Arbitrage Magazine - Reign of Chaos - April 2011 by Arbitrage Magazine

Middle East: Capital and Conflict

Sifting Through the Swine Flu Hysteria

The Pitfalls of Foreign Aid

APRIL 2011

Profiting vs. Profiteering

What is ACE? What is ACE?

What is ACE?

uick Facts uick Facts Active schools: 60 Active schools: 60 Quick Facts Active students: 1,624* Active students: 1,624* SIFE community • Active schools: 60 Quick Facts Quick Facts SIFE community rojects: 412* Active students: •• Active schools: 60 1,624* • Active schools: 60 rojects: 412* Student businesses: 130* • SIFE community • Active students: 1,624* •businesses: Active students: 1,624* Student 130* obs created: 559* projects: 412* • SIFE community • SIFE community obs created: 559* People impacted: 116,115*130* • Student businesses: projects: 412* projects: 412* People impacted: 116, 115* Student volunteer hours: • Jobs created: 559* • Student businesses: 130* • Student businesses: 130* Student volunteer hours:116, 275,431* • People impacted: • Jobs created: 559*115* • Jobs created: 559* 275,431* conomic opportunity Student volunteer hours: • People impacted: 116, 115* •• People impacted: 116, 115* conomic opportunity 275,431* reated: $10,000,000+* • Student volunteer hours: • Student volunteer hours: reated: $10,000,000+* • Economic opportunity 275,431* umbers based on fiscal year 275,431* umbers based on fiscal year created: $10,000,000+* ding 6/30/10 • Economic opportunity • Economic opportunity

ding 6/30/10 created: $10,000,000+* * Numbers based on fiscal year created: $10,000,000+* 011 ACE ending 6/30/10 * Numbers based on fiscal year ** Numbers Numbers based based on on fiscal fiscal year year 011 ACE egional ending 6/30/10 ending 6/30/10 ending 6/30/10 egional

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About ACE About ACE Advancing Canadian Entrepreneurship or ACE is a national, charitable organization About ACE Advancing Canadian ACE is a national, charitable dedicated to teachingEntrepreneurship and igniting youngorCanadians to create brighter organization futures for dedicated toand teaching andEntrepreneurship igniting young Canadians brighter futures forhigher About ACE themselves their communities. Through a collaborative partnership between Advancing Canadian or ACE istoacreate national, charitable organization About ACE

themselves andindustry, their communities. Through aCanadians collaborative partnership between higher education and ACE delivers programming that provides university and college dedicated to teaching and igniting young to create brighter futures for Advancing Canadian Entrepreneurship or ACE is a national, charitable organization Advancing Canadian Entrepreneurship or ACE is a national, charitable organization education and industry, ACE delivers programming that provides university and college students access to real world experience that complements in-class studies. By creating themselves and their communities. Through a collaborative partnership between dedicated tototeaching and Canadians tocreate create brighter futures for higher dedicated teaching andigniting ignitingyoung young Canadians to brighter futures for students access to real world experience that complements in-class studies. By creating solutions to economic, social and environmental issues through outreach projects and education and industry, ACE delivers programming that provides university and college themselves and communities. Through collaborative partnership between higher themselves andtheir their communities. Through aaissues collaborative partnership between higher solutions to economic, social and environmental through outreach projects and business ventures, students make a meaningful contribution to their communities today, students access to real world experience that complements in-class studies. By creating education and delivers programming thatprovides provides university and college education andindustry, industry,ACE ACE delivers programming that university and college business ventures, students make a meaningful contribution to their communities today, while also discovering their potential to achieve an even greater impact as the leaders of solutions to economic, social and environmental issues through outreach projects and students accesstoto realpotential worldexperience experience complements in-class studies. By creating students access real world that complements in-class studies. By creating while also discovering their to achieve an even greater impact as the leaders of tomorrow. business students make a meaningful contribution their communities today, solutions to economic, socialand and environmental issues through outreach projects and solutions toventures, economic, social environmental issues throughto outreach projects and tomorrow. while also discovering their potential to achieve an even greater impact as the leaders business ventures,students studentsmake makeaa meaningful meaningful contribution today, business ventures, contributiontototheir theircommunities communities today, of tomorrow. while also discoveringtheir theirpotential potential to to achieve achieve an leaders of of while also discovering an even evengreater greaterimpact impactasasthe the leaders About the SIFE Program tomorrow. tomorrow.the SIFE Program About Our flagship program, Students In Free Enterprise or SIFE, encourages students to form About the SIFE Program Our flagship program, Students Inbusiness Free Enterprise or learned SIFE, encourages students form teams on their campus and apply concepts in the classroom to to develop About the SIFE Program teams on flagship their campus and Students apply business concepts learned inofthe classroom to in develop About the SIFE Program Our program, In Free Enterprise or SIFE, encourages students to form outreach projects that improve the quality of life and standard living for people need. outreach projects that improve the quality of life and standard of living for people in need. Our flagship program, Students In Free Enterprise or SIFE, encourages students toto form teams on their campus and apply business concepts learned in the classroom Annual national competitions provide a forum for these teams to present the results of Our national flagship program, Students In aFree Enterprise orteams SIFE, encourages students toofdevelop form Annual competitions provide forum for these to present the results teams on their campus and apply business concepts learned in the classroom to develop outreach projects that improve the quality of life and standard of living for people in need. theirteams projects, and to be evaluated by business leaders serving as judges. 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SIFE in 39national 48,000 students worldwide. countries, on 1,500 college andprestigious university campuses and with direct involvement of over champion team advances to and the SIFE World in 39 countries, on 1,500 college university campuses andCup. with SIFE directoperates involvement of over 48,000 students worldwide. countries, on 1,500 college and university campuses and withProgram direct involvement of over 48,000the students worldwide. About Student Entrepreneur 48,000 students worldwide. About the Student Entrepreneur Program Our founding program, Entrepreneur, helps full-time studentsProgram operating a full-time About theStudent Student Entrepreneur About the Student Entrepreneur Program Our founding program, Student full-time students operating full-time business acquire valuable handsEntrepreneur, on experience,helps increased confidence and accessa to new About the Student Entrepreneur Program business acquire valuable hands on experience, increased confidence and access to new Our program,the Student Entrepreneur, helps full-time students operating a full-time opportunities, accelerating growth of their business for thestudents betterment of Canada. Our founding founding program, Student Entrepreneur, helps full-time operating a full-time opportunities, accelerating the growth of their business for the betterment of Canada. business acquire valuable hands on experience, increased confidence and access to new acquire valuable handsEntrepreneur, on experience, increased confidence and accesstheir to new Annual national competitions provide a platform for these students to showcase Ourbusiness founding program, Student helps full-time students operating a full-time Annual national competitions provide a platform for these students to showcase their opportunities, accelerating thegrowth growth oftheir their business for the betterment of Canada. opportunities, the ofperseverance business foran theentrepreneur betterment Canada. business achievements, demonstrate their as and business acquireaccelerating valuable hands on experience, increased confidence and of access to new business achievements, demonstrate their perseverance as an entrepreneur and Annual national competitions provide a platform for these students to showcase theirtheir Annual national competitions provide a platform for these students to showcase communicate plans for the future their enterprise. Panels entrepreneurs and opportunities, accelerating the of growth of their business forofthe betterment of Canada. communicate plans foras thejudges future their their enterprise. Panelschampion ofas entrepreneurs andonand business achievements, demonstrate perseverance as an entrepreneur business achievements, demonstrate their perseverance an entrepreneur industry leaders serve toofdetermine the national who moves to Annual national competitions provide a platform for these students to showcase their industry leaders serve as judges to determine the national champion who moves on communicate plans for the future of their enterprise. Panels of entrepreneurs and communicate plans for the future of their enterprise. Panels of entrepreneurs and represent Canada at the Global Student Entrepreneur Awards, by the andto business achievements, demonstrate their perseverance as presented an entrepreneur industry leaders serve as judges toto determine thethe national champion who moves on to represent Canada at the Global Student Entrepreneur Awards, presented by the industry leaders asinvolving judges determine national champion who moves Entrepreneurs’ Organization, entrepreneurs from more than 20 communicate plansserve for the future ofstudent their enterprise. Panels of entrepreneurs and on to represent Canada at the Global Student Entrepreneur Awards, presented by the Entrepreneurs’ Organization, involving student entrepreneurs from more than 20 represent Canada at as thejudges GlobaltoStudent Entrepreneur Awards, presented by theon to countries. industry leaders serve determine the national champion who moves Entrepreneurs’ Organization, involving student entrepreneurs from more than 20 countries. Entrepreneurs’ Organization, involving student entrepreneurs from more than represent Canada at the Global Student Entrepreneur Awards, presented by the 20 countries. countries. Entrepreneurs’ Organization, involving student entrepreneurs from more than 20 Our Impact Our Impact countries. Our Impact ACE isOur unleashing Canada’s potential by: Impact ACE is unleashing Canada’s potential by: • Developing leaders ACE is Impact unleashing Canada’s potential by: Our • leaders Canada’s ACE isconnections unleashing by: higher education • Developing Creating between potential industry and • Developing leaders • Creating connections between industry and higher education • Developing leaders • Improving livesconnections and Canada’s strengthening communities • Creating between industry higher education ACE is unleashing potential by: and • Improving livesthe and strengthening communities Creating connections between industry and higher •ensuring Improving lives and strengthening communities ACE future of our country is in good hands -education today and tomorrow. •is• Developing leaders ACE•is• ensuring the future of our is inisand good hands - today Improving lives and strengthening communities ACE is ensuring the future of country ourindustry country in good hands - todayand andtomorrow. tomorrow. Creating connections between higher education ACE is ensuring the future of our country is in good hands today and tomorrow. • Improving lives and strengthening communities ACE is ensuring the future of our country is in good hands - today and tomorrow.

