run the show.

~~~
claudeganon
If you bother to read the article, it makes heavy reference to Adam Smith’s
opposition to landlords and their rent-seeking because of the heavy drag they
place on markets. They capture and enclose too much capital that could
otherwise be used for dynamic and productive investment. He was as right then
as he is now.

~~~
solidsnack9000
That does not describe a cartel -- it describes predatory pricing.

~~~
hn_throwaway_99
The cartel comes from the fact of how much wealthy landlords control local
governments, who then make it onerously difficult to build the amount of
housing that is actually needed. I don't know if this is the case in Vancouver
but it is absolutely the case in California, with its absurd cases of a run-
down laundry mat being declared a "historical property" to block
redevelopment.

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deskamess
""" But Canada is, and has always been, an oligarchy where the ruling
families—the Saputos, Demarais, Reichmans, etc.—have relied on their own
Brezhnevites to preserve their wealth by shielding them not just from
competition, but from any kind of change.

The key to acquiring wealth in this country is creating bottlenecks by
saturating public and private institutions with members of this class. """

So true. The general feeling that incompetence at these big companies has no
consequence.

The depresssing and true: """This is how much a developer should make. We’re
not paying a penny more."

Sorry to say, but tech is not valued in Canada by Canadian companies. American
companies operating in Canada have a better mindset.

~~~
xxxpupugo
> This is how much a developer should make. We’re not paying a penny more.

This almost reads as if there is a cast system, where there is place for
everyone to be comfortable with and shut up demanding more...

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seem_2211
Reading this as someone who has moved from New Zealand to San Francisco, the
parallels are depressing.

In New Zealand the price of housing has skyrocketed, and exists in a similar
plane to Canada's housing market. We have the same issues of low productivity
and relatively low wages as well.

There's a toxic cycle that's created. Boomers made all of their money in
housing appreciation, and heavily encourage millennials to continue the cycle
(which, taking the most optimistic view of it all, makes sense). But a house
doesn't cost 2.5x your income now - it costs 8-10x. So you're married to a
mortgage (which unlike America has its interest rate fixed for <5 years), have
probably got a lot of your parents money invested as well (because you aren't
earning enough to come up with a $200k down payment on your own).

Because real estate has 'proven' results, and the media make a lot of money
advertising houses for sale, that's a lot of what you get told to do. As an
individual you're so heavily indebted you can't afford to take risks, but at
the same time, companies aren't trying to improve their productivity - because
the best ROI has been in the property market. So wages suck too.

New Zealand is a bad place to be a young person. That's why I don't live there
anymore. And I don't think I'll move back anytime soon unfortunately.

~~~
laurencerowe
This generational change in house price to income ratios is also apparent in
Britain and supply constrained US cities. It can be largely explained by the
fall in mortgage interest rates from the 12-15% in the 80's to the 3-5% we see
in the 2010's.

This windfall provided a massive generational wealth transfer from young to
old, and with interest rates near the zero lower bound cannot be replicated.
This makes housing a far worse bet for our generation, even for those of us
earning sufficiently more than our parents to be able to take a shot at home
ownership.

~~~
seem_2211
100% agreed. It won't end well, and politicians being politicians (and voters
being voters), we're going to continue this mad show as long as possible,
ensuing we get the worst possible outcome here.

The weird bit is that San Francisco prices make _more_ sense than where I grew
up (suburban New Zealand). Sure a house in SF might cost $1.2m but two people
working in tech can expect to make $250-300k all in by their early thirties.
That's only $200k more than a house in New Zealand, but you're working with an
income that's easily 2x the size.

~~~
laurencerowe
A $250K household income is on the 96 percentile for San Francisco. Working in
tech gives us a slightly warped perspective.

Moving from Britain to the US I've seen the income of my profession as a
software engineer move from the 75th to 90th percentile and the variance of
the income distribution widen so an income of the 90th percentile earns 2.6x
rather than 2.0x the median. We're far richer here than we were at home.

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cperciva
_Landlordism in cities is (correctly) blamed for a worsening of income
inequality._

While I agree that landlordism tends to increase income inequality --
especially in the form Vancouver suffers, where protests convince the city to
reject the construction of new housing even when the land is already
appropriately zoned and the proposed building complies with the approved local
development plan -- but it's wrong to refer to a _worsening_ of income
inequality.

Income inequality in Canada increased substantially through the 1980s and
1990s, but it peaked around 2004-2007 (depending on exactly which measure you
use) and has been steadily declining since then.

