Arbitrage Magazine - December 2010 - Internet Version

The Whole World is Greying

Driving Our Demographic Destiny

Canada’s Retirement Plan

DECEMBER 2010

the

the

the

SNAKE, RABBIT and STOCK MARKET

BALANCING THE STRAINS OF TIME: Canada’s Prospects For Its Aging Workforce

Demographics is

DESTINY

LEARN MORE! CLICK HERE!

DECEMBER 2010 Editor-in-Chief+CEO David Alexander Board of Director Samita Vasudeva Garin Kilpatrick

MAGAZINE PRODUCTION TEAM Managing Editor Section Editor Writing Staff

Writer-At-Large

Kevin Kang Saif Quershi David Tal Pawan Shamdasani Alfred Yim Victoria Chau Luis Fernando Arce Troy Redick Nicki MossavarRahmani

Contributor

Rabeea Wajeeha Sushil Tailor Alex Vo Michael Moretto Charles Dreezer

Art Director

Ryan Trinidad

Design Staff David Tal Luis Ernesto Rojas Gonzalez Akil Worrell Jennifer Lee Mary Zhao Trishaala Ninan Laura Gonsalves Katie L. Serensits

ARBITRAGE SUPPORT STAFF Director HR

Rabeea Wajeeha

HR Coordinator

Natalie Sekiritsky Amritha Godishala Sakthi Subas Andrei Dias

Marketing Staff

Sushil Tailor Catherine Chen

Web Designer Accountant

Fu-Chieh Yao

To the Arbitrage Community, With the release of our fifth issue, the Arbitrage Magazine has taken another giant leap towards maturing as Canada’s largest, student-run business magazine.

The growth that we recently experienced has been phenomenal—all thanks to our dedicated staff and you, our curious readers.

Within the organization, the hunt for fresh talent carries on. With our new batch of promising writers, editors, designers, marketers and core support staff, the ARB will continue to evolve and bring you pages upon pages of tasty food for thought.

Also, from this point onward, David Alexander, the founder and now former Editor-in-Chief of the ARB, will take on a more strategic role as Chief Executive Officer. I will succeed him as the new Editorin-Chief, and together, we plan to make the Arbitrage a bigger, better and bolder read for students.

To keep up with such an insightful and well-packaged product, the marketing team has been working even harder to bring the ARB to the student population. Our recent marketing event at York University was a huge success and helped us connect with readers on a more intimate level. We look forward to visiting many more campuses in the near future.

For now, sit back and dig in as we explore the impact of shifting demographics around the world. People are the heart of every economy and as the population undergoes dramatic changes within the next decade, the world of the future will undoubtedly be affected. Browse through the magazine and leave your two cents in the comment box on our re-vamped website. We want to hear what you have to say!

Also, stay posted for the next issue, where we will continue to delve into important—and potentially disastrous—trends that will reshape our world. You can count on the ARB to shine a light on the not-so-distant future of business.

Enjoy the read!

Junwen (James) Wu

Kevin Kang Editor-in-Chief Arbitrage Magazine Email: kevin.k@arbitragemagazine.com LinkedIn: http://ca.linkedin.com/pub/kevin-qingyuankang/17/729/418

LEARN MORE! CLICK HERE!

Features 8 BALANCING THE STRAINS OF TIME

Canada’s Prospects for its Graying Workforce

22 DRIVING TO OUR DEMOGRAPHIC DESTINY

12

Smoothing The Demographic Curve To A Healthy Economy

36 THE SNAKE, THE RABBIT AND THE STOCK MARKET

Will the Boomers Cause the Capital Markets to Crash?

48 THE WHOLE

WORLD IS GRAYING

24

A Social and Economic Analysis of the World’s Major Economies: Japan, China and the United States

56 52

58 CANADA’S

RETIREMENT PLAN

What to Do Now that Canada’s Getting Older

33 December 2010 ArbitrageMagazine.ca

5

Source: flickr.com/h.koppdelaney

TRENDS Demographics is destiny. Within ten to twenty years, almost a third of the North American and European population will be considered senior citizens. This massive shift will change the world. From the markets and industry to work and entertainment, no aspect of our lives will spared.

The following feature articles peppered throughout this edition of the Arbitrage will delve into varying facets of life this trend will touch. Get ready to be afraid, then get excited.

IN THIS SECTION… 8 BALANCING THE STRAINS OF TIME

22 DRIVING TO OUR DEMOGRAPHIC DESTINY

Click to learn more & join us!

36 THE SNAKE,

48 THE WHOLE

58 CANADA’S

THE RABBIT AND THE STOCK MARKET

WORLD IS GRAYING

RETIREMENT PLAN

Canada’s Prospects for its Graying Workforce By: Saif Qureshi

here is a change that is occurring in our society; one that’s enormous, yet inconspicuous.

You can see it on the sidewalk, hear it on the radio, and feel it in the people around you.

Slowly, the world’s population is aging. It is only a matter of time before this shift in demographics will prove itself as one of the most powerful forces shaping the social and economic landscape of the near future.

A large part of our aging population can be attributed to the “baby boom generation” (referred to as baby boomers). After WWII, there was a spike in birth rates across several of the Allied countries including Canada, because the soldiers returned home and there was optimism in the air. Couple that with the fact that Canada’s natural

growth is also shrinking and the effect becomes more pronounced.

In the past few decades, birth rates have been declining in developed countries due to factors such as rise in wealth, education and urbanization. The fact of the matter is that the baby boom generation did not have many children or even grandchildren. Along with that, higher life expectancies have also sped up population aging.

Jump to today, and the outcomes of these demographic shifts are starting to become more visible in Canada. Many baby boomers have reached their 60s and are now starting to retire. The effects of this are great as baby boomers have made the majority of our workforce for the last 30 years, and losing them means a massive decline in human capital.

On the bright side, the reduction in the labour pool will lower unemployment.

The massive retirement of boomers is going to be a wonderful opportunity for all the young and upcoming graduates in the next few decades, as there will be many job openings.

Within 10 to 20 years there will be systemic labour shortages in Canada.

Job Market According to Statistics Canada projections, by 2030, 1 in 4 Canadians will be of age 65 or over–higher than the percentage of seniors in Florida. In another study, about 1 out of every 5 workers in Canada was close to retirement in 2007. This means that every year approximately 3.6 million people

December 2010 ArbitrageMagazine.ca

9

Companies that don’t harness this knowledge will have to discover it all over again, wasting precious time.

10 ArbitrageMagazine.ca

who are leaving the workforce will have to be replaced.

This number will grow every year. If current government policies and general trends continue, chances are that very soon there will be more workers retiring and less young graduates who can fill their places because of the decline in birth rates.

In an interview with the Arbitrage, Tony Fang, Associate Professor of Human Resources Management at York University, says, “Within 10 to 20 years there will be systemic labour shortages in Canada. In the short term, graduates will feel the pain of the recession but in the long run there will be dramatic changes in the labour market. Organizations and labour force participants that can capture these trends are most likely to succeed.”

If population aging continues as predicted, the picture will likely be much different than what it is now.

Students will graduate from university in the subject they love most, as jobs will be available in most industries. They will get an entrylevel job in the company of their dreams, and within five years they will become one of the company’s most senior and skilled employees.

Next they will be managing several of the company’s large projects with several people working under them. To add to this, most of their friends and peers will be in a similar position. Within 10 to 15 years this could be the new reality of the job market.

However, besides population aging it seems there will be other factors affecting the labour market.

“Certain factors will slow down labour force shortages,” says Fang. “Those factors include economic slowdowns (recessions), productivity growth with the advancement of technology (automation of different jobs which will substitute for labour) [and also] the outsourcing of jobs to low cost countries such as China and India.”

December 2010

Nevertheless, Fang thinks that labour shortages will occur.

“Based on several studies done in the US,” says Fang, “[they] will be short of 10 million workers in about 10 years. But the shortage is not just about numbers but more about a shortage of skills or skilled people who are in large demand.”

“In the past you could get a high paying job in manufacturing, retail [or] trades. But [now] this is too good to be true. Now it’s harder to get a [good] job with a high school education because these types of jobs have moved to China or India.

And well-paying union jobs are being lost in big numbers.”

So even though many boomers who are retiring spent their entire careers in industries such as the trades, retail and manufacturing, there will be fewer jobs in these areas in the future, whereas jobs in the service industry will increase.

Ultimately those with more education and a higher level of skills are more likely to succeed in the labour market of tomorrow.

There will also be more jobs in industries that are going to grow due to an older population. These include industries like healthcare and financial planning. As more boomers start to enter their sixties or seventies, they will require more medical assistance and drugs, which means more jobs in places such as hospitals and pharmaceutical companies. Doctors, nurses, physiotherapists and pharmacists will all have plenty of work.

Careers in the financial industry will also be growing. With the number of people entering retirement on the rise, these people will turn to financial advisors to manage their retirement savings and other personal investments.

Many boomers might want to withdraw their money and put it into more short-term low-risk investments that are more in line with their personal objectives.

Choosing Your Path Radical changes are coming to Canada’s labour market. So knowing all this, what education and career path should students pursue today? To answer this question, the Arbitrage interviewed Monica Belcourt, the Director of the School of Human Resource Management, and a Professor of Human Resources Management at York University. Her other accomplishments at York include being the founder of the largest HRM program in Canada, and creating Canada’s first Bachelor of Human Resources Management degree.

“I would advise students to choose careers the way people have been doing for generations,” says Belcourt. “What do they like to do? What professions really appeal to them? What are their strong skills (e.g. Math, English)? If they won a million dollars, what education routes would they choose?”

These are the sorts of questions that students need to be asking themselves. “If they have difficulty answering these questions, then I would advise them to book an appointment with a vocational counsellor,” says Belcourt. “Every university has psychologists in the career centre who can help answer these questions. Then, once a career choice has been identified, go to the Stats Canada web site, and discover what are the employment trends for that job.”

She further explains that “those entering the workforce today can expect to work for about five or more decades, so it is impossible to predict employment trends for that period (and even harder to advise which degree to choose), so that is why I recommend starting a career path by choosing jobs/professions that you LIKE to do, rather than what you or experts think will be jobs with high employment rates.”

Another option that few people think about is entrepreneurship.

As the population of older people increases, there is a lot of potential for doing business in areas such as medical and healthcare equipment. "If you have parents or grandparents who have special care or might need it now," says Michael Reitz, a division president of Genesis ElderCare Centers, "ask yourself what service or product you could offer that would make life at home better for them."

Experience is Key The aging workforce is creating new opportunities for older workers. Survey results from the US show that some older workers are thinking about delaying their retirement. Two major bear markets in the past eight years, combined with the splurging habits of the boomer generation, have left very little in their wallets. However, the positive part is that the labour market will need their skills and experience in the upcoming years.

Research shows that productivity levels are the same amongst older and younger workers. The only difference is in physical ability. Thus, it becomes in the company’s best interest to overcome the age bias in the labour force and develop a reputation as a matureworker–friendly organization.

Based on this knowledge, companies are trying out new strategies to retain their older employees past the traditional retirement age.

Part-time work and flexible work arrangements are one solution.

Older employees can work less hours or work on a project-to-project basis in a consulting role. This will ensure that their human capital remains intact while at the same time they are more comfortable.

Monica Belcourt’s vision of the future workplace is similar. She says, “The old model (going to an office, working for a company for a decade from 9 to 6 daily) will be obsolete. With technology, workers will now choose or negotiate

contracts with employers that are project based ...not based on location, or face hours. Workers will choose, when, where, how and with whom they will work.”

She adds, “Assignments, short term contracts and projects will be easier to find. Basically, there will no longer be ‘cradle to grave’ employment.” Old and young workers alike will be following this model in the future, and because the nature of work is changing, it will make it easy to “hire” older workers for short-term work.

To solve the problem of older workers’ often outdated skills, companies are providing additional training to older workers to help them deal with these changes.

Companies are also realizing the advantage of having a multigenerational workforce. Younger workers usually provide more energy and enthusiasm while older workers provide experience.

Companies such as General Electric are leveraging their workforce’s capabilities by creating mentoring relationships between older senior-level employees and younger employees.

There is also the fear that the knowledge that older workers possess, such as how to do their jobs effectively, will be lost once they leave the company. Companies that don’t harness this knowledge will have to discover it all over again, wasting precious time. To increase the company’s knowledge base and productivity, organizations like the World Bank are creating videos and audio recordings of employees in challenging projects so that they can be used when needed for reference.

Solutions like these will help companies to deal with masses of older workers who plan to retire.

For older workers, however, it means increased opportunities and a gradual retirement which eases their financial burdens.

December 2010 ArbitrageMagazine.ca

11

More Opportunities for Immigrants One area in which the Canadian government needs to step in is immigration. As the economy continues to grow, Canada will need more workers and will have to rely on immigrants to fill the void.

“I think we will continue to see changes in immigration policies that favour qualified workers over family members for the immigrant quotas,” says Belcourt. “As you know, a key issue continues to be that Canada certainly is capable of attracting qualified immigrants (doctors, engineers) in areas that we have need; Canadian employers, however, seem to have difficulty recognizing, appreciating, and paying for the education and work experiences acquired in other countries.”

She further explains, “Some not-for-profit organizations, such as Career Edge, or TRIEC, have been quite successful at creating programs that allow employers to ‘test’ immigrants for a year. In nearly every case, the immigrant, given a chance to prove himself in a Canadian workplace, receives a job offer in his field, commensurate with his qualifications.”

However, with big shortages coming in the labour market, all this should change. Canada will have a shortage of not only workers but also skills. New immigrants will be able to fill these needs and employers will be more willing to accept their qualifications.

The Silver Lining After emerging from one of the worst economic downturns in the century, it is hard to be positive about anything. With an unemployment rate of 8.1%, it seems even harder to imagine that we will be facing a labour shortage in a decade. However, economists are certain that this is cyclical and in the upcoming decades the workforce will be too small.

12 ArbitrageMagazine.ca

Younger workers and those currently preparing to enter the workforce should take advantage of this knowledge by looking towards more education. In the coming years, higher-skilled jobs will grow, whereas low skilled jobs will decline, meaning that despite the shortage of workers, employers will be looking at candidates who possess those skills that are needed.

The boomers need to prepare for the new labour environment also by upgrading their skills. How-

December 2010

ever, the workplace needs to adapt more towards them. This means that employers need to create flexible and more viable opportunities for older workers so that they are comfortable in their jobs. Employers also need to focus on retaining this human capital before it’s too late or else they will be losing their company’s most precious assets.

Although there are plenty of opportunities that will arise in the coming decades, it’s up to the members of the future workforce to be ready to grab them.

EMPLOYMENT:

INTERVIEW:

SUBMISSIONS:

OTHER QUERIES:

At present, we are ACTIVELY searching for new writers, graphic designers, marketers, communications and sales staff to work for the ARBITRAGE, Canada’s first, national, student-run business magazine. If interested, please send a cover letter, résumé (and sample of your work if you’re a writer or designer) to: hr@arbitragemagazine.com

ARBITRAGE editors welcome submissions from writers and photographers. Ask for details: submissions@arbitragemagazine.com

If you are a business student of merit, a professor or industry professional, and you are willing to graciously lend your time to be interviewed for one of the ARBITRAGE’s future columns, please contact: query@arbitragemagazine.com

query@arbitragemagazine.com

LETTERS TO THE LEGAL NOTE: EDITOR: Suggestions? Kudos? Criticisms? The ARBITRAGE welcomes Letters To The Editor. They must be signed and include city of origin.

Email: letters@arbitragemagazine.com

All letters or pictures submitted may be published by the ARBITRAGE, unless expressly forbidden by the sender. Names will be withheld on request.

The ARBITRAGE cannot be held responsible for the return of unsolicited material. All submissions may be edited for punctuation, grammar, style and length. Not all material may be published.

INTERNATIONAL AFFAIRS

18 GOOGLE VS

CHINA: THE LOSERS AND THE LOSERS

Google’s Showdown with China Comes to a Head

19 HOW IS CANADA GOING TO HANDLE THE DEBT FROM BABY BOOMERS IN 2020

20 AFFIRMATIVE

27 CANADA'S

Are We Losing the Fight Against Workplace Discrimination?

FINANCE & ECONOMICS

ACTION: DENIED!

21 WINDS OF CHANGE

Competition, Choice and Consumerism in the Canadian Wireless Market

Baby Boomers Drive Up Debt

14 ArbitrageMagazine.ca

December 2010

ESTIMATED POPULATION

30 DEMURRAGE

The DNA of tomorrow’s financial system?