APRIL 2011 Founder+CEO David Alexander Board of Director Samita Vasudeva Garin Kilpatrick Michael Manirakiza

MAGAZINE PRODUCTION TEAM Editor-In-Chief

Kevin Kang

Student Resources Vahida Badet Section Editor Finance/Economics Section Editor Arts & Culture Section Editor Co-Senior Online Editor Online Editor

Andi Kusuri Naomi Freeman Saif Quershi Luis Fernando Arce William Elliot Shaub

Copy Editor Amy Ward Staff Writer

Pawan Shamdasni Alfred Yim Victoria Chau Troy Redick Gurpreet Purewal ShindusanParameswaran Ellen Stevens Salman Abdulaziz Teng (Tony) Ge Liam Scott Zack Larmand Art Director Ryan Trinidad Staff Designer Luis Ernesto Rojas Gonzalez Akil WOrrell Jennifer Lee Trishaala Ninan Laura Gonsalves Katie L. Serensits Angela Song Christine Sherry Monserrat Rivera Joseph Kong Richard Pereira

ARBITRAGE SUPPORT STAFF Director HR

Rabeea Wajeeha

HR Coordinator

Natalie Sekiritsky Alejandro Lara Evonna Iadipaolo Rebecca Tang

Marketing Staff

Catherine Chen Claudia Carvajal Marcia R. Navarrete

Accountant

Junwen (James) Wu

Sales Manager

Jaspreet Singh

To the Arbitrage Community, Once again, the Arbitrage Magazine is here and ready to give your mind a heaping tablespoon of food for thought. With a potent mix of informed discussion and provocative design, the ARB is sure to satisfy the modern business student. In this issue, we explore what happens when people find profit in chaos and disaster. We take you on a journey to discover how people transform wars and devastation into golden geese for some of the world’s largest businesses. How do private military corporations operate? What do pandemics have to do with medical industry cash flows? The ARB hopes to shed some light on these issues, their ethical ramifications, and how they will shape the future of our world. For those who need guidance on their path to becoming future business leaders, this issue’s Student Resources section features an ARB-exclusive look at some of TD Bank’s student employment opportunities. Manager of Recruitment for TD Business Banking, Nancy Moulday, offers some excellent advice for students on how to stand out above the crowd and break into commercial banking. The ARB is well on our way to becoming the largest student publication in Canada, and we would like to thank you for staying with us on this journey. As our beloved magazine continues to grow in staff and content, we continue to count on your support. It’s our readership that keeps our staff motivated, and it is your word-of-mouth that lets us continue being North America’s premiere student driven business magazine. Curious readers, sit down, open your mind, and prepare yourselves for the sixth issue of the ARB!

Kevin Kang Editor-in-Chief Arbitrage Magazine Email: kevin.k@arbitragemagazine.com LinkedIn: http://linkd.in/Kevin-Kang

LEARN MORE! CLICK HERE!