~~~
mistermann
_Wealth_ equality on the other hand...

~~~
cperciva
Right, that's a completely different issue. (And much harder to measure, never
mind address. Even defining it is hard; do you count the NPV of pensions, for
example?)

~~~
mistermann
I don't see why you wouldn't. An easy way to see if something is valuable
(wealth), take it away from someone and observe their reaction.

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Mikeb85
This is pretty accurate. Rent seeking in Canada is at an extreme, monopolies
are maintained through excessive government regulation, cartels in real estate
as well as many industries are definitely a thing and almost the whole country
is under-employed.

Don't have a ton of time ATM but we're in dire need of deregulating a lot of
industries and breaking up cartels.

~~~
deskamess
Could not agree more! There is a general malaise and slowness in
companies/industries I have had to interact with (Telco, Banking).

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drevil-v2
Having lived through a Soviet inspired bureaucracy where the wait times to get
a phone line was years, getting a car could take up to 5 years; this article
is spot on. Eerily familiar. That same tingling of dread from decades ago
washed over me haha.

Everything was mandated by a bureaucrat, how many factories there could be,
how many goods they could produce. There was no concept of supply and demand,
instead there was five year plan from the central government and that was what
would be implemented regardless of the ground reality.

When people got a phone line installed in their house, the neighbours would
come over to marvel as if visiting a new born baby.

When my uncle got his allotment for a scooter after two years, he distributed
sweets to his co-workers. It was a great occasion.

~~~
cmrdporcupine
This part of the article was a bit silly -- Canada is nothing like this. I
feel like he tied his own experiences with late-soviet bureaucracy to his
frustrations with conservative Canadian business climate; but the two are not
analogous really.

Canada is a market economy with very low corporate taxes and when compared to
European economies regulation is actually very light. Our business norms and
regulations are tied in most part very closely to the United States.

But the investment culture is very conservative and the economy is tied
excessively to resource extraction.

And yes, there is a long history of a few families having strong dominance
over everything, and of businesses/companies gaining monopolistic positions
through regulation. An example of this is the wine industry in Ontario -- I
could go on a long rant about that... but I'll restrain myself.

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cmrdporcupine
Unfortunately it's deep in the Canadian business community DNA; the family
compact, the Hudson's Bay Company, whatever... Exempted from population
density, rapid growth, and revolutionary fervor of our neighbours to the
south, we were a place where colonial money could just sit and go stale.

It was the fur industry and logging then, now it's crappy oil from the tar
sands that sells for little more than it costs to dig it up; but nobody in
Calgary has the balls to admit it.

I have American friends who talk about Canada in glowing terms as a place
without the same corruption as the US. It's just a different kind of
corruption, that this article aludes to throughout.

And yes, nothing ever gets done. Everything goes over budget. Not a problem
confined to B.C. by any means.

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playing_colours
I am reading an interesting book now: Why nations fail
[https://en.m.wikipedia.org/wiki/Why_Nations_Fail](https://en.m.wikipedia.org/wiki/Why_Nations_Fail)

The author discusses that for a country to be successful there must be
institutions that encourage working hard and entrepreneurship. More, the
political system should be organised in a way that stimulates creation and
support of such institutions. The negative consequences for politicians
supporting oligarchy must be worse than for ones who introduces changes that
can improve lives of regular people.

My guess the problem is not in real estate speculations - it is just
consequences of underlying system inefficiencies.

I see Canada has good educational system, right? But as they say in the
article, there is not a lot of motivation and places for smart engineers to do
their best.

There are barriers to make changes in many areas like medicine, real estate
(based on the article).

The government seems to be in a situation where due to corruption and lobbies
it does not do appropriate changes. They know what to do, but they do not find
it good for them personally. Oligarchy wants to keep their positions
unchallenged.

It is just my guess and pure speculation, I do not know much about Canada.

EDIT: added more on concequences

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todipa
The success of a cities and nations has always dependent on a couple of
variables: 1\. Human capital (increasing size and quality) 2\. Cheap real
estate (ever decreasing share of real estate costs as an input of value
creation machinery) 3\. Cheap energy costs

In the U.S. and in most developed countries, we've had (1), in some cases (3)
but (2) is become scarce.

