Publisher's welcome:
Nortel's predictable plunge will hurt Canadians

Small investors and pension fund members lose big, 10,000 workers lose their jobs, but Nortel CEO John Roth got his tax cuts

By: Ish Theilheimer, Publisher, Straight Goods

  Back in the 60s, decades before anyone hated getting e-mail, a joke went around about a fully automated jetliner whose pre-recorded welcome to passengers ends in the reassurance "Nothing can go wrong, wrong, wrong, wrong..." At the time it seemed like a laughing matter.
  A year or two ago, Nortel CEO John Roth was Canada's political and economic darling. He and Nortel's stock seemed on an endless rise. They epitomized the high tech bubble that magically seemed to pull the Toronto Stock Exchange, the NASDAQ, and the Canadian economy along in their victorious train.
  But John Roth wasn't satisfied, and he spoke his mind well and often. "What frustrates me is Canada is such a great country to live in, but we sure have not created an economic climate to keep our top talent... and wealth creators here for the coming century," he told the Ottawa Citizen in November 1999. "Canada's certainly a good place to retire, (but) maybe not a great place to earn your living."
 

No one seemed struck by the irony that the head of a company built on federal contract work now calls for cuts to taxes and government spending

  Roth was everywhere in the news, but was most visible campaigning for tax breaks for millionaires. He spent a lot of time on the hector circuit, hectoring Canadians, especially politicians, about the need to cut taxes, spend money on technical education and less on humanities, and create special tax shelters for his own industry. He preached loudly and got heard at the highest levels on the virtues of tax cuts and the "new economy" and urging overhaul of government policy to stem a presumed brain drain.
  Both politicians such as Finance Minister Paul Martin and reporters paid close heed. "Roth deserves the Order of Canada (or some recognition, at least) for having the courage to say what many business leaders only think: that personal taxation levels in this country are such that some of our most talented people are being forced into financial exile," enthused Arthur Johnson in the May 28, 1999 edition of Canadian Business.
  None of Roth's admirers in the media or on the Hill seem struck by the irony that the head of a company built with much help from federal contract work now calls for cuts to taxes and government spending. Does everyone think Ottawa's high tech community developed where it did because of the climate? Coming from someone whose company descended from one of corporate Canada's biggest recipients of federal contracts - Bell Northern Research - his rhetoric might have been written off as self-serving, if not infuriating.
  Roth's vaunted brain drain of course, has turned out to be exaggerated. Statistics Canada pretty well disposed of it, as detailed by Richard Shillington last June at Straight Goods. StatsCan showed that four times as many university graduates are entering Canada as leaving for the US. Yet Roth's campaign had a telling effect on the national debate.
 

"You wonder what Time Magazine brainiacs were smoking when they cobbled Roth's myth" - Pierre Bourque

  Most of the policies he championed have been implemented. The Liberal's pre-election mini-budget last October cemented many of the corporate and personal income tax cuts Roth had been calling for.
  Since then, though, things have changed. The endless boom Roth and his colleagues proclaimed appears to have gone bust. Hardly a week goes by when an automaker, a hardware or software giant, or a major retailer doesn't announce massive layoffs, which, in turn, lead to many more layoffs. Last week it was Nortel's chance.
  The magic of Nortel, which propelled the markets upwards, has turned out to be more like a rainman's con game. The bald lying of Nortel management less than a month ago about the company's prospects, as compared with last week's news, only heightens the sense of betrayal. Meanwhile, 10,000 workers are going to fall off Nortel's house of cards with widespread ramifications for other workers, not to mention millions of small investors and pension fund members who went along on the ride.
  It wasn't exactly unpredictable. "Mr. Roth has presided over a catastrophic market capitalization devaluation to the extent that Nortel shareholders have lost a whopping $300 billion (US $ 200 billion) in value in less than one year," wrote Pierre Bourque on his website (www.bourque.org) last week. "You wonder what Time Magazine brainiacs were smoking when they cobbled Roth's myth... As one Bourque reader put it, 'Nortel has just extended the working careers of many of its stockholders.'"
  A year ago at Straight Goods, CAW economist Jim Stanford called it: "One day rueful people are going to wake up and realize that their shares in Nortel, JDS, and other hot companies are ultimately just pieces of paper ­ just as Germans quickly realized in the 1920s that they weren't rich, even though they had wheelbarrows full of cash. That will be the painful day when the bubble bursts." That day appears to have arrived.
  The boom was to be endless. The information economy was to dwarf smokestack industries and propel us ever upward, especially if taxes were cut, as federal and provincial politicians have rushed to do in recent years, at the urging of voices like Roth's. So what went wrong, wrong, wrong, wrong...?

- Ish Theilheimer
- Killaloe, Ontario
- Febuary 19, 2001
- ish@straightgoods.com

[ Front Page ]