Features 8 CAPITAL AND CONFLICT

The political economy of capital accumulation

22 THE PITFALLS OF FOREIGN AID

How to tackle the poverty problem at its roots

34 SIFTING

THROUGH THE SWINE FLU HYSTERIA

The panic around pandemics and the money behind them

50 PROFITING VS. PROFITEERING

War, devastation, and who’s cashing in on them

50 April 2011 ArbitrageMagazine.ca

TRENDS Source: flickr.com/h.koppdelaney

Profit can be found anywhere—even in disaster. Even when the world seems spiralling into an age of natural and political instability, some businesses are celebrating phenomenal growth. The following feature articles explore the ethical and economic aspects of profiting from disaster, as well as how they will shape the world of tomorrow. Follow the trail of money, and open your eyes to the economics of disaster.

IN THIS SECTION… 8 CAPITAL AND CONFLICT

The political economy of capital accumulation

22 THE PITFALLS OF FOREIGN AID How to tackle the poverty problem at its roots

Click to learn more & join us!

34 SIFTING THROUGH THE SWINE FLU HYSTERIA

50 PROFITING VS. PROFITEERING

War, devastation, and who’s The panic around pandemics cashing in on them and the money behind them

Trends

Trends By: Troy Redick

The political economy of capital accumulation

he theme this issue is that of chaos, and its relationship to profit. However, there is evidence to support a decidedly un-chaotic, almost mechanical relationship between the profits of certain sectors and international armed conflict. In a multitude of works, Political Economy professors Jonathan Nitzan and Shimshon Bichler illustrate that over a period of 40 years, the profit of a specific coalition of firms increased relative to that of the Fortune 500 immediately following every conflict in the Middle East. Furthermore, they show that such conflicts occur after periods when the group of firms they term the ‘WeapondollarPetrodollar Coalition’ earns profits below that of the Fortune 500 average. This is a case of profiting directly from war and strife. The aggregate of the ‘Arma-Core’ and ‘Petro-Core,’ referred to by Nitzan and Bichler as the WeapondollarPetrodollar Coalition, sees its profits rise in lock-step with international armed conflict, especially in the Middle East. The cause of this positive relationship between profit and war should be easy to guess when examining defense contractors and weapons companies - Nitzan and Bichler’s Arma-Core. However, the question remains as to why oil companies profit directly from conflict, and why such conflicts always erupt at times most convenient for the financial well-being of the firms comprising the Petro-Core. As a student of both Political Economy and Finance, I found the authors’ explanation particularly

eye-opening and felt compelled to share it. Anyone interested in the functioning of business and society would do well to explore this theory and broaden their perspective. The cause, according to Nitzan and Bichler, is capital as power and the method by which said power is accumulated and exercised. Capital as Power and the Middle East Commonly argued causes for conflict in the Middle East include American Imperialism, clash of cultures, anti-liberalism, religious wars, etc. It is perhaps true that the conflict in the area is fuelled in part by these undercurrents. However, Nitzan and Bichler found a pattern in quantitative empirical data, that when combined with their theory of capital as power, helps explain the conflictual nature of the Middle East with demonstrable proof. The following image (taken from Nitzan and Bichler’s work) is a graphical representation of this fact. The horizontal axis represents the point at which oil and weapon companies realize profits equal to those of the S&P 500 average. Black bars represent a relative loss of profitability for the Weapondollar-Petrodollar Coalition compared to the S&P 500 (a danger zone for conflict); white bars represent the opposite. The explosion images represent a major conflict in the Middle East. As you can see, every time profits hit a danger zone, there was an energy conflict and the differential profits of the Weapondollar-Petrodollar Coalition reigned supreme.

April 2011 ArbitrageMagazine.ca

Trends

Trends By: Troy Redick

By: Troy Redick

The Theory of Capital as Power Departing from both neoclassical and Marxist thought, Nitzan and Bichler propose that capital is not a material object or a factor of production, nor is it a social relationship embedded and expressed through material goods, and it is not simply “‘augmented’ by power. It is, in itself, a symbolic representation of power”. The authors state that the neo-classical economics governing our society are not objective or scientifically grounded, but are instead “largely an ideology in service to the powerful. It is the language in which the capitalist ruling class conceives and shapes society. Simultaneously, it is also the tool with which the class conceals its own power and the means with which it persuades others to accept that power.” While they

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April 2011

debunk previous theories, the real importance of their work is this new conceptualization of power. Furthermore, they provide empirical evidence to substantiate all of their claims. I will (very) briefly explain the theory of capital as power in three steps: understanding prices as indicative of power, through markup; understanding how such power is accumulated, differentially; and how this power is exercised and maintained. This will be followed by an explanation of how this relates to (and perhaps explains) much of the conflict in the Middle East. Prices and Power The economics taught in schools today is neo-classical economics. It is mainstream knowledge that these economics are primarily the study of supply and demand. The relationship between these two

allegedly independent variables is thought to determine the price of any given good or service. Economics sees this market mechanism as a scientific and constant relationship, similar to a law of motion as understood in physics. Actors in the market, both buyers and sellers, are believed to have no power or choice in the matter, other than to passively accept and respond to the price dictated by the ‘market’.’ However, this theory has been challenged since at least the 1930s, by thinkers such as Means, Hall and Hitch, and Veblen (Nitzan and Bichler, 239-240). Gardiner Means researched industrial prices in the United States and exposed a duality in the nature of prices: market prices and administered prices. The first type are those typical of neo-classical economics, being “relatively flexible, moving up and down with supply and demand, and prevalent in competitive industries”. The second type of prices was a new discovery and would prove to be anathema to neo-classical economic theory, as they were “relatively inflexible, changing only infrequently, responding slowly to market conditions and typical of concentrated industries”. Administered prices run counter to neo-classical rational maximization and theories of supply and demand. Not only do prices of this type not derive from the relationship between supply and demand, but by not responding to market conditions, price makers are not attempting to make the best of their situation, and thus are not actively rationally maximizing. While administered prices present a significant challenge to the neo-classical price doctrine, they provide ample support for a theory of capital as power expressed through markup. Taking this alternative price theory a step further, Hall and Hitch presented research into