34 THE 5 GREATEST INVESTORS OF ALL TIME

And the Lessons that Led Generations of Investors

Inter

35 TAKING AIM AT WALL STREET

Obama’s New Legislation Aims to Sweep Up the Financial Mess ENTREPRENEURSHIP

44 BUILDING YOUR BUSINESS

The Tips You Need To Succeed

47 INCORPORATING YOUR BUSINESS

Protesting the G20 Summit

PERSPECTIVES

STUDENT CO.

56 CANADA’S

64 CAREER

FISCAL SPENDING OUT OF CONTROL

Conservatives’ Fiscal Reputation Under Siege

57 PLAYING A

RIGGED GAME

Who Really Wins in the Financial Markets?

SPOTLIGHT

Financial Consultant: Where Can Your Career Take You?

68 BREAKING IN TO BAY STREET

Fellow Students Share their Stories About Making It BigHealthy Economy

70 TORONTO'S ESTIMATED POPULATION

December 2010 ArbitrageMagazine.ca

15

Source: lh6.ggpht.com

INTERNATIONAL AFFAIRS With an increasingly globalized world, issues that were once isolated in a tiny part of the earth are now everybody’s problem. On one hand, it becomes overwhelming to learn of the challenges our world faces, but on the other hand, learning about the world’s challenges is the first step to helping us tackle them together.

From demographics to affirmative action to a battle between Google and China, this edition of the Arbitrage will help explore the pressing issues of our day.

IN THIS SECTION… 18 GOOGLE

19 HOW IS

Click to learn more CANADA’S & join us!

20 AFFIRMATIVE 21 WINDS

VS CHINA: THE CANADA GOING ACTION: DENIED! CHANGE LOSERS AND THE TO HANDLE THE LOSERS DEBT FROM BABY BOOMERS IN 2020

ESTIMATED POPULATION

by Five-Year Age Groups, 1972 - 2008

35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 OF 5,000,000 CANADA'S

70+ 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34

27

Source: Statistics Canada estimates

1972

1974

EXTIMATED POPULATION

1976

1978 1980 1982

1984 1986 1988

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

25-29 20-24 15-19 10-14 5-9 0-4 AGES

International Affairs By: Sushil Tailor, Staff Writer

Google vs China: The Losers and the Losers Google’s Showdown with China Comes to a Head

t was 1989 when 10,000 students and intellectuals marched in Tiananmen Square for reform against the Communist Party of China.

The protests eventually culminated into the government retaliation of June 4th, when a lone scholar was photographed standing in the way of an enormous government tank.

This iconic photo became known to the world as “Tank Man.” Yet despite what had happened, Tank Man is little known about nor seen in China, particularly amongst the young. Such an ironic situation begets the question, “Why?” The People’s Republic of China is known for its censorship regime known as the Golden Shield Project, often snidely referred to by Western nations as The Great Firewall of China. Internet content that is deemed against the favour of the ruling Communist Party is censored. Dissent is also disallowed, resulting in Internet forums being held liable for what their members post.

Thus, Tank Man had been censored and prevented from being seen by Chinese citizens.

Today, websites that operate in China or wish to have a presence in China must either comply with censorship regulations, or be censored.

Known as a proponent of free speech for both ethical and practical reasons, Google faced criticisms from the press and internet users for succumbing to Chinese censorship rules.

In 2009, a cyber-attack, dubbed Operation Aurora by security

18 ArbitrageMagazine.ca

experts at McAfee Labs, took place.

It attacked a variety of companies which had a physical presence in China such as Adobe, Apple, Microsoft, and Google. Google alleged that Chinese hackers tapped into the Gmail accounts of Chinese human rights activists and then proceeded to attack their corporate infrastructure.

The combination of this attack and public dissent led Google to strike back and announce that it would stop censoring its search results in China. It then followed through by shutting down its Chinese domain and redirecting users to the unfiltered Hong Kong portal.

"This was no surprise to Google when they first entered the Chinese search engine market in 2005, and as required by law, Google censored their own search results. " In turn, the Communist Party of China accused Google of colluding with US intelligence and a standoff between the two giants ensued.

The government began to put companies that had contracts with Google under pressure to break them. They also threatened to not renew Google’s internet content provider’s license.

Among Chinese citizens, some supported Google, whereas others boycotted the search engine and instead used Baidu, China’s dominant search engine.

December 2010

Google’s supporters were largely Chinese academics and the business community, who needed Google’s services for work.

Google simply provided access to information and research that Baidu did not.

In a survey conducted by the science journal Nature, it was found that 80% of Chinese academics regularly used Google to search for academic papers and that 60% used the site to stay on top of research. Google Docs and Gmail had also been censored, which resulted in plight for small businesses which relied on such free cloud computing and email services.

Who won in the end? Arguably, no one.

For Google, China is a massive market, and by backing out they would lose out on ad revenue.

For China, Google pulling out of their market would result in greater cultural isolation, which was not what the government had in mind. Google was a window to the outside world for the Chinese, and despite initially succumbing to Chinese censorship rules, it was still the least restrictive of the search engines available.

In the end, the true losers were not Google or the Chinese government: it was those who rely heavily on a competent search engine for information

International Affairs By: Pawan Shamdasani

how is canada going to handle the debt from baby boomers in 2020 Baby Boomers Drive Up Debt Source: www.kqed.org

anada is recognized for being one of the world’s most indebted countries today by the Fraser Institute. In the past decade, Canada’s national debt reached more than 70% of GDP, but since then successive finance ministers have managed to reduce it down through continued surpluses.

However, as thousands of baby boomers approach the retirement line, this will fundamentally change the Canadian labour market and lead to a soaring federal budget deficit.

Since the 1950s, there has been a steady decline in Canada’s birth rate.

Also, there are not enough immigrants arriving. “So the «providing ratio» — that is, the number of working-aged Canadians relative to those over 65 — will fall,” states Matthew McClearn, of Canadian Business magazine.

Currently the ratio is 5:1, but experts expect it to decrease to half by 2040.

This will result in an erosion of the tax base as more retirees outnumber the young people who intend to replace them in the workforce. By the next decade, the number of retirees relative to those in the workforce will grow by 7%.

Government spending will rise as the graying population indulge themselves on pensions, health care benefits and old-age benefits, resulting in a fiscal squeeze for Ottawa and the provinces. At the moment, health, education and elderly and child benefits account for 15% of GDP. However, by 2056, these expenses will shoot up to more than 19%.

This represents almost $68 billion in additional government spending each year, which Canada is not prepared to absorb. William Robson, CEO and president of the C.D. Howe Institute, reports that Canada will have a liability of $1.5 trillion over the next five decades.

A combination of fiscal and nonfiscal measures will be necessary to tighten the demographic squeeze alongside policies to enhance labour productivity and make up for the declining workforce. Canada will also require more budgetary discipline which has enabled it to reduce its debt over the past 10 years.

A careful examination of the rising social costs for healthcare and public pensions will be likely as well. But it is clear that many young Canadians will have to work longer before retiring and pay higher taxes than previous generations.

"Permanent fiscal actions – either through increased taxes or reduced program spending, or some combination of both, will be needed to avoid everincreasing government deficits…"

“Permanent fiscal actions – either through increased taxes or reduced program spending, or some combination of both, will be needed to avoid ever-increasing government deficits,” says Kevin Page, parliamentary budget officer.

He warns that if corrective measures are not implemented quickly, the problem will grow “exponentially.” If

1997-1998

over $550 billion

1995-1996

70% GDP

1991-1992

60% GDP

1989-1990

50% GDP

1993-1994

over $490 billion

2005-2006

over $480 billion

2007-2008

over $450 billion

2002-2003

40% GDP

1989-1990

over $330 billion

2007-2008

30% GDP

1985-1986

over $200 billion

Source: http://blogs.usask.ca/the_bolt/archive/2009/01/ canada_debt_gdp_2009.html Infographic Created by: Trishaala Ninan

imposed after 10 years, the solution could cost about $30 billion in spending cuts or tax hikes.

These demographic pressures will possibly lead to a grim financial future. At the end of 2008, Canada’s federal debt was about $458 billion.

However, Dale Orr, an independent forecaster, anticipates $150 billion in additional government debt until 2014-15 due to the financial crisis.

He believes that the financial burden will not be as harsh as in the 1990s.

Christopher Ragan, an economics professor at McGill University, expects the demographic squeeze to be felt largely between 2020 and 2040. He claims that we could be left in a vulnerable situation of rising interest rates and dwindling money supplies that instead could be contributed towards social spending. In other words, Canada would be subject to debt levels similar to the mid-1990s.

The government and politicians need to think long term and realize the risks of changing demographics if we are to save Canada from diving into an era of increasing deficits.

December 2010 ArbitrageMagazine.ca

19

International Affairs By: Luis Fernando Arce

Affirmative Action: DEnied!

Are We Losing the Fight Against Workplace Discrimination?

Source: BlackAmericans.com

s Canada taking a huge step backwards in the fight against discrimination? In July of this year, Treasury Board Director Stockwell Day announced that the federal government would be reviewing its Affirmative Action policy. Immigration Minister Jason Kenney has backed the decision, asserting that it will not cause discrimination to re-emerge, but rather will elicit a more transparent process of hiring based on merit and not on race.

The decision to review the policy came one day after a woman complained that she had been denied access to an administrative position with Immigration Canada after she’d disclosed that she was Caucasian in her application.

The conservative government has now reviewed the practice of reserving some roles specifically for minorities. Affirmative Action has proven extremely helpful for the case of minorities, but the fight wasn’t won in one day. In fact, even the complaints weren’t heard in one day. It seems woeful that what took nearly a decade to implement as policy from the day it was first suggested has been threatened and changed by a single complaint.

It seems hard to believe that in a place like Canada, workplace discrimination before the 1990s was all too common. Nevertheless, it is precisely that grim reality that prompted the creation of the Employment Equity Act of 1995. The Act looked to eradicate the then covert discriminatory practices against women, aboriginals, visible minorities and persons with disabilities.

20 ArbitrageMagazine.ca

I say covert, because until the latter half of the 20th century, the exclusion of these groups from the workforce still occurred explicitly.

It was only after the 1950s, when the workforce had become so diversified in number and skillset that the government felt the impending need to implement some kind of legislative safeguard for this diverse group of people that would only continue to grow.

That is why in 1995 the government enacted the Employment Equity Act to help increase representation of those discriminated against in the workforce. No one can dispute that the legislation was a huge step towards the systemic eradication of discrimination in the workforce.

"…it seems woeful that what took nearly a decade to implement … has been threatened and changed by a single complaint…"

However, questions about the feasibility and the ethics behind the move have emerged from different circles, including political parties.

NDP MP Paul Dewar has deemed the manoeuvre “partisan food” for a party desperate to retain supporters. The criticism stems from the fact that although many cite “reverse discrimination” as the counterargument for Affirmative Action, current data proves that a greater number of individuals belonging to minority groups are being hired—despite inefficiencies in the system—thanks to the policy.

December 2010

For instance, figures show that 60% of the federal workforce is composed of minority groups.

However, that figure comes after decades of struggle. Even throughout the 1990s, after the policy had been enacted, publications by Statistics Canada showed that minority groups and aboriginals continued to experience discrimination or harassment in their workplace.

Even as recently as 1999, approximately one-third of minority federal employee respondents said they had experienced discrimination at work. The 2006 Census showed that new immigrants (91% of who have higher education) systematically experienced higher unemployment rates than their Canadian counterparts. In yet another study in 2009, representation of visible minorities was deemed to be 1.9% below their availability.

Particularly because Canada is entering such a unique demographic phase where a huge number of people are entering retirement simultaneously, the need for economically active and producing individuals is amplified.

This also means that the strain on the federal service will also be amplified as more of the retirees require social services despite a shrinking tax base. There seems to be very little space to deny minorities a chance to stimulate the economy, particularly when it depends highly

International Affairs By: Troy Redick

WINDS OF CHANGE

Competition, Choice and Consumerism in the Canadian Wireless Market

Source: msnbcmedia2.msn.com

hey say that competition is good for consumers.

If true, then the introduction of a slew of new wireless providers into the Canadian market is a good omen. The telecommunications industry here has traditionally been composed of a handful of corporate giants, increasingly moving toward a relative oligopoly. Numbered among these heavyweights are well-known companies such as Bell, Rogers and Telus. Adding a handful of new providers into the market brings with it an inherent aspect of competition. As such, this recent shake-up has come at a good time for Canadian consumers. Furthermore, these new companies explicitly market their products to a younger, budget-conscious and tech-savvy customer base, emphasizing value, affordability, transparency, flexibility and customization. This has direct benefits for students, a demographic with particular needs and constraints.

Perhaps the most recognizable of the new telecom providers is WIND Mobile. The company emerged in late 2009 amidst controversy regarding its foreign ownership. Marketing itself as a cheaper alternative, with more straightforward and transparent billing and no-term contracts, WIND does appear to be particularly attractive to students.

WIND offers data plans at a lower price point, so smart-phone users may be intrigued. It also allows customers to forego contracts and to buy specific features without bundling.

However, the coverage of WIND users is confined to WIND Home Zones located in major cities such as Toronto, Calgary, Vancouver, Edmonton and Ottawa, or Wind Away Zones, again in areas surrounding major cities.

Nevertheless, students inside the available areas may find WIND to be a desirable alternative. The next wave of new companies includes Public Mobile, launched on March 18, 2010, and Mobilicity, launched May 25, 2010. Both of these companies offer various plans and services at prices lower than the status quo, but this discount comes at the cost of quality. Both companies have been plagued by accounts of customer complaints about lost- and poorquality calls.

Due to the type of network it uses, Public Mobile does not offer data plans or a wide variety of handset devices. Remember though, that considerations of price versus quality are integral to consumers. For users on a tight budget, who are looking for basic, unlimited plans and for whom the occasional technical difficulty is not overly troubling, the added options these companies offer are a welcome change.

The newest mobile provider to emerge is Chatr Wireless. Chatr is owned by Rogers (who also owns Fido) and is the giant’s response to the new competition in the industry. Chatr aims to provide customers with more choice and lower prices. It also claims to have better wireless coverage than Public Mobile or Mobilicity, with advertisements touting

“fewer dropped calls than new wireless carriers.” Interestingly, Rogers has artificially limited Chatr coverage to match the coverage zones of WIND, Public Mobile and Mobilicity.

Regardless of whether any of these new companies successfully rise to challenge the existing oligopoly (although some project that the aggregate market share of these new telecoms will near 25% by 2014) the spirit of competition they represent bodes well for consumers of its own accord. The very existence of alternative providers prevents any form of tacit-collusion or price manipulation. Not to imply that any such behavior was occurring previously, but a market with a diversity and breadth of option, which did not exist in Canada prior, precludes such behaviors by default.

In any event, consumers stand to benefit from the competitive lowering of prices that naturally accompanies true competition, as well as a broader array of plans and services from which to find one best suited to their particular needs and budgets. In the end, the result is a procession of lowercost, customizable plans where the real winners aren’t the telecom companies, but consumers

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e tend to think that more is better.

Why wouldn’t we?

When we like something we want more of it. Our entire economy is based upon this philosophy. We demand something because we find that it’s useful to us; then manufacturing companies supply it.

Retailers stock their stores and market those products as enticingly as possible based on this relationship. More production and more consumption are good for manufacturers, consumers, and the economy.

The Gas When it comes to people, more isn’t always better. Those familiar with Malthusian theories of resource depletion know this. Yet we continue to hear dire warnings

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about a depleting workforce and the need to step up population growth to avoid it. Although these claims aren’t entirely unfounded, seeing as how the workforce is indeed the juice that sustains an economy, this doesn’t translate into economic growth or wellbeing.

A country cannot prosper in the face of political, economic, and environmental catastrophes based solely on the size of its workforce. Economies are complex mechanisms that need much more than just working people; they are systems based on rules, policies and regulations, all of which have become increasingly interconnected across the globe.

Let’s think of an economy like an automobile and of the working force like the gasoline that we pump into it. Without it, we can’t drive anywhere. However, for the gasoline to be burned efficiently

December 2010

and get the most possible miles per gallon, the car must have a finely tuned engine.

Much the same way, an economy needs people to propel it forward and to benefit from its services. Like the car, the economy also has an engine that, if sharply tuned, will determine whether a country can prosper in the face of adversities, such as a depleting workforce brought about by changing demographics.