In my opinion, there are very few modern cities that are able to provide cheap
housing these days. It requires an activist government fighting two very
powerful forces: existing home owners and corporate landlords. Truth is that
the lobby of those interest groups are way more powerful than low income
renters.

The other problem is that expanding the housing stock is not sufficient,
governments have to provide basic services: water, public transportation
access, sewage, etc.

Who is going to pay for them? In most cases, the cost is paid via property
taxes (existing homeowners and corporate landlords)

The truth is that we have disincentivized the creation of new housing stock
and until we fix the underlying issues of bringing more supply to the market,
this issue will continue to worsen.

[https://www.zillow.com/research/new-construction-
shortgage-2...](https://www.zillow.com/research/new-construction-
shortgage-20991/)

~~~
seem_2211
I don't agree. Coming from NZ to America, I am amazed at how cheap housing is
(outside of a few select areas - California, New York and a few major urban
metros), and the fact that you can fix your interest rates for the length of
the entire loan. America has many problems - and California definitely has a
housing crisis, but that's not true for the country at large.

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cmrdporcupine
I feel like Kevin O'Leary's boat crash (with fatality) on the Georgian Bay
last month is a metaphor for the entire country's economy:

Arrogant baby boomers driving around in luxury in the pitch black night, with
the lights out, running into each other on the lake -- and then shirking all
responsibility.

~~~
ant6n
For a moment I thought the witch is dead, turns out O'Leary wasn't one of the
victims.

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kashprime
A pretty accurate but damning portrayal of the economy in Canada. I wonder how
smaller but more successful economies like Sweden or Israel manage to
consistently build great companies?

~~~
AdrianB1
Usually it is not because of, but in spite of their governments. With the
mention that Israel has some great companies, but Sweden is on a strong
descending trend.

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Mountain_Skies
If supply proves too difficult to increase, why not try reducing demand? Or
course that would be unpopular with the infinite GDP growth folks but sooner
or later will have to be confronted. Seems like the entire political spectrum
supports infinite growth even if it manifests in different ways in different
political parties.

~~~
teunispeters
A good way to reduce demand is to both vastly increase the amount of identity
reported in real estate (especially for out of country buyers) as well as to
have foreign ownership taxes.

it would crash the BC economy hard though. There's very little left there that
isn't driven by foreign purchases. (quite a lot of it illegal in their home
countries, eg the USA)

~~~
TMWNN
I thought money from China (legal and illegal), not America, was driving BC
real estate.

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thinkingkong
One interesting solution to home ownership and rent seeking might be to spread
the rent increase revenue around. In BC at least its common to disallow
sublets. Whereas in NY its more or less allowed by law. This means as the rent
goes up, land owners are the only ones who have the ability to make money.

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bryanlarsen
We're in the middle of an election right now and housing is an important
issue. However, most promises will make things worse rather than better. For
example, the Conservatives' plan to allow thirty year mortgages will do more
to increase prices and indebtedness then to lower payments.

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cperciva
I'm honestly not sure which is worse, the Conservative plan to allow 30 year
mortgages or the Liberal plan to have the government loan people money for
their downpayments...

~~~
cheez
Both plans seem geared to draw the votes of current homeowners, also more
likely to vote in elections.

~~~
cperciva
I agree. And it makes me sad that parties are deliberately adopting policies
which they know are bad policy (they hire economists who tell them this!)
because they prioritize electoral success over doing what's good for the
country.

~~~
cheez
The better solution is to get more people involved in politics, then we will
realize that if everyone votes, no one benefits therefore government should be
limited.

I can dream....

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corodra
Y'all don't know the meaning of cartel. It's being thrown around here like
beads at mardis gras. I'm just sure I don't want to see most of you without
shirts on.

A cartel is an agreement between organizations/people _throughout a supply
chain_. Landowners twisting their mustaches and rubbing their hands together
do not make a cartel. Rule of thumb, at least 3 steps in a supply chain. What
they would be, is a trust. They're at the same level of the supply chain
working together. If you're going to cry "late stage capitalism", for fuck's
sake actually know how capitalism works and how to cheat the system properly.
There are rules on how to cheat in capitalism. A 10 minute youtube video won't
do that for you or the rantings of a crazy frenchman.

~~~
dredmorbius
Citation requested.

Counterpoint, definition 2:

[https://www.merriam-webster.com/dictionary/cartel](https://www.merriam-
webster.com/dictionary/cartel)