business behaviour, and more specifically pricing patterns. Based on interviews with British corporate officials, this work uncovered a system which can be called ‘markup pricing’. Corporate officials started by calculating the cost at normal levels of output, added a “conventional markup”, and maintained this price against cyclical variations in demand. Kaplan, Dirlam and Lanzillotti continue in this vein to illuminate the logic behind markup pricing. These authors introduced the concept of a ‘target rate of return’, whereby corporations, “particularly the leading ones, begin with a long-term rate of profit, and then backcalculate the markup necessary to realize this rate of return over the longer haul”. Michal Kalecki theorized this markup as more than a simple anomaly in economic theory; instead, he equated it with power. Kalecki calls this power the ‘degree of monopoly’ and it can be measured by examining markup. Nitzan and Bichler maintain that power is nothing but its effect and can only be known by its consequences. In this case the consequence is markup: “the higher the markup and its associated rate of return, the greater the implied power of those who set it, and vice versa”. This is because a corporation able to maintain a high level of profit relative to that of the market average, via high markup, demonstrates a requisite degree of differential power. What this means is that markup can be used as a proxy to measure differential power, and it is important to understand how firms achieve this power. Differential Accumulation of Power: Breadth and Depth Nitzan and Bichler propose that there are two main methods by which dominant capital can differentially increase its power: depth and

breadth. Each of these methods can be further split into internal and external means. They point to internal breadth through mergers and acquisitions (M&A) as the primary method of differential accumulation, supplemented by external depth through stagflation (no, stagflation is not an anomaly of the Great Depression – the authors prove its recurrence throughout history!). Nitzan and Bichler state that internal breadth - especially M&A - is the most important driver of longterm differential accumulation, with stagflation being useful to bolster M&A at certain points and in specific circumstances along the way. The term internal breadth itself simply denotes a differential growth in earnings achieved through labour movement between firms. The most important form of internal breadth is M&A. The amalgamation of corporate assets in this manner increases the size and earnings of a firm relative to the average of all firms, without affecting that average or increasing capacity, and thus depressing prices. The real effect of M&A is to redistribute control over existing capacity and employment, and thus differentially accumulate profits, and power: “[mergers and acquisitions] directly increases differential breadth; it indirectly helps to protect and possibly boost differential depth (relative pricing power); and it reduces differential risk”. While M&A covertly increases differential profit and power, it explicitly concentrates ownership of firms, as the acts of merger and acquisition are themselves nothing more than a change in ownership. This has led to an increase in concentration of corporate ownership and tendencies toward oligopoly in some sectors, notably including the oil sector and OPEC. No Coincidence According to Nitzan, the twin politicization of oil business

April 2011 ArbitrageMagazine.ca

Trends By: Troy Redick

and commercialization of arms transfers helped shape an uneasy Weapondollar-Petrodollar Coalition. The differential profits of these companies became more and more dependent on precarious interaction between rising oil prices and growing arms exports stemming from successive Middle East energy conflicts. The 1950s and 1960s saw the major oil companies moving toward greater cooperation with the OPEC countries, under pressures of increased nationalism and more competition. “The success of this alliance was contingent on the new atmosphere of ‘scarcity’ and oil crisis, which was in turn dependent on the progressive militarization of the Middle East”. Bringing arms dealers into the picture, the large US and European-based military contractors were faced with evermore reliance on exports to oil-rich countries. This Weapondollar-Petrodollar Coalition accumulated power, expressed as profits, through an ongoing cycle of oil crisis and violent conflicts in the Middle East. OPEC governments and oil companies alike realized massive profits from soaring oil prices. As seen before, prices are an indication of power, and with oil prices rising amid periods of conflict, it comes as no surprise that these same OPEC governments spent the profits of oil on “expensive weaponry in preparation for the next war.” Furthermore, the power of OPEC and large oil companies was cemented by the concentration of a small number of giant global players in a controlled sector. Both the large arms dealers and oil companies gained through Middle East conflict: one through a higher price of oil amidst conflict, a risk premium of sorts, and the other through larger military orders. The interests of these firms all converged on higher oil prices, and the mechanism for achieving this common goal was the

12 ArbitrageMagazine.ca

militarization of the Middle East. And the result? The Middle East remained a hotbed of international conflict, and “became the world’s largest market for imported arms, absorbing over one-third of the global trade”. This WeapondollarPetrodollar Coalition began to lose power and profitability during the late 1980’s and was eclipsed in relative power by other business interests. However, it retained sufficient power to delay a global financial crisis in the early 2000’s, “[managing] to put the Bush clan back in the White House, inflame the Middle East, raise the price of oil”.

This is no conspiracy theory; it is merely the rich and powerful manipulating society to maintain their financial and business interests around the globe, and thus securing their dominance. It is no different than a corporate giant such as Microsoft acquiring or crushing nascent competitors - it is conducting business by any means necessary. With profits comes the power to shape society, and if the maintenance of said power requires conflict in order to secure profitability, then those in power will seek war – and if history is any judge, they will likely get it. LEARN MORE! CLICK HERE!

April 2011

INTERNATIONAL AFFAIRS

FINANCE & ECONOMICS

18 Pakistan: a

30 The Global

Flooded Economy The long-term economic effects of the 2010 flood

19 “WHERE AM I

CALLING? IS THIS INDIA?” Outsourced?

20 PMC’s a GUilty

Buy?

Housing Slowdown

32 Derivatives:

Financial Ingenuity or Ticking Mess?

BIZ START UP

56 keeping the

64 DoRM Room,

internet free for all

Inc.

58 The Sky is

Boudreau: Bringing Magic to Business

Housing price recovery stalls in Canada and around the world

31 The Power of

CULTURE

Green Make Sense

Falling. Let’s Tweet About It.

42 How file

47 INCORPORATING

60 THE ULTIMATE

Dividends

sharing affects Canadian indie musicians? tech-nology

April 2011

The impact of new technologies on productivity in the workplace.

SCIENCE & TECHNOLOGY

A brief look into the world of derivatives, their role in risk management, and the need to increase their regulation

46 more

14 ArbitrageMagazine.ca

equals less productivity?

47 Dirty Jobs 48 Making the Legalizing Marijuana

YOUR BUSINESS

Protesting the G20 Summit

The role of social media in a time of crisis

SMARTPHONE FACEOFF

Blackberry vs. iPhone. Which smartphone measures up?

66 Remi

21 Year Old Magician Named 2011 Student Entrepreneur STUDENT CO.

70 Career

Spotlight

Interview with Nancy Moulday, TD Business Banking

April 2011 ArbitrageMagazine.ca

INTERNATIONAL AFFAIRS Source: lh6.ggpht.com

Globalization transformed the world into a tiny island, one where even the smallest tremors gain momentum and ripple through entire populations. As people break through even more political, trade, and communication barriers, the prosperity and pain of each nation will be shared by a larger number of its friends and neighbours. The articles in this section deliver key insights to where our entire world is heading, and the opportunities and threats present in our near future.