The Engine Although the mantra of the capitalist economy is the lack of government intervention, it is impossible to envision a successful economy fully void of it. A quick jog down memory lane can refresh our memories.

The first economists considered the free market a self-ordering mechanism that also served as an

By: Fernando Arce

impetus for growth as individuals pursued their private interests.

While all investments were driven by the desire for profit, the market would subtly work behind the scenes to ensure the full utilization of society’s capital (things like full employment and balance between supply and demand), contributing therefore to what Adam Smith called the Public Good; any intervention from the government would have distorted this seemingly natural process.

The government was seen as a mediator, at best, who would overtake responsibilities such as erecting public institutions and developing an infrastructure that would in turn facilitate the flow of commerce, but not influence it.

The success of their theories— and of capitalism—was magnified by the fact that society was breaking off from the feudal

past. In this context, the benefits of liberalization of trade and the freedom of individuals to engage in this activity had been blown up, portraying any outside intervention as regressive and counterproductive.

But history proved otherwise.

When the Great Depression hit, the foundation of capitalism was shaken, and the feasibility of alternatives like communism and fascism loomed precariously over their heads. With more than one third of the labour force unemployed in the United States and increasingly negative profit margins, the government began to question whether the invisible hand that was thought to lift all boats to the same tide was not an anchor drowning them instead. It was around this time that John Maynard Keynes emerged, advocating a type of mixed economy where the

public sector played a large role in the undertakings of the private sphere.

The evidence is abundant: Governments are important for the economy.

His analysis of macroeconomics essentially asserted that, left unattended and unregulated, microeconomic-level decisions would lead the economy into inevitable cyclical instability. In a way, Keynes played the devil’s advocate—and succeeded—as he persuaded governments to adopt policies that would assure “a stable process of reproduction and adequate levels of employment.”

Although Keynesian notions lost some of their influence during the 1960s and 1970s, they’ve reemerged in the wake of the 2008

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global economic crisis. We’ve seen government bail-outs, tax cuts for some, and lower interest rates for others. More literature has popped up everywhere advising governments to implement policies that would monitor the activities of lending banks more closely and even “require [them] to prick asset price bubbles” when necessary (a great example is George Cooper’s The Origin of Financial Crises). The evidence is abundant: Governments are important for the economy.

Backstage When speaking of large populations we think of China and India almost instinctually, since they rank first and second in the world respectively. At first view, these massively populated countries have some of the highest ranking Gross Domestic Products ($8.748 trillion and $3.57 trillion USD respectively). This appears to imply some relation between their size and their economies.

Around the world, thoughts considering India’s important position as an emerging market continue to brew, and China’s status as the next possible superpower is an issue sitting on the tip of our tongues. But like spectators watching a play, we are oblivious to the ropes and pulleys behind the curtains making the stage come alive.

From backstage, the magnitude of China’s and India’s GDPs, which rank third and fifth in the world, seem like mere props. By taking a look at the standard of living for both of these countries, we can see that, despite large annual GDPs, the average income per capita in these countries rank quite low: both of their respective Incomes Per Capita are lower than Ecuador’s, where the population ranks 66th and the GDP ranks 65th, eking out just over 100 million dollars in 2009—a minuscule fraction compared to China’s or India’s GDP.

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The unemployment levels in China and India are both higher than in Canada, a country with a GDP just over 1 trillion dollars. To see it from yet a different point of view, Luxembourg’s population size ranks 170th in the world (with just over 400,000 people), its GDP was only about 40 billion dollars in 2009, yet the income per capita levels ranked third in the world, higher even than Canada’s (over $79,000 USD); their unemployment levels were also lower.

Large GDPs are general indicators of the magnitude of the economy, which to a degree are influenced by the population size. Asserting the quality of the economy, however, is a bit more intricate than that. Remember, the people are gasoline; to know their condition, we must examine the engine that moves them: the government.

Examining the Engine By looking at factors that developed nations have in common, we can apply them in developing a framework for what a healthy economy’s demographics should look like. Although population size may affect the size of the workforce, there are other demographic data far more influential of the living standards of the people and of the economy. The level of social security that a country offers has a strong influence on its demographic make-up: things like education levels, employment security and healthcare strongly impact fertility and birth rates, which in the end affect the economy.

York University Professor of Public Policy and Administration Thomas Klassen sat down with me to briefly discuss how governments influence the standard of living indicators, and what factors are really important to the health of the economy According to him, economies are determined more efficiently by their demographics, of which population sizes play only a

December 2010

small role. The grand scale of China’s economy is partly due to the fact that there are “relatively few young and old people…and many between 20 and 60 who are working.”

In India, there is an opposite trend as the country is running rampant with a lot of small children.

Where there are fewer children and elderly people, the workforce is immediately boosted alone by the number of women who’ll be able to seek work instead of caring for large families—that is without considering the amount of money saved on public pensions and healthcare.

Small families are now the norm since most people don’t own farms which need to be toiled by succeeding generations. But perhaps the most influential factor in the reduction of family sizes is the provision of social security by governments. Public spending and pension plans mean that parents don’t have to have many children to care for them in their autumn years.

Furthermore, public spending allows families access to more resources which can reduce the number of unwanted pregnancies.

In many poor countries, the high costs of contraceptives and healthcare, for example, deter individuals from getting them, spiking the number of unwanted births and shaping the demographics of the country.

The accessibility to education is also very important to the makeup of a country’s demographics.

Research shows that higher levels of education lead to lower levels of unwanted pregnancies. In India, where the literacy level reaches a mere 61% of the population, the Demographics and Health Surveys programme showed that in 2006 the actual fertility rate was 2.7 (now 2.65), while the wanted fertility rate was 1.9.

The accessibility to basic and higher education in India are longterm challenges linked to the fact

that India’s government spending and taxation as shares of its GDP are, according to the CIA World Factbook, “among the lowest in the world.” In contrast, in a country with a literacy rate like Canada’s (99%), the actual fertility rate is 1.58. Educated people are better able to plan for their future and the future of their children, making sending two or perhaps even three children to university much more plausible than sending seven or eight.

Educated people also have higher standards of living.

Professor Klassen asserts that “countries with high education levels tend to have people who are wealthier” and who therefore contribute to a healthier economy.

Individuals that are educated not only find better-paying jobs, but tend to find partners with similar levels of education. As their household income increases they are able to plan for their future more effectively by, for example, opening a savings account, or by investing their money, contributing again to the general economy.

By subsidizing education and implementing social securities such as RESPs, for instance, governments can help the cycle continue and contribute to the growth of the economy.

The demographics of a country are largely affected by the level of social security that it offers, which consequently plays a huge role in the health of an economy.

Demographics Knowing the demographics of the country is one of the most powerful tools for policy makers. Once established that social security and government expenditures on public services are necessary to help increase the living standards of individuals, the next step is to figure out how to properly allocate these funds.

For example, referring to the Canadian “demographic time bomb,” Professor Klassen gave

some examples of how a large baby boomer cohort is influencing government as well as private decisions.

“The TTC is putting elevators everywhere, in part because of an aging population. You probably don’t want to build a lot of schools right now, because there aren’t going to be a big group of children to attend schools in the next 20 years.…[And] you probably want to encourage people to stay at work (which is why they’ve taken away the mandatory retirement age).”

Determining what sectors of society need more public spending was one of the major contributions of the Mandatory Census, which was recently converted into a Voluntary Survey by the conservative government. The move has been criticized widely for many reasons, including its effect on public policy.

“Some decisions could be skewered,” said Professor Klassen, adding that those most affected by it will be precisely those groups that depend the most on sound government policy. “It will be poor people…single parents who are too busy cooking and cleaning” after coming home from their jobs to fill out a 45-minute survey. The head of Statistics Canada agrees, suggesting that it will be aboriginals and new immigrants that will most likely not respond.

As healthcare costs rises because of over 70 million people going into retirement over a relatively small time period, taxes need to be collected accordingly and a proper account of all other groups in need is necessary so that resources that should go to them do. Moreover, tracking the mobility of people, including new immigrants, is imperative in the formulation of what Naomi Alboim, the vice-chair of the Policy Forum at the Queen’s University School of Policy Studies calls a “cohesive immigration framework” whose objective should be to integrate more newcomers into the economy.

The Toronto Region Immigrant Employment Council website reports that the number of temporary foreign workers has skyrocketed compared to the number of skilled labourers who settle permanently in Canada.

The report also shows that there is massive underemployment and underpayment of newcomers who have post secondary education.

A framework of sound policies overseeing this problem can only be made with full statistical data, and not with a 50% response rate, as Statistics Canada expects the Voluntary Census to be.

Conclusions: Smoothing the Curve

The economic growth levels of the last 30 years must be maintained to mitigate the blast of the “demographic bomb” The size of a population by itself does not give us very much information about the economic prospects of a nation. Professor Klassen disagrees with arguments suggesting that in the face of population decline, economists struggle to maintain a growing economy.

“Many [wealthy] countries today, like Japan, Germany, Italy, have populations that are declining,” he points out.

The demographic composition of the country, on the other hand, together with efficient government planning, including sound economic policies and public spending on social securities, are much better indicators.

Professor Klassen also stressed the fact that urbanization, education, and moving the economy toward higher valueadded products will help improve the condition of people.

We’ve already seen how providing education can help reduce the number of unwanted pregnancies, helping to smooth

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the demographic curve. Research also shows that fertility rates begin dropping as income rises, to which education is a precursor. Typically, higher income per capita is a strong indicator of a healthy economy and healthy demographics.

Urbanization is also imperative for personal and national economic success and demographic stability. Both India and China have low levels of urbanization, with only 29% and 43% of the population living in urban areas respectively. In particular, India is a country where services are the major source of economic growth, “accounting for more than half of India’s input”; having more than half the population still working in agriculture is counterproductive.

Canada and Luxembourg, both wealthy nations, have rates of 80% and 82% respectively.

Raising the standards of living should be among the first objectives of the government.

A country like Ecuador, despite comparatively higher personal incomes than Chinese or Indians, may not be said to be economically healthy when more than 30% of its population is unemployed and services like employment insurance are nonexistent or at best exceedingly inefficient, inadequate and even promoters of informal labour markets. In India, it makes little difference that the GDP is the fifth highest in the world

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when over 25% of the population lives in squalor.

During the recent global financial crisis, millions of workers were laid off and thousands of companies closed their doors.

Had governments worldwide not stepped in with bailouts to provide stability and increased security to the markets, we may have seen an even deeper hole in the financial markets.

Despite some high levels of unemployment in these countries, it is quite possible that these rates could have skyrocketed had the subprime debacle been allowed to continue without government intervention.

This supports the argument that government intervention in the market actually can help regulate demographics, in this case, the unemployment rate.

The other piece of the puzzle imperative for the formulation of sound policies is the need to have a clear sketch of what the population’s demographic composition is. In the case of Canada, research has shown that to mitigate the effects of the baby-boomers retiring, the levels of economic development must be maintained (even with a smaller workforce). “[Health and Welfare Canada’s] research indicate[s] that… income per person, and income per household…” are affected

December 2010

minimally by changes in the size of the population. The economic growth levels of the last 30 years must be maintained to mitigate the blast of the “demographic bomb” for at least, as calculations have it, another 50 years.

So what aspects of a country’s demographics can be used to determine whether or not it has a healthy economy? We looked at some key issues that helped promote higher standards or quality of living, and they all suggested that the size of a country’s population doesn’t have a strong correlation—positive or negative—with its economic wellbeing. Rather, a combination of high education, low fertility and low unemployment rates tends to be a strong indication that a country has the right demographics to also have a healthy and prosperous economy.

These demographic factors are able to be influenced by government policies, which for Canada increases the importance of having a mandatory census.

A mandatory census is much more accurate and effective in determining government policy.

With complete and accurate data, policy makers will be able to better determine how we can maintain economic growth levels with a shrinking work-force.

International Affairs

CANADA’S ESTIMATED POPULATION

by Five-Year Age Groups, 1972 - 2008

35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000

70+ 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

Source: Statistics Canada estimates

1972

1974

1976

1978 1980 1982

1984 1986 1988

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

AGES

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Source: pearson_jones.co.uk

FINANCE & ECONOMICS “During economic downturns, one will always hear one of two things, arguments for change in the status quo or a call to go back to the “golden years.”

Here at the Arbitrage, this is exactly what you will find. From arguments for installing a new financial system to a review of modern history’s top investors, this edition of the Arbitrage will challenge you to see finance and economics in a new light.”

IN THIS SECTION… 30 DEMURRAGE

Click to learn more & join us!

34 THE 5 GREATEST INVESTORS OF ALL TIME

34 TAKING AIM AT WALL STREET

Finance & Economics By: David Tal

Demurrage

The DNA of tomorrow’s financial system?

n July 5th, 1932, a miracle took hold in the small, Austrian town of Worgl.

The Great Depression was in full swing and of its population of nearly 5000, a third were jobless, and about 200 families were bankrupt.

The situation was desperate. The town would try anything.

And in these extraordinary times, the town mayor, Michael Unterguggenberger (it’s actually fun to pronounce after the third try), decided on a radical intervention.

The town had 40,000 Austrian schillings left in its reserves.

This was nowhere near enough to finance all the redevelopment projects Unterguggenberger planned. So instead, the mayor decided to invest this money into a special savings account as a guarantee to back a new type of money.

Back then, this new money was called ‘stamp scrip’. This is a ‘complementary currency’ that works by placing a kind of usage fee on money. In Worgl, the usage fee amounted to 1% per month of the money’s value, stamped directly onto the paper bills each month. This means that $100 at the beginning of the year would

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shrink to $88.64 by year’s end, compounded monthly.

As one can imagine, this usage fee turned the whole concept of saving and hoarding money on its head. Why would you save your money when you know that the more you do, the more it loses its value?

But that’s the trick.

Instead of saving one’s money, stamp scrip creates the incentive to invest. And so did the residents of Worgl.

With stamp scrip in place, they spent their money as fast as possible so they could spend it while its value lasted. They would spend on necessities, they would invest in their homes, lend to friends, some even paid their taxes early!

Meanwhile, the tax revenue, combined with the stamp scrip fee, the town collected was more than enough to cover the costs of the town’s redevelopment projects. In fact, the town generated enough money to build new houses, a ski jump and a bridge.

But the miracle lay in the fact that amid a global depression, Worgl reached full employment.

Again, the key was stamp scrip.

The speed that money changed hands (14 times higher than the

December 2010

national schilling) helped keep local businesses afloat and, in time, brought back the town’s lost jobs.

Things looked up for Worgl and Unterguggenberger.

The town did so well that six neighbouring villages successfully copied the system and over 200 grew an interest in following suit.

That’s when the Austrian central bank panicked. They saw its monopoly rights on printing and gatekeeping money threatened. As a result, it outlawed Worgl’s stamp scrip system.

Soon after, Worgl saw its unemployment shoot back up to 30%, forcing its fall back into the country’s economic depression (the same happened to all other townships that copied Worgl’s system).

The brief history of money The history money is a study unto itself. But generally speaking, money wasn’t so much an invention as it was an evolution where form followed function.

As Sam Lanfranco, Professor Emeritus & Senior Scholar, Economics, York University, explained through an online interview, “Money was not invented in one place and then spread by

Finance & Economics By: David Tal

The town of Worgl: http://commons.wikimedia.org/wiki/File:Wörgl_von_Süden

knowledge migration. It evolved in many places in response to a troika of needs: for a unit of account, for a unit of exchange and for a durable store of value.

“Originally all monies were commodity monies, be that stones, shells, or various metals, so long as they were durable and relatively fixed in supply. Gradually, fiat (paper) monies evolved first as a convenience (as in the case of Italian goldsmith receipts) and then as a business, with the emergence of fractional reserve banking.

“Finally, in all cases, fiat monies in circulation have become a government monopoly.”

The concept of demurrage When talking about money’s history, the topic of demurrage tends to come up. The modern omnibus term for stamp scrip (described above) and ‘negative interest’, demurrage refers to any system that places an additional (per diem) cost to holding (or hording) money.

One can argue other factors like inflation or interest share this same trait, but these have very different characteristics, as we will soon see.

The concept of demurrage has a long history, as long as the notion of rent. For centuries,

different cultures used demurrage as a way to account for products with a limited shelf life or charge for holding items of worth. The Egyptians, for example, used this system when managing their stores of grain; the reason being that since grain eventually went bad, it made sense to charge a monthly fee to account for the spoilage. In Europe, demurrage was simply the fee charged for holding gold in the goldsmith’s vault.

As a result, wealth will shift from those who have the most to those who give the most and power will shift from those who have $1000 to those who have ten people owing $100 each.

These examples continue into the modern day, even if they’re no longer referred to as demurrage.

Prof. Lanfranco noted how this concept is heavily used in the area of transportation: “(demurrage) commonly refers to the additional per diem cost of keeping possession of a transport unit (truck, railcar, vessel, etc.) that is tied up by loading or unloading delays beyond the time agreed

upon. Railroads frequently keep each other’s rail cars for extended periods of time and settle up payments from a demurrage balance sheet.”

But as a theory, while notable greats like John Maynard Keynes and Irving Fisher supported demurrage as an ideal, economist Silvio Gesell has always been known as its greatest champion.

Velocity Using Gresham’s law, that “bad money drives out good,” Gesell argued that demurrage fees did the best job of speeding up a currency’s circulation (as seen in Worgl, where people couldn’t spend their money fast enough).

Especially on the open market, when people know that keeping money is equal to losing money, then buyers and sellers will more actively engage with each other to meet in the middle and make deals and sales.

As any ecomonist would say, when the velocity of exchanges and liquidity increases, so does overall economic activity. That is what Gesell believed demurrage could offer society.

In fact, such a system even has the potential to work wonders during economic downturns.

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Finance & Economics By: David Tal

Since during recessions, the natural inclination is to save and hoard money (thus worsening the recession), demurrage encourages the opposite—thus, cutting down the recession’s life span and improving economic resiliency.

Wealth diffusion Another advantage Gesell noted was that demurrage can potentially discourage wealth accumulation.

Today, just owning money makes you more money (through interest).

But with demurrage, wealth comes with a carrying cost. The more money you have, the more money you will lose on a recurring basis.

Due to this new reality, a person’s natural inclination will change from wanting to own to wanting to give.

Under demurrage, if you have more money then you are able to spend, then it would make more sense to loan out that money (even at zero interest) to preserve that wealth, rather than keep the money and lose it gradually. As a result, wealth will shift from those who have the most to those who give the most and power will shift from those who have $1000 to those who have ten people owing $100 each.

The inflation killer?

Some would argue though that inflation does the same thing as demurrage, since inflation reduces the value of your dollar over a period of time. But more important, inflation is known to ruin economies (Zimbabwe anyone?), so if demurrage is similar, isn’t it bad as well?

The answer depends on your perspective. Traditional currencies tend to get devalued by interest and inflation, as both work to create larger quantities of money, which oddly reduces its wealth (read the last issue’s feature article, All the world’s a cage, to learn more).

Demurrage meanwhile is anti-inflationary. Since it works to reduce the money supply, it effectively increases the value of money (because less of it exists).

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The death of short-term thinking Our accounting systems promote clear cutting forests for immediate profit instead of logging sustainably forever, while our politicians promote robbing the future to pay for the tax breaks and subsidies of today. During an age of global warming, peak oil and demographic change, one of the greatest challenges facing mankind is its inability to plan beyond the next fiscal quarter or election cycle.

Negative interest is modern day demurrage. It turns the concept of a bank account on its head, since instead of savers earning interest on their deposits, they are actually paying the bank to keep their accounts!

That is why the most important quality demurrage may offer is its encouragement of long term financial planning.

As noted above, demurrage punishes those individuals who keep their money instead of using or investing it. As a result, demurrage will train society to focus on how they can use their wealth to generate a comfortable living by investing in the long (instead of short) term.

As explained by Jordan B. MacLeod, author of New Currency: How Money Changes the World as We Know It, “Because of the … charge for idleness, money in the future will take on greater value than the present. This would reverse the current trend, where money in the future is discounted in favor of the present. This would make interest free loans attractive to the lender as a means of planning for retirement.

It would also create an economic orientation favoring longer term planning and projects that integrate the concerns of society as a whole.

December 2010

This storage fee, which originator Silvio Gesell called demurrage, would encourage everyone to spend what they need, and find other ways to ensure storage of wealth, such as capital investments, loans, etc.”

Too much of a good thing?

While demurrage has its supporters, there are still many who have reservations about its effectiveness (no surprise here, considering demurrage is barely mentioned these days). Those who oppose demurrage rarely do so on ideological grounds, as many of the reasons demurrage is argued for— like to address issues of inequity, poverty, social justice, etc—are widely supported.

The main reason demurrage isn’t supported is that it fails to meet, what Prof. Lanfranco calls, the “What, Why, How” test.

For one, supporters of demurrage usually tend to argue that money is the only commodity without a holding cost.

Unfortunately, this ain’t the case.

As Prof. Lanfranco puts it, “There are three basic opportunity costs. The first is deferred consumption. The second is the interest foregone if balances are not loaned out. The third is that inflation deflates (money’s) worth as a store of value.”

Finance & Economics By: David Tal

The second problem one has to consider is that in today’s advanced economic system, implementing demurrage may simply have no effect. In today’s markets, adding a demurragelike charge on money may just be absorbed into the system as yet another “cost” of holding money, like interest or inflation.

“It is hard to understand,” Prof. Lanfranco added, “how one additional element in the cost of holding money would address the long list of socio-economic ills highlighted by proponents of monetary demurrage. A fixed demurrage fee would simply be an additional fixed factor for monetary policy to deal with, and there is clearly no scope for a second independent monetary authority with demurrage fee setting rights.

“There is virtually no evidence, nor a direct link, to suggest that using monetary demurrage to alter the opportunity cost of monetary balances would do anything other than complicate the application of monetary policy in the pursuit of broader policy objectives.

Unlike transaction tax proposals, designed to reduce short-term speculative activity in currency markets, demurrage (if even practical) would have no more impact on financial system stability

than do changes in central bank rates.”

Demurrage today With the world recovering from its most dramatic economic seizure in decades, is the idea of demurrage even considered anymore?

A clue can be found in Sweden of all places. On July 8, 2009, Sweden breached the “zero barrier.” It cut one of its key interest rates (its deposit rate) to negative 0.25% What does this actually mean?

Basically, Swedish banks were paying 0.25% interest on all the deposits they were holding in their reserves.

Does this sound familiar?

It should. Negative interest is modern day demurrage. It turns the concept of a bank account on its head, since instead of savers earning interest on their deposits, they are actually paying the bank to keep their accounts!

Why did Sweden do this?

Because they wanted to discourage people and banks from hoarding their money and encourage them to spend, invest and loan their money to benefit the economy.

The results of this strategy have yet to fully researched, but it proves demurrage is still alive and well.

No silver bullet Best said by Prof. Lanfranco, demurrage shouldn’t be seen as a silver bullet for what are really difficult socio-economic problems.

“(This would imply) that what are ethical challenges (what should we do?) are nothing more than technocratic challenges (monetary demurrage).”

This writer remains confident that demurrage may become a great tool the future uses to shape a fairer economic system. But it’s important to remember that ending issues like poverty, disease and global warming can only happen when humanity learns to work together through shared values and morals, and not through financial incentives.

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Finance & Economics By: Kevin Kang

THE 5 GREATEST INVESTORS OF ALL TIME And the Lessons that Led Generations of Investors

Source: istockphoto.com

hat is the difference b e t w e e n a good investor and a great one? Whether it’s market knowledge, large returns, or the uncanny ability to see opportunities, these five financial gurus have separated themselves from the crowd. You cannot live in the world of finance without hearing their names, so take the time now to memorize the stories of the five greatest investors of all time.

Benjamin Graham “The individual investor should act consistently as an investor and not as a speculator.”

Benjamin Graham was a professor at Columbia Business School as well as a professional investor. His 1934 books, Securities Analysis and The Intelligent Investor, are two of the most influential texts on investments and are used as a guide for new and experienced investors alike.

Graham passed away in 1976, but continued to be a huge influence in the world of finance. During his time as a professor, he taught his theories of “value investments” to his students. Two of his brightest pupils, Warren Buffett and Irving Khan, still use his style to amass fortunes of billions.

John Templeton “The four most dangerous words in investing are 'This time it's different.'”

According to Money magazine, Sir John Templeton was “arguably the greatest global stock picker of the century.” As a British citizen,

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Templeton started his investing career in 1937. His investment strategy was an extreme version of “buy low, sell high”: he purchased shares in companies during times of war and extreme pessimism.

Templeton also created some of the world’s largest investment funds, focusing on the international market. Templeton was also an avid philanthropist, donating millions to science, religion, and education.

"The individual investor should act consistently as an investor and not as a speculator" Peter Lynch “Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it.”

Peter Lynch is known for popularizing the strategy of “invest in what you know.” He believed that laymen can identify a good stock if they understand the business.

Lynch claimed that he found many of his good investments when out shopping with his family.

While earning his MBA from the Wharton School of Business, Lynch caddied for the president of Fidelity Investments. In 1996, he was hired as an intern, and quickly rose through the ranks to become Director of Research in 1974.

Currently, he continues to work at Fidelity Investments as a research consultant.

Irving Kahn “Investors have no reason to feel bearish. True value investors are glad the markets are down.”

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At age 104, Irving Kahn is currently the oldest financial analyst on Wall Street. Khan was a Teaching Assistant to the investor Benjamin Graham, and adapted Graham’s style of value investing.

Throughout his career, Kahn has built an impressive resume, including director of six different companies, president of the New York City Job and Career Centre, one of the first round of Certified Financial Analysts, and chairman and founder of Kahn Brothers Group. He continues to play an active role in researching stocks with his sons for his company.

Warren Buffett “Rule No.1 is never lose money.

Rule No.2 is never forget rule number one.”

Known as the Oracle of Omaha, Warren Buffett has amassed a fortune of billions through his investments and is widely known as the greatest investor in the world. In 2008, Buffett beat out Bill Gates to become the richest person in the world according to Forbes Magazine.

In 1965, Buffett acquired the failing Berkshire Hathaway textile company and transformed it into a holding company. He used it to purchase other companies at low prices during the market collapse of 1973-74, and by 2006, these holdings had grown to 240 billion dollars. His style of “value investing” was influenced by his professor and mentor, Benjamin Graham. He claims that this strategy laid the foundation for his success and wealth.

Finance & Economics By: Sushil Tailor

Taking Aim at Wall street

Obama’s New Legislation Aims to Sweep Up the Financial Mess

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t has been nearly four years since the beginning of the financial meltdown and the global economy is still gasping for breath. The world has learned some important lessons and a wave of change has been set into motion—especially in the United States, where the crisis struck hardest.

During this past summer, Barack Obama signed legislation that promises to protect consumers and ensure economic stability in the future. This was the government’s answer to one of the biggest economic downturns the country has seen since the Great Depression.

Known as the Dodd–Frank Wall Street Reform and Consumer Protection Act, the legislation’s main focus is to improve transparency and accountability in all financial dealings. The new laws allow the government to break up companies that threaten the economy, create a new agency to guard consumers and put more watchdogs over the shadowy deals that regulators missed during this last recession. The act’s purpose is to create a new set of rules that will prevent the financial crisis from happening all over again.

The legislation also aims to make sure that US taxpayers will never have to save too-big–to-fail banks with billions of dollars in bailouts. «Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes,» Obama said.

However, critics are saying that the bill ignores the root causes of the recession. They claim that the added consumer

protections will burden small banks and businesses and make it difficult to create jobs. With the US congressional elections in November and unemployment near 10%, this becomes a major issue. Critics are also complaining that the new reforms give too much power to the government.

Nonetheless, proponents of the legislation claim that these new laws will help to wipe out fine print and hidden fees for people, thereby further empowering consumers and investors. It would also help to control Wall Street and stop unscrupulous lenders who could bring down the entire economy again.

"The act’s purpose is to create a new set of rules that will prevent the financial crisis from happening all over again."

Another purpose of the new legislation is to prevent banks from trading for their own profits.

Previous to the recession, many banks traded potentially lucrative over-the-counter derivates, which were high risk. In fact, it was a special type of derivative called the mortgage-backed security which triggered the financial meltdown in 2008.

The government is also introducing new rules to limit executive compensation and corporate governance. This is in response to several executives who received excessive bonuses during the recession while profits fell. Voters were not happy as some of these

executives were part of companies that were bailed out by the public’s tax dollars.

The law should provide certainty «to everybody from bankers to farmers to business owners,” says Obama. “And unless your business model depends on cutting corners or bilking your customers, you have nothing to fear from this reform.”

Ruth Porat, chief financial officer of financial giant Morgan Stanley, is pleased to see the bill signed, as it put «some clarity around the issues.” However, not all the banks were happy.

Jamie Dimon, chief executive of JPMorgan Chase & Co. (second largest bank in the U.S), was one of the few bank executives not invited to the signing of the bill. Prior to the passage of this bill, Dimon had a good relationship with the Obama administration, but later became a critic of the reform of the banking industry.

Even though the bill is now law, there are certain rules that have not come into effect. The true impact of the bill should be discovered in the next two years as the different regulatory agencies create new rules that comply with the various sections of the Act. Only then is the true impact and significance of this bill going to become known

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Will the Boomers Cause the Capital Markets to Crash?

By: Victoria Chau

hat is the market m e l t d o w n hypothesis?

Simply put, it’s the fear that upon retiring, the millions of baby boomers worldwide will sell off their risky assets (stocks) for safer assets, driving the prices of equities down until the market crashes.

Concern for this is rising, as over the previous year the large baby boomer cohort that is scattered throughout the developed world began to retire. Should we be afraid?

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Summer 2010

To understand the reason for the fear, or to rationalize it away, we must look at the foundations behind this hypothesis and why it may or may not hold true. Let’s begin with the birth of all the baby boomers, as that’s where we can start to develop a sound background as to the impact of baby boomers on the past and our looming future.

The Snake and the Rabbit Between 1946 and 1964, the world saw the birth of the boomers, a generation characterized by unusually high number of births.

This generation is also known as the rabbit that was swallowed by the snake, as the bulge that is created by the rabbit in the snake’s body is likened to the peaks that the baby boomers created in the demographic curve.

Some argue that correlations can be drawn between the financial markets and the stages in life that the baby boomers go through.

Let’s begin in the mid-1940s when the baby boomers were born. During this time up until the mid-1960s, the financial markets were boosted by the parents of baby boomers investing for their

children’s education. Come 1965 to 1980, baby boomers married and prepared for their own families by investing in housing rather than financial assets, causing housing prices to rise and stock prices to drop.

In the 1980s, when the baby boomers entered their late 30s and early 40s, investment for their own retirement and their children’s education became a priority.

Some believe that this investment is the cause of the rise in stock prices during the 80s and 90s in the developed countries and the lowering of housing prices.

So the big question is what happens to the stock market when the baby boomers begin to retire in 2010? The major fear is that the market meltdown hypothesis will come true. The market meltdown hypothesis predicts a fall in stock prices as retired baby boomers withdraw their money from risky financial assets to transfer to safer financial instruments such as bonds.

If baby boomers retire and sell off their assets, this will drive down stock prices causing a fall in the markets worldwide. The basis of this argument is that

the baby boomer generation represents a large cohort with their retirement savings tied up in the financial markets. When they try to sell all their assets to prepare for retirement, they will be selling to a younger and much smaller cohort who will simply not have the demand to meet the supply. Economics 101 tells us that when supply is greater than demand, prices must fall.

And thus, a market meltdown ensues.

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“If baby boomers retire and sell off their assets, this will drive down stock prices, causing a fall in the markets worldwide.”

“It is possible that the once desirable Freedom 55 will have to become Freedom 75, 85 or even possibly 95 for those who just cannot afford to retire?

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Getting the Rabbit Down As baby boomers go through their personal life cycles, they also embark on an investment life cycle. This is akin to the rabbit slowly moving through the snake’s body until it is fully digested. An investment life cycle characterizes the type of behaviour a person engages in depending on where they are in the cycle.

As any Introduction to Finance course will tell you, a typical person begins investing in their 20s and 30s. At this age, the investment is not in the financial market but the housing market. It is a time when people are typically getting married and building families, requiring most of their income to go towards a place to live.

Once an investor ages and begins to realize that there are a limited amount of paydays remaining, investing for retirement becomes much more important.

This is, of course, among other investments such as savings for a child’s education. The closer an investor comes to retirement, the higher their level of risk aversion becomes.

The objective of this investment life cycle is to create a smooth road on which to have a consistent standard of living even when retirement occurs. Thus, it would make sense that as a person gets older they want to ensure the safety of their standard of living and will consequently switch to invest in assets that are less risky.