IN THIS SECTION… 18 Pakistan: a Flooded Economy

The long-term economic effects of the 2010 flood

Click to learn more & join us!

19 “WHERE AM I CALLING? IS THIS INDIA?” Outsourced?

20 PMC’s a GUilty Buy?

International Affairs

By: Pawan Shamdasani

By: Vahida Badat

PAkIstAn: A Flooded economy

“WHERE AM I CALLING? IS THIS INDIA?”

The long-term economic effects of the 2010 flood ne of the world’s worst natural d i s a s t e r s occurred on July 22nd 2010 in the province of Baluchistan—the Pakistan floods. About one-fifth of the country was deeply affected and the death toll estimates ranged from 1,300 to 1,600. Roads, bridges, schools, health clinics, electricity and communications were largely ruined by this calamity regardless of Pakistani and international relief officials who desperately tried to save the people and their property. Yet, before this summer’s catastrophic floods, Pakistan’s economy was on the verge of a breakdown—a stagnant economy, a debt of $55 billion, a weak tax base, and a third of the population falling below the poverty line. Now, in the aftermath of the flooding, Pakistan must deal with the seemingly impossible task of preventing complete fiscal collapse, face the costs of relief reconstruction, and deal with the other drastic implications. Many analysts fear that an economic meltown could cause civil unrest which could not be controlled by the current government, led by President Asif Ali Zardari. In other words, the prospect of extended economic stagnation, joblessness and skyhigh food prices could set off a collaborative anger in the public through the form of extreme protests which would threaten Pakistan’s economic and political stability in the future. At the moment, most victims have suffered in silence, though small protests

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April 2011

have occurred in regions where food, drinking water, and medical supplies have been inadequate. "The likelihood of public protests and a degree of anarchy does exist; these are genuine fears" says Hafiz Pasha, an analyst at the Institute for Public Policy in Lahore. "We've already had two or three years of high inflation and loss of growth, and there's already discontent within the population. So you have a dangerous combination" states Pasha. The United States, Canada, and many other countries have generously dtonated millions of dollars into flood relief efforts, however, it is expected that Pakistan will require even more. Losses from the flooding are expected to reach $43 billion according to Prime Minister, Yousuf Raza Gilani. The inflation rate was forecasted to reach 9.5 per cent in 2011 before the floods but is now projected to be as high at 20 per cent as government borrowing increases. In 2011, economic growth is expected to drop from a projected 4.5 per cent to 2.5 per cent. Hafeez Shaikh, finance minister of Pakistan also warned that the government may not have sufficient funds to pay their employees in the near future. The economy is clearly “heading toward the abyss" declared Shaikh. For Pakistan to survive this ongoing epidemic and recover from the crisis will largely depend

Outsourced?

on how fast its farmers can get back into the field. Most experts believe that the nation’s main economic sector, agriculture, may not improve in time for the fall wheat sowing season. If missed, this could potentially trigger substantial food shortages in 2011 as well as a loss of income for farmers for the full upcoming year. Agriculture accounts for 43% of the country’s jobs but 20 per cent of irrigation infrastructure, livestock and crops have already been eradicated. Many miles of irrigation canals must be cleared of silt; seed and fertilizer needs to be replaced; and many homes and silos must be reconstructed. So how will recovery tasks be financed? Clearly through the means of borrowing, which in the past has resulted in the nation’s debt accumulating to $55 billion? The Pakistan government will only continue to take loans from the International Monetary Fund and other international financial institutions adding to the country’s debt. Whether the economy can hold up during the post-flood recovery will be determined by the terms attached to that assistance. What lies in the future of the Pakistan economy depends on the governments’ ability to repay their debts, which, as of this point, is unlikely. Moreover, millions of Pakistanis now find themselves homeless and uncertain of how to cope and provide for their families.

ost of us by now has called an organization to ask for tech support and is greeted by someone who has a very distinct accent. Nbc’s new sitcom, Outsourced, follows the lead character, Todd Dempsy (Ben Rappaport), who is sent to India to become a call center manager at Mid America Novelties after the company decides to outsource its order processing. For many North American businesses, this has become a reality since outsourcing to countries like India and China is now a key step towards lowering costs. Over the past couple of decades, a trend towards outsourcing labour to foreign markets started to appear. Many large companies began searching for business opportunities in countries like China, India, Brazil and the Philippines. Many call centres have been relocated to countries around the globe, but it is not just call centre jobs that are being outsourced. More and more other jobs related to manufacturing, engineering

and medicine are also being outsourced. Jobs such as these began to move to these countries because people there are more willing to work for a much lower wage than workers in North America. Businesses want to take advantage of the cheap labour market and sending jobs overseas is just a small step towards an increase in profit for companies. This trend has brought largescale employment to countries that regularly lack such opportunities. At the same time, this move has deprived employees in North America of their jobs, causing high unemployment and widespread layoffs. Although there may be many criticisms for outsourcing, the change in job distribution to foreign countries is not entirely bad news. Outsourcing has also led to economic growth, especially in the private sector. Small companies are now able to focus on marketing strategies to attract customers and investors instead of focusing on data processing and distribution. Money that these businesses save through outsourcing can now be put towards revenue-producing

activities. Outsourcing is an obvious way that company costs can be cut, but more and more companies are investing in training their employees abroad, so that they can become highly skilled and specialized in their fields. Statistics Canada stated that the national unemployment rate in December 2010 was recorded at 7.6 percent. It signifies a drop from November’s unemployment rate of 8.2 percent. Comparing these statistics to that of December 2009, employment has increased by 2.2 percent. In the province of Ontario alone, 26,000 jobs were lost during the recession. Is this partly to blame on outsourcing? Whether or not this is the case, there seems to be a light at the end of this dark tunnel. In fact, TD Economics predicts that things are going to change for the better in the near future. They say that although Canada’s manufacturing sector has seen quite a downfall within the last ten years, it will actually see a growth in the years 2011 and 2012.