The disparity between the high demand and low supply of the safe asset—we’ll use bonds as an example here—pushes the price of a bond higher, leaving the overall return on the bond lower than previous years. This process causes the savings of retiring baby boomers to settle at a lower level than their parents’ savings, which will cause a whole other set of problems that deal with retirees in need of financial assistance.

Robin Brooks’ report conducted in the year 2000 on “What Will

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Happen to Financial Markets When the Baby Boomers Retire?” finds that the age distribution of a population has a very real impact on asset returns. Brooks’ study discovers that this correlation between age distribution and asset returns is inherent in the investment life cycle. As a large portion of the population ages, their demand for safer assets consequently decreases demand for equities, subsequently driving the overall stock market down with stock prices.

How Much Damage Can A Rabbit Really Do? The whole idea behind the market meltdown hypothesis is that a large portion of the population born at the same time can affect the stock market due to their lifecycle choices. By examining what has happened in the past, we can hope to apply our findings to the future.

The 1980s and 1990s saw an increase in stock prices and the stock market in general did quite well. In 1997, a study conducted

by Robin Brooks concluded that a “large working-age cohort raises stock and bond prices.”

More recently, in 2000 and 2001, Andrew Abel examined the effect of a baby boom generation on the price of financial assets.

The results were that a generation with an irregularly high number of births would “indeed lead to a runup in asset prices and that there will be a corresponding reduction in prices when an especially large cohort retires.”

Many scholars agree that the baby boomer generation does seem to have an impact on the financial markets.

However, whether or not this impact will lead to a sudden meltdown in the stock markets with the retiring of the baby boomers is another matter entirely.

Abel actually concludes that the impact on the stock market and the asset prices does not necessarily indicate an asset meltdown. Abel’s

model points towards a decline in stock prices—as believers in the meltdown hypothesis fear—but concludes that the magnitude of the decline would be much too minimal to be termed a ‘meltdown.’

William Shambora’s 2006 study on the effects of a quickly aging population agrees that some of the momentum of the S&P 500 during the last two decades can be attributed to the increased participation of baby boomers saving for retirement. Shambora believes that it is possible that the opposite will happen when the baby boomer cohort begins to retire, causing downward pressure on the stock market by driving stock prices down.

At the very least, “if a large number of boomers leave the workforce …the growth rate of the stock market will be slowed.”

Digesting the Rabbit Many academics believe that the effects of the baby boomer generation on the stock market in particular have never been conclusively determined.

James Poterba’s 2001 examination of “Demographic Structure and Asset Returns” challenges the market meltdown hypothesis by bringing in bequest motives. Poterba believes that it doesn’t take into consideration the future generations that baby boomers will want to leave a legacy for. He argues that although investors accumulate assets quickly when they are working, once retired, they will “decumulate” (sell their assets off) much more slowly.

This contradicts the meltdown hypothesis, as its foundation is the assumption that baby boomers will sell off all their assets quickly once they hit retirement age.

Nevertheless, he does concur that the baby boomers played a role in the rising stock prices during the 1980s and 1990s.

Economics Professor Fred Lazar at the Schulich School of Business is sceptical of the market meltdown hypothesis. He believes that for it to have merit there needs to be concrete evidence that the baby boomers have already affected our stock market in the past. Looking at the 1980s and 1990s, which other academics have also examined, Professor Lazar explains that there is no real connection between the prosperity of the stock market of this time and baby boomers investing to save for their retirement.

The main focus behind Professor Lazar’s disbelief in the market meltdown hypothesis is the personal savings rates of baby boomers during this time. The personal savings rate is the portion of disposable income—income after taxes—that is put towards savings. Throughout the 1980s and 1990s, developed countries worldwide saw declining savings rates. Data regarding the personal savings rates during these periods from the Organization for Economic Cooperation and Development (OECD) support Professor Lazar’s observation.

It is this declining personal savings rate that leads Professor Lazar to conclude that the baby boomers weren’t significantly responsible for raising equity prices. A “personal savings rate that…throughout this period tended not to increase, and over the past 15 years tended to decline” would not have been responsible for an upward pressure in the equity markets during the 1980s and 1990s period, since this was the source of their investments.

Their frugality may have been affected by poor saving strategies or the mentality that because “employers are taking care of me I don’t have to save,” but the connection between that and rising equity prices, according to him, is simply not there.

Canada and the Rabbit It is important to realize that, although Canada has a large baby boomer generation, their retirement will affect different areas in varying ways. We can expect that if baby boomers are retiring and are looking to sell off assets—not necessarily all, and not necessarily all at one time—there will be some repercussions in certain markets.

Retirees looking to downsize by selling their current houses will be affected differently based on location. Those selling houses in urban locations such as the major Canadian cities of Toronto, Vancouver, Montreal and Calgary will be able to reap the benefits of stable or increasing housing prices, since large immigrant populations coming to these cities continue to place upward pressure on housing prices in general. Anything outside of these areas may see a decline in housing prices to some degree as the demand won’t be enough to meet the potential supply.

This type of location impediment does not apply to the stock market.

Retiring baby boomers looking to sell off some stocks will be able to sell to anyone in Canada and the rest of the world, no matter the location. They wouldn’t be encumbered by a specific demand group, and although the developing world may not be able to step up to cover the decreasing demand 100%, they should be able to negate the possibility of a full-blown market meltdown.

The Rabbit and Capital Mobility An additional worry that arises from the market meltdown hypothesis is that baby boomers are looking to sell off all their capital, which will drain the capital markets and in turn affect a company’s ability to raise capital for new opportunities such as research, development and expansion. What academics are predicting will happen is a shift in where equity is raised.

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Typically, capital is raised in the developed nations—North America, Western Europe, Australia, etc.—and used to fund any R&D or expansion endeavours.

What we can expect to occur in the next decade, if capital markets in the developed world are affected by baby boomers retirement dragging down equity markets, is for companies to go elsewhere in the world.

Professor Lazar is quick to point out that we’re living in a world where there really are no real boundaries for cash flow. If a Canadian company can’t find the funds it needs to increase profits in Canada because of a depressed equity market, the lower prices will be enticing for investors in the developing nation, primarily Asia and South America.

Whether or not this shift is so fundamental that companies will begin to relocate their head offices and operations to these countries remains to be seen, but the fact remains: “there’s mobility in getting capital.” As such, a depressed equities market does not necessarily indicate a downturn in economic growth.

The Rabbit and Our Future So even if the meltdown hypothesis doesn’t come to fruition, what do we need to know about the baby boomer generation and its effects on the rest of the population?

The most popular topic is usually the labour market. People who are going to school and have graduated or will be graduating soon are worried about the job opportunities available for them.

Of course, we’ve already had problems in the last couple of years due to the whole sub-prime debacle, but it is possible that we are in for more trouble down the road. This is another issue that Professor Lazar expresses concern over. He is worried that with the level of saving decreasing during the last few decades—as indicated with the personal savings

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rate—potential retirees simply will not have saved enough.

Professor Lazar believes that to encourage savings during this time the Canadian government had to practically bribe baby boomers— and their employers—to save by providing tax incentives. On top of that, there is likely a large portion of the population who not only did not save for themselves but also did not work for companies that provided large pension contributions, if any at all.

If this is true, this means that Canada—and likely the rest of the developed world with large baby boomer cohorts—will see a population that is aging while also falling below the poverty line. One way potential retirees will avoid this is by not retiring for a few more years. It is possible that the once desirable Freedom 55 will have to become Freedom 75, 85 or even possibly 95 for those who just cannot afford to retire?

“The whole idea behind the market meltdown hypothesis is that a large portion of the population born at the same time can affect the stock market due to their lifecycle choices.”

With a large population that is older and also still working, younger Canadians looking for positions after finishing school will be hard-pressed to find the supposedly ample opportunities that would open up as baby boomers retired. After all, there is no longer a mandatory retirement age. Professor Lazar stresses that “in terms of workforce, the retirement age is becoming less and less of a factor.”

For those about to begin job hunting during the next few years, we can only begin to hope that the baby boomers actually did save enough for them to retire so that jobs will open up for the next

December 2010

cohort of new employees. This does, however, assuage some of the fears that with a smaller workforce the economy will become stagnant.

Goodbye Rabbit So should we feel threatened by the looming retirement of this large baby boomer cohort? Even with the disagreements of academics over whether or not the baby boomers pushed up equity prices in the 1980s and 1990s, there is consistency in the belief that we shouldn’t be overly concerned.

The general consensus appears to be that any depression in equity prices will be too minimal to be considered a market meltdown, and furthermore would be staunched by a shift in capital lending from the developed to the developing world to increase the demand for financial assets being sold.

For the governments out there seeking policy changes needed to deal with the retirement of baby boomers, the main focus at this point will probably be on healthcare and social security. Of course, this also means that a shift in the country’s allocation of resources will occur to accommodate such an increasingly older population— but to what degree remains to be seen.

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ENTREPRENEURSHIP The Arbitrage Magazine is a big believer in entrepreneurship, for the benefits it provides society and for the individuals who risk everything to pursue this line of work. This edition of the Arbitrage hopes to support budding entrepreneurs in their quest to take on the world with their next great venture!

IN THIS SECTION… 44 BUILDING YOUR BUSINESS

Click to learn more & join us!

47 INCORPORATING YOUR BUSINESS

Entrepreneurship By: David Alexander

BUILDING YOUR BUSINESS The Tips You Need To Succeed

hrough founding the Arbitrage Magazine and networking with a variety of young entrepreneurs, it’s safe to say I’ve learned a few good lessons about how to start and run a business. In this article, I hope to share a bit of what I’ve learned so far.

I will try to avoid suggesting obvious recommendations, like how writing a detailed business plan before you start your business is probably a good idea. (Note: I have yet to do so for the Arbitrage Magazine … ahem).

But I will occasionally rehash featured tidbits of advise other “start your own business” articles mention, like how you should base your business around a product or service that is either unique or needed. (Note: these articles mention this tip because if your product or service isn’t needed or unique, then it will simply cost more time, money and effort to promote and protect your company’s market share. This will immediately put you at a competitive disadvantage by saddling upon your company a kind of “competitive overhead cost”.)

So without further pause, let’s begin:

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Use the government.

Make use of the government resources available to you. As much as some in the business world find it hard to believe, governments (at least in most advanced economies) fall over each other trying to help small businesses grow. They do this because small businesses are the biggest drivers of well paying job growth, i.e. the more governments support small business, the more they help grow the economy. So take the time to search for those municipal, province/state and federal programs and services available to your particular business and make the most of them.

One bad hire can lead to a variety of damaging consequences for your company (trust me here) and will only make your job harder, not easier.

If you live in Ontario, Canada, in particular, your business will enjoy single access channels to a variety of government services. As part of the OpenOntario initiative, these channels include a single 1-888 Business Info Line covering over 160 existing business support

December 2010

numbers; a Single Business Account Number making it easier for businesses to manage multiple government interactions; and a single online web portal—ONeSource for Business—that provides customized access to government information and services.

ServiceOntario is also saving businesses time through Bizpal, a single access channel (covering 77% of Ontario’s population) for learning about and obtaining needed permits and licences.

Choose your start-up funding wisely.

Personally, I recommend saving up a bit before starting out on your business. It’s always best to fund yourself as much as possible, for as long as possible. The more you begin to rely on loans from outside sources, the more you open yourself to future liabilities and control issues down the line.

That said, for capital-intensive businesses, this may not be possible. And some would say that it’s always wiser to risk other people’s money (rather than your own) when starting a business.

This is quite doable if you fund yourself through venture capital or other forms of unofficial funding.

Entrepreneurship By: Sushil Tailor

Flickr: Alex Campos

There are pros and cons to either choice.

In the end, it depends on the kind of business you’re starting and the level of risk you are comfortable taking on.

Surround yourself with people you trust and give them the freedom and tools to do their jobs well.

It is rare that you can run a successful business on your own.

Eventually, there will come a time when you need the support of others. When this happens, be sure to choose wisely individuals who are willing to work with you and not against you.

One bad hire can lead to a variety of damaging consequences for your company (trust me here) and will only make your job harder, not easier. Once you start finding that you continually need to make excuses or exceptions for an individual’s poor performance, that’s usually a sign this individual needs to go.

On the flip side, once you have a solid team working with you, you must learn to trust them.

Micromanaging or keeping all the important jobs to yourself does nothing for moral and ensures that your staff will not go the extra mile to make the business a success.

Have a website.

Nowadays, if you’re serious about growing your business, having a website is essential.

It also need not cost very much.

You can purchase a domain name (e.g. www.ArbitrageMagazine. com) for less than $100 per year (I recommend Go Daddy for this service). If you wish to host your own website, you can also do this for less than $100 per year as well, depending on the amount of traffic you expect to get on your website (for this, I recommend HostGator).

With a smartphone, you can reply to emails while walking to work, eating dinner on a first date, watching a horror movie, etc.

As for the website itself, you can hire a web designer to build a website for your company. But such custom websites will be difficult and costly to maintain if you don’t have dedicated staff to man it. That said, nowadays with CMS (Content Management System) freely available on the web, with a minimal amount of web skills, you can create a custom, appealing and easily updateable

website on your own. Companies like Wordpress, Joomla, Mambo, Drupal and others offer readymade websites that you are free to download and set up with your own custom content.

In the end, a website does cost some time and money; but remember, it can also save you money in the long run. One example is the reduction in customer service costs whenever a customer finds the location, price, or answer to a complaint, on your website instead of having to call and take up your staff’s time.

Social Media is your friend.

When trying to get the word out about your business, you would be a fool if you didn’t take advantage of social media. Granted, if you’re marketing directly to senior citizens, online social media probably isn’t the place where you will want to spend most of your time. But for most everyone else, marketing through social media is now a fundamental aspect of business in today’s world.

Social media is a pervasive force in the lives of youth (and increasingly boomers). It is free.

And if you exploit its potential in the right way, social media can spread the word about your company in a viral way, leading to

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Entrepreneurship By: David Alexander

business opportunities you would have never imagined possible.

But which to choose? With so many social media players out there right now, the ones to focus on are Facebook, Twitter and Linkedin. These three have the biggest footprint these days and are all useful in their own unique ways (FYI: the Arbitrage gets between 40-50% of its web traffic from these three social media services alone).

Three tools that can simplify the online management of your business’ social media are TweetAdder (which will effectively automate the growth of your twitter account), Onlywire (which can allow you to update up to 40 social media outlets with one click) and Hootsuite (which can help you monitor and manage the various social media accounts your company is connected to).

Simplify, simplify, simplify.

Managing is hard. Don’t make it harder by making your management process mired in bureaucracy.

Learn to delegate tasks effectively. Let go of those tasks that others can do perfectly well on your behalf. Give people ownership over their tasks so that they take it more seriously, e.g. you will work harder on a job that only you are responsible for rather than one where you and ten other people are responsible for. And be sure to provide your staff with S.M.A.R.T. goals to work toward, i.e. specific, measurable, attainable, realistic and timely goals.

Time is precious; don’t waste it.

As your business starts rolling, you will slowly find that your life seems to move faster than you’re comfortable with.

When this happens, you’ll start to realize that every second counts.

For example, when you start drowning in emails, that’s the

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time to invest in a smart phone (I prefer my Blackberry). With a smartphone, you can reply to emails while walking to work, eating dinner on a first date, watching a horror movie, etc.

Face-to-face meetings are usually a waste of time; with phones, conference calls, instant messaging, emails, text, holograms, etc, there are plenty of different ways to keep in touch and keep things moving. Keep the in-person meetings to sensitive matters; otherwise, lavish your face-to-face time to with those people who really count: your customers.

Managing is hard. Don’t make it harder by making your management process mired in bureaucracy.

Be innovative in how you make your product or service.

For those archetypal, DIY garage inventors, you can now download free design tools like Blender or Google’s SketchUp to create 3D renderings of their product, then purchase online the manufacturing equipment (which have fallen in price from the hundred thousands to a few thousand, e.g. MakerBot) you would need to build your products at home or in their rented space.

Be innovative in how you deliver your product or service.

Why invest millions of dollars in owning manufacturing plants, warehouses, shipping fleets, etc, when one can organize online the outsourcing of a product’s complete production to foreign countries like China (e.g. Alibaba. com: business-to-business marketplace), have it stored in a nearby warehousing company, accept payments for products online (e.g. paypal.com), then

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Flickr: gingerpig2000

deliver one’s products anywhere in the world (e.g. government or premium mail carriers)?

Network amongst your target market.

Being an entrepreneur may seem like a lonely profession. But it doesn’t have to be. The more you put yourself out there, the more you will find like-minded individuals willing to support you.