April 2011 ArbitrageMagazine.ca

International Affairs By: Alfred Yim

PMC’s a GUilty Buy? he size of the private military industry today is undoubtedly monstrous, with over 100 billion dollars in revenue annually and engagements in almost every function in overseas arenas. Private military companies (PMCs) are now an immutable fact of overseas liberations and occupations. It is no exaggeration to say that nearly every possible job one could think of is being serviced by these privatized security firms, from cooking duties to more expected ones such as providing armed security for clients. In fact, over 200,000 contractors are currently performing such duties in Iraq and Afghanistan. With those facts in mind, investing in the companies that benefit from conflict (Boeing, Raytheon, Haliburton, and Lockheed Martin) would seem to be both a wise and morally damning decision. But should including companies like these in a portfolio have to involve the discussion of normative ‘moral’ behaviour? Can the act of investing simply involve the allocation of monetary units to a corporate entity and not require obsession over the question of morality? To help ease your mind when making the fateful decision to taint the moral sanctity of your portfolio, consider the following: The PMC industry, in spirit, is not a New Age phenomenon that is somehow perpetuated by an extensive international bankster and shadow government conspiracy to enrapture the globe in perpetual war. The fact is that the ‘guns for hire’ activity has existed for millennia to cater to the predilection for violence. In ancient times as early as 2000 BC, private military forces were used by the likes of King Shulgi of

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Ur (modern day Iraq), the Pharaohs of Egypt, King David, and even the Ammonites (who employed upwards of 30,000 soldiers in their battle with Israel). And in the 18th century, 1777 in particular, the American revolutionary war saw the use of privately contracted fighters in the form of a convoy of Frenchmen led by Marquis de Lafayette. The common thread that ties each era’s usage of mercenaries is the motivation for warfare and the demand for able fighters at a favourable cost.

"End of the Cold War, the changing nature of combat, and convenience" Additionally, PMCs and the industry itself have grown thanks to the end of the Cold War. The cessation of hostilities provided a glut of able military men from both sides of the curtain and initiated a steady trend of military downsizing. Ever since then, warfare has been characterized by asymmetrical fighting; as in an overwhelmingly powerful force versus a cadre of guerrilla fighters. The effect of a lack of a clear enemy to fight makes the political side of things problematic and the political will to commit forces to sordid situations weak. This is not to mention the financial costs of sending additional forces to troubled areas of the world. Such reluctance is illustrated by the situation that unfolded in Sierra Leone, and was only addressed, albeit temporarily, by an entity which the United Nations used to condemn. From 1994-1995 a butchering of untold of proportions took place. The Revolutionary United Front pillaged, raped and mutilated all

those who stood in their way – the poorly paid government soldiers fighting against the RUF were only slightly better in that department. Western countries were busy evacuating their ambassadors and stood silent on the issue of providing some kind of solution to the slaughter. Only when the South African PMC Executive Outcomes was hired for $35 million (roughly the cost of 11 Abrams Tanks) by the Sierra Leone government did the situation change for the better. The result of the PMC’s entry was the rout of the RUF within weeks, leading to the country’s first civilian-led democracy. Increasingly, governments and international organizations like the UN recognize the necessity of PMCs who are willing to supply experts to war zones and locales too costly in terms of political and financial metrics. This is despite the major issue of contractors existing in a sort of twilight zone in terms of international law. Not to imply that people should adopt the thought process of a lemming by taking the UN’s recent condoning of PMC activity as a ‘go’ in terms of investing in these companies, but recognize that ground conditions dictate action. In locations such as Haiti, Somalia and Afghanistan, the reality is that local security measures are inadequate and Western governments’ support is waning. Should the solution there be to ignore the ground conditions because the alternative is morally inadequate despite the benefits? The answer to that is inconclusive; however, taking a pragmatic stance to that is advisable given the complexity and many people who are affected by PMC activity. Likewise, so too should an individual investor be pragmatic and practical when dealing with this dilemma

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Trends

Trends By: Luis Fernando Arce

ASSUMING RESPONSIBILITY

How to tackle the poverty problem at its roots

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012 is approaching, and more people than I’d like to believe assure me that the world is coming to a turning point and headed downwards. I’m not sure if it will or not, but speculation over that fact is a topic for a different paper. However, to our great dismay, their supporting evidence is not the movie 2012, or even the Mayan predictions, but the increase in frequency and magnitude of the disasters happening around the globe. Perhaps it’s because I’ve put on my pessimistic sunglasses, but it seems that more and more political unrest is occurring in around the world, many exacerbated by the fury of nature, others by the wrath of corruption. Egypt, Tunisia, Greece and the United Kingdom come to mind. These phenomena, of course, are not new. Natural disasters and political unrest have been occurring in countries around the globe for as long as civilization has stood; and for nearly as long, the idea of being charitable and helping those who seem in need has stood parallel to it. In the New Testament, Jesus tells a story about the Good Samaritan, who stopped to help a man whom he had never met before; move forward in time and we begin to see charity itself turn into an institution. Today, most of us are familiar with charitable organizations, both private and public, and at some point or another in our lives we donate money so that it may reach a faceless image somewhere in the world and help them survive, if only for one more day… or so we’d like to assume.

AID – THE PRIVATE AND PUBLIC WAY Foreign Aid is money or resources transferred from one country (developed) to another (underdeveloped) without expecting full repayment. In order to qualify as Aid, the money must be identified as part of an Official Development Assistance program, meaning that all loans or transfers must be made with the explicit purpose of generating economic development in the recipient country. The loans must be made with less stringent repayment options, and must have no commercial ambitions attached. Foreign Aid is also divided into two camps: Public Development Assistance, which includes donations given directly from one government to another or donated by multilateral agencies such as the IMF and World Bank, and Private Development Assistance, referring to private non-governmental organizations and institutions, such as the Red Cross or Free the Children.

When citizens opt to donate money, they do it through private, non-profit, non-governmental organizations, which take the donations and allocate them to the different projects they have in place. Moreover, citizens are also able to join these organizations as volunteers and travel abroad to put in hands-on work on projects involving construction of houses, schools, hospitals, etc. Private organizations focused on foreign aid are one of the channels through which private citizens can become active in the issues happening abroad. On the other hand, multilateral institutions and governments involved in foreign aid transfer their funds directly to the recipient government. As far back as 1970, the richer governments that were members of the United Nations pledged to direct up to 0.7% of their Gross National Income towards foreign aid, a target that only the Scandinavian countries, the Netherlands and Luxemburg have met, and for which the U.S. has

April 2011 ArbitrageMagazine.ca

Trends

By: Luis Fernando Arce

ranked nearly last among OECD countries, with 0.15%. There is an open and sometimes heated debate regarding whether government or private organizations are more efficient, not only in delivering aid, but in helping the beneficiary countries erect a more stable political and economic system than previously held. But it has come abundantly clear to many that neither has been entirely good at it, prompting many people to refuse donating money, afraid of “where the money will really end up.” “Kenya now joins countries like Pakistan in being labelled corrupt,” reads an article in the Calgary Herald business section. “It is because of this reputation that Canadians appeared reluctant to donate generously towards relief aid when Pakistan faced devastating floods last year.” While the stark reality is that most of the countries that are beneficiaries of foreign aid are corrupt, there are underlying causes that either sustain the corrupt regimes or allow them to continue unfettered. Now, although that may seem grim, the fact that western democracies and donors of foreign aid are largely responsible for these conditions is outright dismal. ASSESSING CORRUPTION When trying to assess the level of corruption that occurs within the walls of private charities, an economist in the New York Times opines that there is “no single measure [to] tell us how well a charitable organization spends the money it raises, or how it compares to other charities.” Indeed, the reason why people feel reluctant to donate money is that they fear that the funds will be misallocated. And this fear is not entirely unfounded, according to Raymond W. Baker, Director of Global Financial Integrity, a Washington-based think tank that promotes the

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hindering of illicit financial flows and the enhancement of global development. However, according to him, the discrepancies between the resources that charities allocate and the resources that actually make it into the country may not necessarily be due to corruption. Since a “great deal of what is allocated is in the form of services being rendered by the giving organization to the foreign country and that service is in terms of personnel,” the actual services rendered may fall short of the goals set out at the beginning. Many times, it is merely due to incompetence. Mr. Baker and I recalled the Katrina flood in 2007, and when I asked if corruption had anything to do with the slow response time, given the fact that the disaster was right at home and that the political arena was relatively stable, he scoffed and quickly responded: “No. It was incompetence.” Moreover, he suggested that although some companies do come forward when they find that corruption has occurred within their organization, this “may not [represent] the majority.” As our conversation progressed, it became apparent that although Mr. Baker was answering my questions regarding the corruption that happens within the recipient governments, there was more to be said about the donating governments or institutions and their role in the corruption that occurs overseas. FAILED POLICIES When I asked him who he felt was responsible for the networks that misappropriate foreign aid funds, his answer divulged a great deal about his opinion of western democracies and their relation to recipient countries’ corruption. For one, he condemned the nature of secrecy involved in the Global Shadow Financial System.

“Much of the big money stolen on contracts and aid efforts through corrupt proceedings disappears internationally through the global shadow financial system and comes back to our western economy,” he said. “More than one trillion dollars bleeds out and ends up in western societies. We in the west create the structures that facilitate the movement of that money (through tax havens, secret jurisdictions, offshore accounts, etc).” He added that to do so – to increase transparency in the global financial system – is a “matter of political will” on our part. There is also the matter of what the aid actually does for the recipient countries. Because foreign aid is usually considered “tied aid,” the recipient countries are expected to abide by the conditions and requirements set out by the donor countries. Though Mr. Baker agrees with conditionality, he asserted that he disagreed with the Washington Consensus, the set of regulations and conditions that spanned from the 1980s to 2008, which sought to reform developing countries economically so as to make them more attractive to open-market policies. What these conditions did was to “[dictate] an excessive level of economic requirements before the country [could] get the loan.” In this context, we saw catastrophic results, as it drove most recipient countries further into a debt they could not serve, causing some economies to default on their loans or to sink into perpetual debt. Mr. Baker recommended that to avoid the repetition of such an experience, “western countries must look inwards” and ensure that we too have requirements set in place not only to lend the money but to ensure its proper allocation and use.

AIDING (and Abetting?) It seems almost inevitable that corruption will continue to occur in certain places around the globe. The recent elections in Haiti were a joke, and most African countries are riddled with corrupt officials, most of whom take office because they know it will give them “unfettered access to the treasury,” according to Dr. Dambisa Moyo, an economist and author who believes that aid being sent to Africa is simply not working. In her book, Dead Aid, she claims that “six decades of Western aid has itself been an unmitigated political, economic and humanitarian disaster for most parts of the developing world.” Focusing on Africa, she suggests that although there is a “moral

imperative” for humanitarian aid, many of the solutions that it offers are mere bandages put over an infectious gash that no one seems to want to address. She suggests that what needs to be done is not to alleviate the surface problems, but to amend the core issues that allow corrupt officials to remain in power. She criticises governmentto-government aid, and aid given by institutions like the World Bank and IMF, for what she considers irresponsible and counterproductive lending. Her argument, essentially, is that the humanitarian aid, for Africa, has taken the form a “debilitating drug,” one that has turned the continent into an addict. She cites that although the countries

received over $1 trillion in aid over the last 60 years, more than half the population still lives in squalor and on less than a dollar a day, per capita income is lower than in the 1970s, over $20 billion annually go towards debt repayment, and all of this at the expense of African education and healthcare. Of course much of the reason for this is the connection of aid to corruption in Africa. Most government officials have extensive records, including embezzlement, violence, corruption, and many more charges. As such, most of the money and resources sent as aid don’t get to the people, but instead get caught somewhere in the bureaucratic red tape, thusly leaving the country in constant need for more money.

April 2011 ArbitrageMagazine.ca

Trends

By: Luis Fernando Arce

5.00

with their agents and customers across the country to find out where prices are most competitive… [which] translates into numerous opportunities for self-sustainability and income generation -- that, with encouragement, could be easily replicated across the continent.” She furthermore proposes that Africans enter bond markets, get active in micro-financing and demand revised property laws. And in order to erect a middle class, which every self-sustainable economy needs, she suggests that Africans enter into commercial investment agreements with the Chinese. While this sounds logical, and even prosperous, one cannot help but wonder if there aren’t other