Also, as your company grows, you will find it necessary to meet with your target market directly.

If you are marketing your product to students, visit universities and be active with student clubs and organizations. If you’re marketing your service to fitness freaks, then partner with fitness clubs, table at fitness related conventions, etc.

Be a part of the ecosystem of your target market and they may look at you as a natural part of their daily routine, enough to possibly buy your product or service.

That concludes my humble rant about how to make it in the world of business. Note that these are but a few considerations one needs to note when starting a business.

There are many more. Whatever your plans to take over the world, just be sure to do your research and keep my following quote in the back of your head: if you work hard, go after what you want and are kind to others, good things will happen

Entrepreneurship By: Roger Vokey Originally Published by Career Insider Finance

Incorporating Your Business Protesting the G20 Summit Source: Iife123.com

he decision to open up a business and become an entrepreneur can be both exciting and frightening.

On one side of the scale is the possibility of great wealth, social status and long term financial security. The counter balance is the possibility of financial failure, indebtedness and even bankruptcy.

For some people, the experience of being an employee is not the manner in which they see themselves pursuing a career.

In the admirable choice to become a business owner, a little prebusiness knowledge on how to proceed legally could save you from financial and legal problems should that sought after success be elusive.

The first step to be taken in opening a business should be to incorporate yourself. Establishing a corporation is like creating an alter ego or an avatar for your benefit in the money world. This separate legal person assumes all the responsibilities of your financial obligations to people with whom you conduct business.

As director of the corporation, you always control the joystick of the decision to be taken in the dayto-day operations of your business.

The advantage to incorporating is that the company has a separate patrimony from your own. It is able to have a separate bank account, and is required to file separate tax returns. A corporation allows you to conduct business without exposing your own assets to liability and potential loss.

When establishing your corporation, if you are the sole proprietor, then the corporate structure is easily established.

You are the only shareholder and sole director of the company. In the event that you wish to have partners in your business, they would be issued shares that reflect the value of their investment and/or interest in the corporation.

It is always advisable to establish a shareholder’s agreement, which is a contract that sets out the ground rules for how the company is to operate. Such issues as the responsibilities of each shareholder in the business, the manner in which profits are distributed, and the method and manner of ending the relationship between the shareholders should be addressed in the shareholder’s agreement.

Establishing a corporation is like creating an alter ego or an avatar for your benefit in the money world.

The shareholder’s agreement, if thoroughly drafted, will avoid disputes and potentially costly litigation in the future. It is always advisable to have a professional assist you with the set-up of your corporation.

The creation of a corporation is different from registering a business name. In the latter case, you are personally conducting business under a business name and there is no protection against personal liability. A business name may be registered by the corporation just as easily as you

personally may register a business name. The corporation may also register trademarks, which are a form of license to exclusively use a series of words, images, or designs.

A corporation will allow you to operate in the business world more easily than conducting business in your personal name.

The application for a small business loan is facilitated by the creation of your corporation; the government guarantees the loan and you personally will only be liable for 25% of the loan in the event that you default.

This method of operating allows for more risk and experiment in the business world.

A corporation does not create an avatar which then indiscriminately allows you to act illegally and immorally behind the screen of that legal entity. All Canadian provinces have provisions of law that allow for the lifting of the corporate veil, in the event that the actions of the corporation reveal fraud, misrepresentations, and bad faith.

The corporate veil is lifted for such liability as deductions at source, GST, PST or HST remittance, and several months of employees’ salary. Therefore, a director may be held personally responsible for the actions of the corporation if these actions prove to be illegal and/or immoral.

In conclusion, the adventure of becoming a business owner can change your life and give you control of your career. However, operating through a corporation is highly recommended, and could make the difference between business success and failure

December 2010 ArbitrageMagazine.ca

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g

wholeworldis

the

A Social and Economic Analysis of the World’s Major Economies: Ja

he issues of life and death are usually reported in the media only when something extraordinary or bizarre occurs. However, death and birth, far from being just interest stories, represent the continuous renewal and loss of life that subtly shapes the face of our society. As the collective human organism of a nation ages, the demographics of the country changes, potentially bringing about a new set of issues to contend with.

These changes will be examined in the three largest economies in the world: Japan, China and the United States. The potential effect of a little salt and pepper in their population mix will be discussed as it relates to each country’s international competitive advantage.

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December 2010

JAPAN PER 1000 PEOPLE Japan birth rate:

7.54

Japan death rate:

9.5469

Fertility rate:

1.32 children per woman

Population growth rate:

–.191%

Population change by 2040:

–15%

Median age in 2010:

44.7

Median age in 2040:

54.7

Birth rate:

222 out of 223

Source: http://www.businessinsider.com/

graying

apan, China and the United States

By: Alfred Yim

Source: Flicker.com/Mio Cade

The Good Life Redux A blend of economic and social effects has set Japan on a course for population decline.Japan has been suffering ever since the burst of its economic bubble (from 1985 to 1990). The resultant downsizing and necessary cost cutting destroyed the warm notion of lifelong employment and company loyalty that used to exist.

With opportunities for employment diminished and with sustained employment a dashed dream, today young people who finally finish their long years of education are presented with a very bleak reality. Expectations people might have had about moving out of the ancestral home, owning a home of their own, finding a spouse and having a successful career are adjusted to

accommodate the harshness of reality.

The stagnant environment has resulted in people giving up on achieving the three pillars of a ‘good’ life: education, a career and a family. Evidence of the first pillar being disregarded is the large number of youth who put little importance on excellent academic performance, which leads to nonparticipation in post-graduate studies.

The second pillar of a career is forsaken in favor of taking up nonstressful/dead-end part time jobs.

Current estimates of the voluntarily under-employed number over 4 million.

Lastly, the third pillar of having a family is given up in light of the financial infeasibility of having one and the fact that workplace

policies, in regards to prospective mothers, are discouraging. In short, depressed economic conditions have in part dissuaded couples from having children – the Japanese government is actually paying for people to have children.

Impact What does population decline mean for Japan’s economy and competitiveness?

Firstly we must ask what IS Japan’s special quality? The North American automaker would say that it’s their automobile industry. The Japanese ‘culture’ enthusiast might exclaim that it’s obviously the Tamagachis (yes, they are still being made) and animated cartoons. The automaker and the enthusiast are somewhat on target, but they miss the underlying cause.

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Japan’s advantage in the international arena is due to its large population and domestic market as well as the high concentration of companies in its industries. The sizable domestic market allows companies to test their products before going international, thereby saving costs. It also lowers unit costs as companies can adhere to the ‘bigger is better’ mantra and have economies of scale.

Finally, the high concentration in industries also encourages competition through research and development, which drives up innovation.

Industries that have traditionally crutched on the domestic market, such as home electronics, will face hardship as the population dwindles. Though it is difficult to predict the implications for consumers, Japan’s place as an innovator in the realm of electronics could slip.

If a solution to Japan’s population decline isn’t found, it is expected that the labour force will drop one third from 67 million to 42 million by 2050. In turn, Japan’s large population, which is the source of the country’s competitive advantage, will be jeopardized.

Another problem of the demographic shift is that there will be more older individuals about than younger ones. This lopsided ratio would cause difficulties in funding medical insurance and pension systems.

So what’s the bright side of population decline? Japan has the smallest per capita land mass of all G-7 nations and it is bestowed with very few natural resources.

Therefore, a population decline in light of these two facts would prove beneficial with fewer people fighting over the same resources and assets. Energy consumption, for instance, would decline.

The reduced demand due to a population decline would also lower costs of such resources and would even lead to lower property prices, which would be particularly welcome in places like Tokyo.

Also, with the birth and death rates as they are, there will be fewer younger people, meaning there would be less spending needed on schools, public buildings and infrastructure. This could all mean lower taxes.

However, the current-day situation is not looking so good.

Japan’s GDP per capita has decreased in conjunction with the shrinkage of the working age population. Paul Krugman cites that Japanese GDP per capita fell from 88% of US GDP per capita to 76%. Working-age adults as a percentage of population have decreased from 69.7% to 64% from 1992 to 2007.

China began in its single child policy in 1979, as a result of the government’s desire to curb problems related to overpopulation. Because of this policy, China’s population is estimated to be about 400 million less than what it would have been otherwise.

That single child policy may come back to bite China’s politicians. Single children are now faced with the prospect of supporting two parents and up to four grandparents. As soon as 2020, the working age population will peak, and in 2050 the over60 population of China will be larger than the entire population of America.

CHINA PER 1000 PEOPLE Birth rate:

14

Death rate:

7.06

Fertility rate:

1.54 children per woman

Population growth rate:

.655%

Population change by 2040:

+7.5%

Median age in 2010:

34.2

Median age in 2040:

44.1

Birth rate:

151 out of 223

Source: http://www.businessinsider.com/

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December 2010

UNITED STATES OF AMERICA PER 1000 PEOPLE Population change by 2040:

+22%

Median age in 2010:

36.6

Median age in 2040:

40.8

Birth rate:

154 out of 223

13.83 births/1,000 population (2010 est.)

8.38 deaths/1,000 population (July 2010 est.)

2.06 children born/woman (2010 est.) .977% population growth Source: http://www.businessinsider.com/

Deeper than Cheap China’s competitive advantage has always been its ample supply of relatively cheap labour, which has fueled its explosive economic growth. However, that advantage is fleeting because of two reasons.

First, China’s working-age population is quickly approaching its peak. Second, the government is implementing policy to rebalance the economy through increasing wages and the consumption factor of its GDP. With recent events like the Foxconn suicides (at Apple Inc.’s Chinese manufacturing plant) undergoing media scrutiny, wages as well as working conditions are being given a necessary facelift.

Governments and companies are also under more pressure from Chinese workers (particularly the exploited migratory workers) who are taking part in very large and frequent protests (upwards of 300,000 protests in 2005 alone).

Places like Guangdong, for instance, have seen pay increases of 24 to 32% since a massive Honda strike was held.

…China cannot sustain its competitive advantage of cheap labour for much longer.

In short, China cannot sustain its competitive advantage of cheap labour for much longer.

Furthermore, this does not even consider the population decline that will begin in 2035, resulting in massive changes to the labour market.

Despite the negative connotation of rising wages to businesses, Lee Li, associate professor of marketing at York University, argues that China will continue to maintain a competitive advantage. Simply speaking, “It’s not just about cost,” and that China’s advantage is deeper than most people think.

The notion that Chinese firms are content with worker exploitation as their bread and butter strategy is a gross simplification.

Why is it that low-cost locations like Vietnam and Bangladesh have not achieved a similar industrial cost advantage as China?

Professor Li says the separating factor is that China has a combination of skillful labour, infrastructure, communication systems and banking systems.

Therefore, larger and more sophisticated companies (e.g. technology companies) that rely on these systems and need skilled workers will likely continue their operations in China. Smaller companies and those in less sophisticated industries such as textiles will find it easier and more cost-effective to move away.

China’s other advantage over countries like Bangladesh is in “cluster-related” factors. Clusterrelated samples, Li says, are simply the surrounding businesses and members of a geographical cluster which accrue benefits to a business. For example, a nearby adhesive-making factory would be very beneficial to a business that uses the adhesive to create end products.

On the issue of pensions, China’s health insurance coverage for all but the affluent is particularly worrying. We as Canadians take for granted the fallback that the government provides us when we are ill.

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In China, millions of retired persons have only their single offspring as their source of postretirement income. In the rural areas where over 60% of China’s population resides, more than half of the elderly do not enjoy medical insurance and only 4.8% receive pensions.

The phenomenon of aging in America requires a mention of the post-war “baby boom”. After WWII, males coming back from the war started families in earnest. In particular, the United States had approximately 79 million babies born between 1946-1964. Now, because of this wave of post-war births, the number of grizzled people (age 65 and over) will double over the next 30 years, from 40 million to 80 million. The percentage of older people in the population will increase from 13% to 20%. In fact, by 2011, all 79 million baby boomers will be over 65 years of age.

A Booming Headache The three major effects of aging in the United States would be the issue of paying the 79 million or so baby boomers their pensions, the effect of the older population on the savings rate (and subsequently the economy) and the strain on the government because of healthcare issues of the elderly.

Simply put, the unprepared will find themselves making the grim choice between their healthcare needs and food/utilities.

For instance, a study has found that America’s 100 largest corporate pension plans were underfunded by $217 billion at the end of 2008. This is a huge problem when about half of US workers have less than $2000 saved up for retirement. Simply put, the unprepared will find themselves making the grim choice between

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Source: Meara, White, and Cutler, 2004, Exhibit 4. http://www.rand.org/

their healthcare needs and food/ utilities.

Social security is also in a fragile state. With 35% of Americans over 65 relying on social security as nearly 100% of their income, and the fact that the system pays out more benefits than it receives in taxes, the political and social landscape is set to explode.

How to deal with social security is certainly a headache for politicians. For instance, if the government just decides to print the money they need to deal with the shortfall of cash inflows, it would likely be too politically dangerous to consider as a viable solution.

Also, with US unemployment still high and around 46% of Americans disapproving of the Democrats’ efforts, Alena Kimakova, Associate Professor of Economics and Public Policy at York University, comments that the US pension system has problems both on the public and private side.

“Private pension funds suffer from risks associated with market downturns, employers going out of business or reneging on their pension contribution obligations,”

December 2010

says Kimakova. “Even in unionized environments, employers’ liabilities towards pension funds often get less consideration in negotiations than maintaining employment levels or avoiding shutdowns and moving operations overseas.”

Therefore, Professor Kimakova states, entitlements for younger contributors to the system will likely drop and/or change, which would be the most viable political alternative as it allows for the “time-distancing” of the unpopular measure. Things just seem more acceptable if the pain is deferred.

She goes on to say that a gradual increase in the full retirement age has already been implemented.

“Those who were born in 1960 or later face a full retirement age of 67, compared to those born between 1943 and 1945 having 66 years as the normal retirement age, for example.”

Furthermore, Kimakova suggests that the US social security system could stand to be more progressive, because as of now, even the well-off are entitled to payouts due to the fact that the system only uses age as a benchmark.

On the issue of the savings rate and its effect, Kimakova says, “Traditionally speaking, American households have had very low savings rates and this is in part due to the developed financial markets in the US, which gives better access to loans for individuals, who then use these loans for consumption purposes.”

There are economic benefits to accessible loans, one of which includes the countering of wealth inequality and boosting economic activity and the GDP. However, the low interest rate environment (due to high productivity, welldeveloped financial markets, stable institutional environment, etc.) might be changing in light of the large public deficit and prolonged downturn of the economy.

Consequently, the effect of economic growth in the short to medium term is likely to be negative because domestic consumer spending has been the main driver of the US economy. However, the long term effect will be a beneficial one, as people will be saving more and living within their means.

As for the healthcare strain due to aging, the federal government will certainly feel the impact as Medicare pays for 56% of the elderly’s healthcare bills. In fact, public coverage of the elderly (Medicaid and Medicare) is 60% of healthcare spending for the 65+, while private insurance accounts are only 14%.

A silver lining, if any, would be the fact that the elderly spend upwards of four times the amount on healthcare as those under 65.

This involuntary preference of the elderly to “consume” health services would likely facilitate a boom in the health industry—and there is evidence of companies already positioning themselves for the windfall.

Conclusion In the case of Japan and US, they stand to lose their competitive advantages of a large domestic market and consumption respectively due to population aging. In the case of Japan, its strong cultural stance has resulted in an extremely closed immigration policy. This simply piles onto the negative growth, as its own citizens, for many reasons such as pessimistic economic expectations, either do not want to have children or cannot.

In regards to the US, low interest rates due to various advantages such as having the reserve currency of the world set as US dollars, have made it easy to take on more loans and thus marginale the idea of saving.

With lending at an all-time low and the fact that people over 65 tend to spend less, economic growth, as said before by Professor Kimakova, is definitely going to suffer in the next ten years.

Meanwhile, China’s competitive advantage will likely remain due to infrastructure and institutions, but its main problem of pensions will likely become a major issue.

Despite these major issues and trends, it is surprising how demographic changes are rarely ever noticed. However, as the world quietly grows older, these trends will become apparent pretty quickly as they will have a lasting impact on every corner of the globe.

…as the world quietly grows older, these trends will become apparent pretty quickly as they will have a lasting impact on every corner of the globe.

Source: Flicker.com/Mio Cade

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Source: www.harvestdavenport.org

PERSPECTIVES Ideas are meant to change the world. Opinions, and sharing them, are how ideas spread to achieve that destiny.

This section shares two humble opinions from Arbitrage staff and contributors. From reviewing Canada’s fiscal management to putting the whole financial system on trial, these different perspectives hope to share ideas and create discussion. Enjoy.

IN THIS SECTION… 56 CANADA’S FISCAL SPENDING OUT OF CONTROL

Click to learn more & join us!

57 PLAYING A RIGGED GAME

Perspectives By: Pawan Shamdasani

Canada’s Fiscal Spending Out of Control Conservatives’ Fiscal Reputation Under Siege

Source: chicagonow.com

he Conservative government announced plans in July 2010 to purchase 65 new F-35 Lighting II jet fighters for $9 billion from Lockheed-Martin, a US-based manufacturer, to replace its stock of 80 CF-18 Hornet planes.

The deal, including maintenance of the planes, will cost taxpayers over $16 billion until 2016. However, the acquisition of these jets is under huge debate as Canada is currently suffering from one of its largest federal deficits in history.

The Liberal party has been unsupportive towards the deal from the start and questions its lack of transparency. Yet the biggest argument is that one of Canada’s largest military deals will be executed without a single competing bid. This has resulted in furious protests by rival manufacturers. Meanwhile, the Conservatives insist that the F-35 satisfies the operational requirements of the Canadian Forces and continue to support their case that the planes will protect Canada's arctic sovereignty in the near future.

So is this purchase of F-35’s justifiable?

According to Liberal leader, Michael Ignatieff, the Harper government has dampened their own fiscal credibility due to fiscal incompetence and money wasted on “unnecessary” expenditures.

This includes plans to spend $16 billion for “fifth-generation” stealth fighter jets and another $9 billion for new jails. In other words, Ignatieff believes that Prime

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Minister Stephen Harper has all his economic priorities mixed up. In my view, this is a completely valid statement, considering we are in a lengthy recovery path from the 2008 financial crisis.

“We are not convinced we need this number of planes, and we are not convinced that, at the moment of a $54-billion deficit, this is the priority for the Canadian economy,” said Ignatieff at a news conference in Cape Breton. He suggested that we should focus on issues of economic security such as pensions, the public health system, child care and postsecondary education, because this is what Canadians value most and want from their government.

At a critical time like this, what is more important is that Canadians have a sense of economic security and financial well-being.

“We are not convinced we need this number of planes, and we are not convinced that, at the moment of a $54-billion deficit, this is the priority for the Canadian economy.”

By the next decade, Harper insinuates that the military will need these planes and that they will be of huge benefit to the Canadian aerospace sector. But the government has not been clear regarding what purpose these new jets might serve to the country.

They did imply that the main rationale for acquiring these planes would be to defend Canadian and

December 2010

North American airspace. But what does this mean? This has left critics to argue that the use of these aircrafts would have been more plausible during the Cold War against the Soviets.

Terminating the deal will also be detrimental towards the Canadian economy and affect the country’s relationship with their allies – the US, Britain and Australia.

Blowing up the plan would only lead to drastic implications for Canadian defense contractors who have earned $375 million worth of contracts on the jets. It will especially anger allied nations such as the United States who have signed existing agreements since 1997.

It was in 2002 that the previous Liberal government signed a memorandum of understanding, committing Canada to developing F-35 aircrafts but not to buying them. In my opinion, the Harper government should not purchase F-35 jets when they are at a $54 billion deficit. The health of our economy must be given top priority, and this deal will only further burden the deficit. Perhaps, once the economy has reached recovery and the government has reduced their debts, these jets could be considered.

The deal will be examined in the following months by the House of Commons defense committee and by the Liberal party, who have described the contract as secretive and unaccountable.

Hopefully, the decisions made by the conservative government will serve to our advantage in the following years

Perspectives Trends By: Alfred Yim

Playing A Rigged game Who Really Wins in the Financial Markets?

Illustration by: Laura Gonsalves

ho makes more money at the casino: the gamblers or the house?

Any competent casino will only allow games where it has a mathematical advantage. The same could be said for the major players in financial markets, also known as the “market makers.”

After all, if you’re pushing around billions of dollars, how can you not have a say in which way the market goes?

The idea that regular investors have a significantly lower success rate in trading than their institutional counterparts shouldn’t be outlandish, but just how wide is this fairness gap? In the case of four American banks, JP Morgan Chase, Morgan Stanley, Goldman Sachs and Bank of America, each have beat the market 63 consecutive days in the first quarter of 2010. In fact, on 35 of those days the banks had winnings in excess of 100 million.

On the flipside, some regular investors pretend that they have a 50 percent chance of seeing their stocks rise or decrease in value.

By this definition, the probability of achieving the same results as the banks is about the same as the probability of getting away with murder in the American justice system 63 times—it’s just not likely to happen.

If we take this a step further, and assume that these traders at the big banks have a 90% success rate, the chance of doing so for 63 days in a row is only 0.13%. The

fact that the banks have made so much money that alternative cigar rolling methods can be explored makes explaining everything away with dumb luck improbable.

One explanation of how the banks are able to do this is that they were allowed to borrow at nearly 0% interest and lend that same money out at 3% back to the government. This highly exploitable situation is allowed for policy reasons, in that this easy money is an earnest effort by the Federal Reserve to prevent deflation and a depression, and bring confidence back in markets. This free flowing money is also used by banks to trade in futures and other markets.

Low interest rates for banks aside, traders at these banks have the ability to buy large enough volumes of stock and assets to affect prices. They can literally materialize their own prosperity and chuckle eerily to themselves on the weekend with a Diamond martini in hand. That is what happened with the bailout money that came to the hands of banks like Goldman Sachs.

"They can literally materialize their own prosperity and chuckle eerily to themselves on the weekend with a Diamond martini in hand."

on the ability of people without income to repay loans.

Because of their ability to buy enough of any asset, worthless or not, prices of these worthless assets rose. This allowed profits to be made on things that should be avoided entirely on fundamental reasons.

You, the everyday investor, even after watching many hours of videos describing the financial crisis, would be compelled to join in on the rising price action despite your subconscious screaming epithets at you not to.

In addition, traders at big banks also have the ability to make use of information that regular investors don’t have at their disposal. This is through a practice known as frontrunning. For example, front-running is essentially what happens when a trader hears about a big purchase about to be placed by a customer.

He then uses this information to trade on behalf of the bank before the unfortunate customer, thus enjoying an easy ride up as the customer’s order drives up prices.

Although this is unethical and illegal, it can still happen.

When the market makers rig the game and dictate price changes, the free market becomes not so free anymore. If you’re considering investing money on your own, perhaps it’s time you reconsider it

For instance, the Troubled Asset Relief Program money was used by banks to buy up worthless intangible financial assets, particularly those that depended December 2010 ArbitrageMagazine.ca

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o the dismay of some and the joy of others, we all inevitably age as we move through the many phases of life: we graduate, we find our first job, then our second and third, and eventually we retire.

But this year marks a significant phase that has the potential to affect us all as the baby boomers of Canada and the rest of the developed world begin to retire. Indeed, projections by Statistics Canada predict an increasingly older population, with a median age just less than 40 years old for 2010. So what will an aging population for Canada entail for everybody else?

With a large portion of Canada’s population on the cusp of retirement, our labour market is about to drastically change. One of the popular solutions to mitigate

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the problems that come with an aging population is to bring in newcomers from other countries.

Immigrants are expected to help alleviate not only the worker shortage but help boost the fertility rate and contribute to the tax revenues needed to support a large aging baby boomer cohort.

More than Just Over the Hill The saying goes that once you hit 40 you’ve gone over the hill; so what do we call our baby boomer cohort as they approach the bottom of the hill and move into retirement? The effects that a huge number of baby boomers about to retire in Canada will have on the economy are worrying everyone.

Statistics Canada projects that just 16 years down the road, by

December 2010

2026, the number of seniors will nearly double from 4.3 million to 8 million, bringing their share of the population up 8% to 21.2%.

Once (the boomers) begin to retire, Canada’s tax revenue base is going to shrink rapidly.

It’s not just that Canada has a huge body of workers at the age of retirement, it’s also that once they have retired, the baby boomer generation is expected to live longer than their parents before them, due to an increased life expectancy. Instead of retiring at 65 and then living another good 10 or 15 years, baby boomers can expect to see past their 85th birthdays, causing a strain on the government

What to Do Now that Canada’s Getting Older

that has to support them despite a shrinking tax base.

When the baby boomers entered the workforce between the 1960s and the 1980s, this era was characterized by economic growth and prosperity. The sheer size of the numbers entering the workforce during this period boosted the Canadian economy through their wages and tax contributions.

The governments during this time were able to use these funds to establish social securities such as health care, public pensions and lower post-secondary education costs.

However, once they begin to retire, Canada’s tax revenue base is going to shrink rapidly. Boomers who were once responsible for the main core of tax contributions will not be earning much money and as

such will contribute less in the form of taxes. This shift in tax revenues will result in a cash-strapped government that is already losing an estimated $20 billion in taxes.

To combat this reduction in tax revenues, the simple and logical solution is for the Canadian government to come up with a way to collect more taxes. Collecting more taxes doesn’t necessarily mean increasing the tax rates— the government can offset the projected decrease in taxes if there is a stable or increasing amount of earnings from the workforce. One suggested solution to this debacle is to make up the difference by increasing the number of immigrant workers as well as their earnings and in that way boost taxes.

By: Victoria Chau

Immigration and a Shrinking Workforce Media everywhere are hailing immigration as the solution to our aging population. Immigrants will not only fill the worker shortage, but they pay taxes and help the fertility rate by having children.

Canada’s population saw a growth by 324,000 persons to some 32.6 million from July of 2005 to July of 2006. Of this increase, approximately two thirds of it can be contributed to immigration into Canada, for the most part in the form of skilled workers.

The general opinion of Canadians towards immigration tends to be positive, with as many as four out of five Canadians supporting immigration and believing it to be beneficial for the country. Yet, there are also criticisms of the

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The reasons behind the preoccupation with an aging population come from the fear that we simply won’t be able to support them.

current system, as it is said to allow immigrants with qualifications that do not match Canadian standards into the country as well. Others cite the backlogging of the system of over 800,000 applications and the resulting shortage of work for immigrants as the main flaws.

However, the same survey also mentions that while Canadians support immigration, there is little enthusiasm for increasing the number of immigrants into the country.

It is not necessarily that Canadians want only a set number of immigrants coming into the country, but more of a desire to balance the influx of newcomers with the jobs available.

And therein lays the problem: to be able to match the amount of skilled immigrant workers coming into the country with the job vacancies available is impossible.

Not only is the labour market constantly changing, but the process of applying and actually being able to immigrate to Canada takes anywhere from an estimated three to four years at times.

Overall, immigration has been a very strong force propelling Canada’s somewhat stagnant population growth. It has only been recently that Statistics Canada has identified a stabilization of Canada’s natural rate of population growth—excess births over deaths—at 3.3 per 1000, which has been attributed strongly to new immigrants. The data also gives credit to immigration for 60% of the population growth in Canada over the last decade, which has increased from 46.2% a decade earlier.

This seems to be strong evidence that although the points-based aspect of Canada’s immigration system should be maintained, and perhaps even improved, it is imperative to develop a much more efficient application-approving process.

http://www.californiadivorcelawyerblog.com

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December 2010

Canada and the World Compared to the rest of the developed world, Canada is neither doing very well nor very poorly. We seem to be hovering somewhere in the middle in terms of our demographic problem. The bulge in our demographic curve due to the large baby boomer cohort has been rising to the top of our population pyramid.

If you recall years back when you first began to learn how to draw population pyramids, you’ll remember that the males are placed on the left side and females are on the right side, corresponding to a specific age group from youngest to oldest.

As a result of the baby boomers, most countries in the developed world are ‘top heavy’ in terms of their population pyramids.

Since the younger generations are graphed at the bottom of population pyramids, the shrinking birth rate in many countries has made this area much thinner than the middle and top areas that is representative of the currently working and older populations.

Canada’s population pyramid is not as top heavy as say Japan or Italy, who have very large portions of their population already retired.

Yet, compared to countries such as the United States and Australia, we are not doing as well, since their populations are predominantly younger than ours.

The different shapes of the population pyramids of these developed countries are further evidenced by examining the fertility rates in each of these countries.

The fertility rate is defined as the average number of children a woman is expected to have during her lifetime. Canada’s fertility rate is quite low at 1.6 children per woman, compared to the United States’ 2.1, Australia’s 1.8, and the United Kingdom’s 1.9 rates.

Back when the baby boomers were being born, Canada’s birth rate was on average 28 births per 1000 person. But the problem is

http://www.flicker.com

that although so many boomers were born, they in turn did not have as many kids or grandchildren. By 1970, the birth rate had dropped to 17 births per 1000 people, and by 2000, Canada hovered around 11 births per 1000 persons.

There is not much to do to increase the fertility rate of a country, aside from providing incentives such as baby bonuses and tax reductions. Since it is difficult to change the lifestyle choice of an entire generation, Canada has been using immigrants to even out the shrinking population and workforce instead.

Although there are problems in Canada’s immigration system— mainly due to inefficiencies—newcomers are one of the main reasons why Canada’s median age isn’t higher than it currently is. If we look south at the United States, we can see that their median age is

younger, characterized by a population pyramid that strongly resembles a square.

This is in large due to their influxes of immigrants every year from more relaxed immigration policies. Countries in the European Union have stricter immigration laws, and it shows in their much older age profile.

What Is There To Fear?

The reasons behind the preoccupation with an aging population come from the fear that we simply won’t be able to support them. As the baby boomers retire, pension funds— public and private—are going to be depleted at a time when the tax base for Canada will be shrinking.

A reduction in the workforce means a reduction in taxes to fund the many social maladies that will be popping up: health care and old

age security for the most part.

To be blunt, senior citizens cost more. An older person costs five times as much in health care as a young adult. Does Canada have the funds to support a predominantly old population, especially in light of decreasing tax revenues?

Probably not, but the degree to which immigration can fill this void remains to be seen.

Despite the optimism towards the effects of immigration on the aging population, there have been warnings that substantially higher influxes of immigrants each year into Canada will not be able to stop the statistical aging. But there remains widespread hope that immigration will help negate and even begin to reverse some of the effects of an older population on the economy and labour market.

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61

Source: www.ise.uk.com

STUDENT CO. We all want success, to graduate from school with our options unhindered by obstacles, big or small. And for those interested in pursuing a career in business, the potential for success can be mind-boggling. We’ve all read stories of those big names, those market tycoons we all hope to follow, with their seven-figure plus salaries, generous stock options, private jets and exclusive parties.

These things and more are all possible to you. But on this winding, yellow brick road of life, there are many forks in the road—choices that if made poorly, may pull you away from your ultimate goals.

How can you protect yourself? Knowledge. That is what the following articles will offer.

TORONTO’S ESTIMATED POPUL

by Five-Year Age Groups, 19

2,500,000 2,000,000 IN THIS SECTION… 1,500,000 1,000,000 Degree 500,000 ip Internsh 64 CAREER SPOTLIGHT 68 BREAKING IN TO 70 TORONTO'S ESTIMATED 100,000 BAY STREET POPULATION 50,000 Click to learn more & join us!

Source: Statistics Canada estimates

1986

1988

1990

1992

1994

1996

1998

2000 2002

2004

2006

2008

5 0-4 AGES

Student Co. By: Kevin Kang

career spotlight

Financial Consultant: Where Can Your Career Take You?

uccess, prestige, wealth—whatever your career ambitions may be, your journey there is sure to be full of forks, meanders, and confusing road signs.

For students, finance is a broad and sometimes confusing field of work, encompassing a multitude of career options available. Thus, making career choices is a difficult task when you don’t have enough information. The yellow brick road of a career in finance is full of both hope and uncertainty.

If you make all the right moves, you have a shot of living out your dreams with the money and fame of a successful trader. If you don’t, you might be led away from your ultimate goals. In the end, we all seek to arrive at our destinations having walked a road paved with victories. However, without a road map, finding your way may prove difficult. Let the Career Spotlight help you navigate your way!

Each issue, the Career Spotlight will shine on a particular position within finance, and show you what it’s like to work in the role.

We will also present distinguished professionals in the field who can share their experience with you and help you see your path more clearly.

This issue of Career Spotlight will focus on financial consulting.

This position encompasses a wide variety of duties and offers a challenging and exciting experience.

Working on a project-by-project basis, financial consultants are required to be excellent problem-solvers and strategic thinkers. If you enjoy the thrill of working on something new

64 ArbitrageMagazine.ca

every day, then perhaps consulting is for you.

To help paint a better picture of the position, George Klar, president of Alternativ Solution Inc. and professor at York University’s Schulich School of Business, has taken the time to share his career experiences. Professor Klar has over 25 years of experience in asset management, banking, insurance and consulting. His consultancy provides advice to the global financial industry on risk management, investment and governance matters.

Q: M r. Klar, tell us about your educational background.

A: I started off at the University of Toronto in the life science program, and I majored in genetics and biochemistry. After graduation, I worked in the pharmaceutical industry for a brief time as an executive.

After working in the field for a little while, I began to realize that I needed more managerial and business skills, rather than just strictly the technical and science skills. I went back to school and was accepted into the MBA program at York, now known as the Schulich MBA program. I fell in love with investment finance so when I returned to the workforce, I went into the investment stream.

When I got into the field, I was asked to be a portfolio manager.

So to facilitate that, I got another degree called the CFA, the Chartered Financial Analyst designation. At that point I had finished my formal training.

Also, I did complete the Canadian Securities Course (CSC). I got my

December 2010

George M. Klar, president of Alternativ Solution Inc.

CSC in the 80s, so I don’t know how different the CSC is today. The CSC is really about understanding Canadian laws and securities, and is a great starting point. It can get your foot into many different doors and I think that’s very valuable for anybody who is interested in the investment-related field.

Whether it be selling, buying or recommending assets, it’s a very good primer. However it is not recognized as the official designation for managing money.

If you enjoyed the CSC, you should think about going on to other designations, such as a CFA. If you’re not interested in managing money, but in giving wealth information as in asset allocation and financial planning, there are other designations in that direction.

The CSC is great because it gives a good overview of the financial investment industry.

Q: What was your career path like?

A: Well, I’ve been very different than most people in terms of my career path. I always wanted to be a consultant. For every organization that I worked for, I always treated myself as an internal consultant to the organization.

I had many roles in many companies. I started off working as a banker and financier for Ontario Hydro management for 7 years.

Student Co. By: Kevin Kang

After that, I spent about a year with an investment banking firm in Toronto. Then, I got hired as an internal consultant for the Bank of Nova Scotia; that lasted five years.

I then became a full-time consultant dealing with pension plans, government finance and endowments, trying to figure out how to finance them properly—I spent 3 years in that role. Then I joined the direct investment management business, working for money management firms who created products as an internal consultant and a relationship manager liaising with clients. In this role, I brought information from the outside world back into the organization.

I’ve worked with Barclays Global Investors, Beutel, Goodman and Company Ltd., Manulife’s investment division, known as MFC Global, and Legg Mason Canada.

That rounded out 25 years of work experience.

Q: What was your favourite role and what kind of work did it require?

A: Well, normally you would answer the question with a job title or a company. But, in my case, my favourite “role” was always, at any company, the problem solver.

I love to problem solve, analyze, strategize, and create solutions.

I’m also pretty good with dealing with people, so I have both an analytical mind and a human approach, which is often not welltaught in universities. Linking the two together, I developed many strong personal and professional relationships with individuals, corporations and governments.

I didn’t have one job that I

liked the most, but I think when I look back at my career, I liked the consulting aspect, which is identifying a problem, figuring out a solution and then trying to sell the solution to both parties and see if it actually can be implemented intelligently, quickly and at good cost.

Q: How did your education and training help you in your career?

A: Well, I have a bachelor degree in genetics and biochemistry. In science, you’re taught how to think sequentially, logically and very rapidly; it’s very math-based.

When I went into the investment finance business, the vast majority of the people in finance were from a commerce or an economics background, not a science background. That gave me a huge advantage, because I didn’t find the math complex, while many of my colleagues did.

"Well normally you would answer the question with a job title or a company. But in my case, my favourite "role" was always, at any company, the problem solver."

The MBA program taught me how to deal with organizations and people. It certainly gave me the skill sets in the traditional finance, accounting, economics field that I did not have after doing my undergraduate degree.

When I started managing money for Ontario Hydro management as a portfolio manager, I was asked to

do my CFA designation. The CFA focuses on portfolio management at a holistic and high level. You learn about accounting, economics, derivatives, and traditional instruments. The education I’ve had really covered what I wanted to do.

Q: How would you describe, in a very broad sense, the level of job security in the finance?

A: That’s really the big problem in the workforce overall, not just in the finance sector. Job security just doesn’t seem to be there anymore.

You’re as good as your last deal, as good as your last project.

Job security is not so much about, are you smart or if you can handle the spreadsheets. It’s about how you interact with your peer group, how you behave with them, how you interact when you disagree or agree with them and what actions you take. Similarly, are you an asset or an embarrassment to the organization?

You have to put yourself into the shoes of your boss and ask yourself, “Can I help solve a problem?” If you are not contributing to that role, the company is no longer going to give you loyalty. Ultimately in this day and age, you are a free agent, and that’s a good news and bad news.

I’ve seen people who are technically smarter than me, more confident than me, get fired, because they had no interpersonal skills. I have also found people in organizations who were loved because they were funny, charming, outgoing, retain jobs when they didn’t deserve it. So that does happen out there; it’s not a fair world.

December 2010 ArbitrageMagazine.ca

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Student Co.

Q: What advice would you give to students and recent graduates who are looking for finance jobs?

A: The first thing I would say is to not get discouraged. The economic crisis that we’re undergoing and have undergone is going to end.

I started working in 1982, which was the height of a terrible crisis back then that started in 1981. A collapse of the economy, interest rates were 16, 17 percent, inflation was running rampant, and the chairman of the Federal Reserve put the brakes on the economy.

There was massive unemployment, very similar to today.

There were a lot of problems.

And despite that, there were still jobs available out there. It was just harder to find them. My advice is that you may have to spend more time looking for jobs and finding the one that’s right for you, but they’re out there.

"Now, today's generation very much treats the workforce as a free agency"

organizations generally no longer reciprocate that loyalty, if you stay with an organization for a long time, you do get rewarded for the length of your stay.

Pick an organization that allows you to move laterally and up and down, so that you have a lot of different experiences within that organization. I’ve worked for both mammoth organizations with 50 or 60 thousand people, and I’ve worked for partnerships and became a partner in a company that had 20 to 30 people. They are very much the same but have subtle differences.

In a small company, you’re everything: the chef, dish washer and CEO. In a big company, you have a small title but you do a very specific job for a period of time, and in a few years they will put you in other roles, departments, or even countries. People should pick an organization depending on where they want to work geographically and the type of experience they want to get, and stay for an extended period of time.

My other piece of advice would be to show loyalty to your employer. I was sort of a trailblazer in my career: Even though I worked for organizations, I treated myself as a consulting free agent and I still am to this day. But, that wasn’t the norm back in the 70’s and 80’s—it was very unusual.

Now, today’s generation very much treats the workforce as a free agency. They work for an organization until they get bored and move on. My counsel here, which is something I had to learn from experience, is that people should show loyalty to an organization. Even though

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December 2010

BASIC PROFILE Financial Consulting

Description This position covers a variety of fields and industries, and may relate to financial analysis, accounting improvement, or financial risk management.

Primary responsibilities may include managing change, or conducting research on financial markets.

C o m p e n s at i o n $72, 030 - $135, 070 (middle 50%), $99,330 median, excluding bonuses and stock options*

R e l e va n t E d u c at i o n Bachelors in finance, accounting, or economics MBA Chartered Financial Analyst E m p loy e r s Financial consultants can be employed by a number of major consulting firms (ie.

Boston Consulting Group, Deloitte), or by financial institutions as internal consultants. * US Bureau of Labor Statistics

LEARN MORE! CLICK HERE!

EMPLOYMENT:

At present, we are ACTIVELY searching for new writers, graphic designers, marketers, communications and sales staff to work for the ARBITRAGE, Canada’s first, national, student-run business magazine.

If interested, please send a cover letter, résumé (and sample of your work if you’re a writer or designer) to: hr@arbitragemagazine.com

SUBMISSIONS:

ARBITRAGE editors welcome submissions from writers and photographers.

Ask for details: submissions@arbitragemagazine.com

LETTERS TO THE EDITOR:

Suggestions? Kudos? Criticisms? The ARBITRAGE welcomes Letters To The Editor. They must be signed and include city of origin. Email: letters@arbitragemagazine.com

INTERVIEW:

If you are a business student of merit, a professor or industry professional, and you are willing to graciously lend your time to be interviewed for one of the ARBITRAGE’s future columns, please contact: query@arbitragemagazine.com

OTHER QUERIES:

query@arbitragemagazine.com

LEGAL NOTE:

All letters or pictures submitted may be published by the ARBITRAGE, unless expressly forbidden by the sender.

Names will be withheld on request. The ARBITRAGE cannot be held responsible for the return of unsolicited material. All submissions may be edited for punctuation, grammar, style and length. Not all material may be published.

Student Co. By: Joan Page McKenna

Breaking In to Bay Street

Internship

Degree

Fellow Students Share their Stories About Making It Big Originally Published by Career Insider Finance

he hard work you’ve put into your studies is starting to pay off. You’ve aced your interviews and have been offered a coveted summer internship in the world of finance.

But now is not the time to rest on your current successes or get too comfortable. Aside from offering you a chance to gain some practical work experience and helping to guide you on your career path, these valuable internships can also put you on the fast track to obtaining a fulltime job when you graduate. Internships should be thought of as a four-month job interview where everything you do will be evaluated, so you have to know how to make the most of them.

ALWAYS BE PREPARED Be ready to hit the ground running.

While you should have done some research about your new employer before your job interview, you will also want to learn everything about the job you will be doing before your first day at work.

You should also familiarize yourself with any dress codes your employer may have in order to look professional; this can mean either a business suit or business casual, depending on where you work.

Staying on top of market news and current affairs is also crucial, so monitor trade publications, websites and business-related television shows regularly.

“Find out as much as you possibly can about the company, including the role of the division to which you are applying. It is also very important to be up to date on all current events and market news,” says Graham Starko, who

68 ArbitrageMagazine.ca

Source: GTD Aquitaine at en.wikipedia

attends the University of Alberta and was a summer investment banking analyst at Scotia Waterous in Calgary.

“When it comes to investment banking, know about some of the deals that your prospective employer has worked on and the current shape of the market. If you are working in trading, be prepared to discuss economics and current markets. Currency, energy, interest rates and equity, to name a few, are all fair game. Spend lots of time studying and be driven. The upside potential — a great career — is huge compared to the couple of weeks it takes you to prepare.”

The business clubs at your school can help you prepare for the real-world challenges you will face. They typically offer lectures, networking opportunities with various employers and recruiters, and case competitions that will let you compare your skills to other students, earn bursaries and get noticed.

Even the smallest of tasks will give you a better understanding of the industry, so it make it known that you are eager to take on any challenges.

GET HANDS-ON EXPERIENCE The classroom is where you begin building your knowledge base, but nothing beats the practical education an internship offers. Use your time to get familiar with the ins and outs of your branch of finance.

Take advantage of every opportunity for hands-on work, whether it’s database maintenance, research and analysis, preparing

December 2010

company overviews or helping to develop client pitches. Even the smallest of tasks will give you a better understanding of the industry, so make it known that you are eager to take on any challenges.

“The biggest thing that I learned was probably how the investment banking division of a major bank operates. Such an experience is very rare for a university student, and it opened my eyes to how this field functions. I was also introduced to the various elements that go into making an industry deal happen, whether it is a merger, an IPO or financing,” says Shishir Nigam, a University of Toronto student who worked as an investment banking analyst for TD Securities last summer, and will be working with TD Asset Management upon graduation.

“I got my experience at a time when the world markets were jittery because of the US mortgage crisis.

I also got a firsthand view of how the markets can affect businesses in industries completely removed from the financial world, such as the power industry.”

DON’T BE AFRAID TO ASK QUESTIONS Employers expect you to be prepared for work, but they don’t expect you to know everything.

Don’t be shy about asking questions or requesting clarifications when necessary — it shows prospective employers that you’re interested and take your job seriously. But be careful. Asking the same questions repeatedly may have the opposite effect, so avoid this by listening carefully to the answers you receive and take a lot of notes.

Student Co. By: Joan Page McKenna

Employers expect you to be prepared for work, but they don;t expect you to know everything.

Also, try to complete as much of your work as you can on your own, but turn to the experts in your office when you’re unsure about how to do something. It’s far better to spend a little time asking for help than making a costly mistake.

“Never be embarrassed to ask questions, because if you don’t ask questions, you might do it wrong,” says Ivayla Dingilova, a student at Queen’s University’s School of Business who has interned twice at Deloitte as a valuations analyst, and has been offered a full-time job upon graduation. “Don’t be shy to talk to anyone more senior than you. I know some interns feel anyone higher up may not want to interact with them, but that’s not true. Once you develop a rapport with a manager, senior manager or partner, you’re likely to be their go-to person on anything else they need. Not developing these interpersonal relationships is probably the biggest mistake interns make.”

BUILD STRONG WORKING RELATIONSHIPS Employers look for the solid theoretical knowledge that education provides. Mastering the soft skills, however, such as interpersonal communication and demonstrating a true passion for finance, can also help secure your future with top firms.

The importance of these skills cannot be overemphasized. Solid communication and a commitment

to teamwork are essential to succeeding in business. If you’re unsure about how to act in your new environment, observe successful colleagues to see how they interact with each other. But also remember to be yourself, and always be polite and friendly to everyone — never assume that someone in a more junior position doesn’t have influence within your organization.

Go out for coffee with coworkers or attend work-related social functions after hours, even if you are shy. Being personable is key when it comes to networking, which is one of the most important tools for landing a permanent position, especially when you’re just starting out.

“I got to know everyone in the office, and always made an effort to speak to the administrative assistants and the directors in other groups. For example, a big part of our office was project financing for metal and mining companies. I found this sector very interesting, so I’d speak to my coworkers about these markets during coffee breaks to learn about their views,” says Derrick Fung, a University of Toronto student who interned in equity derivatives sales at BNP Paribas. “I tried to network as much as I could. It’s really important to get to meet and get to know people because they may be able to connect you with other people and jobs after your graduate.”

Don't be afraid to try something different. path, as the real-world experiences garnered on the job will show you which aspects of finance you most enjoy.

“Don’t be afraid to try something different. Each working experience enables you to learn something new, either in the work you do or about yourself. Keep yourself open to learning, as lessons sometimes come from places other than the classroom,” says Alexandra Wong, who attends McGill University’s Desautels Faculty of Management and interned as a financial advisor’s assistant and office manager at Investpro Securities.

“Observing the work my superiors did during my internship gave me a glimpse of the many careers paths available in finance.

The various projects I worked on required different skill sets, and this allowed me to better understand my own strengths and weaknesses and gave me a chance to improve myself.”

EXPLORE YOUR CAREER OPTIONS Internships are also invaluable in helping you choose your career

December 2010 ArbitrageMagazine.ca

69

Student Co.

TORONTO’S ESTIMATED POPULATION

by Five-Year Age Groups, 1986 - 2008

2,500,000 2,000,000 1,500,000 1,000,000 500,000 100,000 50,000

70+ 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4

Source: Statistics Canada estimates

1986

1988

1990

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1992

1994

1996

December 2010

1998

2000 2002

2004

2006

2008

AGES

EMPLOYMENT:

INTERVIEW:

SUBMISSIONS:

OTHER QUERIES:

At present, we are ACTIVELY searching for new writers, graphic designers, marketers, communications and sales staff to work for the ARBITRAGE, Canada’s first, national, student-run business magazine. If interested, please send a cover letter, résumé (and sample of your work if you’re a writer or designer) to: hr@arbitragemagazine.com

ARBITRAGE editors welcome submissions from writers and photographers. Ask for details: submissions@arbitragemagazine.com

If you are a business student of merit, a professor or industry professional, and you are willing to graciously lend your time to be interviewed for one of the ARBITRAGE’s future columns, please contact: query@arbitragemagazine.com

query@arbitragemagazine.com

LETTERS TO THE LEGAL NOTE: EDITOR: Suggestions? Kudos? Criticisms? The ARBITRAGE welcomes Letters To The Editor. They must be signed and include city of origin.

Email: letters@arbitragemagazine.com

All letters or pictures submitted may be published by the ARBITRAGE, unless expressly forbidden by the sender. Names will be withheld on request.

The ARBITRAGE cannot be held responsible for the return of unsolicited material. All submissions may be edited for punctuation, grammar, style and length. Not all material may be published.