AFR

April 2011

THE POLITICS OF HUNGER When I asked Mr. Baker, “Why keep doing it?”, thinking that I was referring to sending money, he answered that it was because the people nevertheless do need it. “There are no black and white circumstances in foreign aid,” he said. Sometimes issues have to be muddled through because of the end result. Referring to the relief that the Taliban provided to Pakistanis in the wake of their recent super-flood, since

donations weren’t coming from the west, he said, “I don’t object. The immediacy of the need may justify accepting assistance,” even from the Taliban. But then I clarified my question, and told him that what I was referring to was why keep sending money directly to the government. Why not cut the middle man out? He said because it was impossible. No sovereign would want to give up their right to be the administrator of the country’s finances. As such, his solution was not to stop sending aid, but to build a better, more accountable and transparent global financial system. As stated before, he believes that the World Bank and the IMF, along with western democracies, must undergo a process of introspection so as to fix our own shortcomings and the avenues on which corruption abroad can piggyback (like, for example, through Offshore Bank Accounts). Speaking of the World Bank and IMF particularly, he believes that their conditions for lending funds or providing foreign aid must be tailored not to the advantage of the western democracies, but to the situation of the recipient country so as to help them become not dependent on aid but selfsufficient. Dr. Moyo, on the other hand, although also critical of western institutions, including our governments, has proposed a different method to curtail corruption and to therefore make aid actually work. She proposes a sort of capitalist intervention, at least speaking of Africa. She cites Ghana as an example, “a country where after decades of military rule brought about by a coup, a pro-market government has yielded encouraging developments.” She is referring to the fact that now farmers and fishermen “use mobile phones to communicate

AFR

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of Lisbon, claims a 2002 study by Alesina and Dollar used “bilateral trade data to show that the amount of aid is weakly related to the recipient country’s economic performance and strongly related to indicators of cultural and historic proximity between the countries.” Moreover, Dr. Moyo argues that despite a hearing before the U.S. Senate Committee on Foreign Relations in May 2004, where Jeffrey Winters, a professor at Northwestern University, argued that the “World Bank had participated in the corruption of roughly $100 billion of its loan funds intended for development,” the institution has continued to pour money into the country indiscriminately. In yet another instance, “the IMF gave the country the largest loan it had ever given an African nation,” even after one of their appointees to the Central Bank warned them that no creditors would get their money back because of the rampant corruption. Resonating what Dr. Moyo suggests, the Ludwig von Mises Institute argues, citing Alberto Alesina and Beatrice Weder, that “ g o v e r n m e n t- t o - g o v e r n m e n t ‘gifts’ actually make government worse over time in terms of both government corruption and economic growth and creates…a ‘voracity effect’ in recipient countries.” Dr. Moyo calls this dependency.

Mr. Baker concurs with this. He argues that the “more corrupt a government, the more aid is stolen and the more the situation is complicated.” In cases like this, the money is stolen during the procurement and delivery stages, as they are the ones who will make it available to the country. Moreover, once some of the money is finally delivered to contractors and other workers to complete projects such as building roads, hospitals or schools, Mr. Baker says, there is also the danger that they too will “rip off money from what is allocated to them.” They do this by building under specifications, cutting corners, getting cheaper materials, and a number of other ways that will allow them to keep some of the money. Mr. Baker continued to explain that although not as common, it must not always have to be local contractors; foreign contractors that come to put in work may also partake. “There was a time,” said Mr. Baker, “when the world bank felt that up to 20% of its allocations ended up as corrupt proceeds….in the combination of corruption and inefficiency.” Both Mr. Baker and Dr. Moyo agree that a large chunk of responsibility (past and future) lies in the hands of western democracies and western institutions. It is imperative be able to follow recommendations, provide better accountability, and achieve more transparency. Indeed, in a piece titled Corruption and Foreign Aid, from the Ludwig von Mises Institute, it is claimed that economists Alberto Alesina and Beatrice Weder have found that “there is no evidence that nations and multinational institutions direct their foreign aid to less corrupt governments and away from more corrupt governments.” Jose Tavares, in an essay titled Does Foreign Aid Corrupt? for the New University

priorities than erecting a business or economic network? Building a sustainable economy that gives opportunities for people to generate their own income is essential, but will mere “encouragement” really help replicate what has happened in Ghana across the world when there are areas of just over one square mile stuffed with one million people? And although competitive pricing may have worked in Ghana, we’ve seen how competitive pricing proved disastrous for Haiti. Donor nations in the West should not stop sending aid, but should instead formulate stringent conditions, ensuring rigorous accountability and transparency regulations by recipient nations.

Of course that is not to say that the burden is on the beneficiaries’ shoulders alone. The world needs a more transparent system of financial flow. That the West admits mistakes in policies and agreements is a first step; erecting new ones to account for those mistakes is the one that is needed next. As our conversation neared the end, Mr. Baker vehemently assured me that there is “no need for starvation in the world. There is more than enough food…so starvation is a political matter, not an economic matter. A government is either too corrupt or too incompetent (or both) to prevent people access to food. We don’t need anyone starving.”

April 2011 ArbitrageMagazine.ca

FINANCE & ECONOMICS Source: pearson_jones.co.uk

As the global economy scratches its head and tries to bandage its broken banking system, the fields of finance and economics have become one of the most relevant topics of our day. From the housing market to the potentially clamorous nature of derivatives, this section seeks to understand what went wrong and why it may happen again.

IN THIS SECTION… 30 The Global Housing Slowdown Housing price recovery stalls in Canada and around the world

Click to learn more & join us!

31 The Power of Dividends

32 Derivatives: Financial Ingenuity or Ticking Mess? A brief look into the world of derivatives, their role in risk management, and the need to increase their regulation

Finance & Economics Source: www.newshotram.com

Finance & Economics By: Pawan Shamdasani

ThE GloBal housinG slowDown Housing price recovery stalls in Canada and around the world

he global house price recovery is losing traction. More than half the countries have seen negative growth in house prices in the third quarter of 2010. Between the July-September period, average annual houseprice growth was at 3.1 per cent - a substantial decrease of 1.2 per cent since the second quarter. This was according to Knight Frank, the international estate agency located in London, which based their research on quarterly data from 48 countries. This is the first time the rate of growth in house prices has experienced a considerable decline since the 2009 recovery from the financial crisis. This decline in housing prices was mainly concentrated in European countries including Greece, Iceland, the Netherlands, Norway, and the UK. However, this was also observed outside Europe in countries such as Canada, Colombia, Dubai, New Zealand, South Africa, and Taiwan. The biggest global gainer regionally was Asia-Pacific with average growth of 9.9 per cent. The weakest was Europe which saw prices rise only by 0.8 per cent. “While a majority of countries are reporting positive annual growth, 56 per cent saw prices fall in the third quarter this year. There is growing evidence that the global housing market recovery, which

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began in early 2009 following the desperate conditions in 2007 and 2008, may just be beginning to run out of steam.” said Liam Bailey, head of residential research at Knight Frank. Relatively stable Canada showed negative house price growth at minus 0.3 per cent in the third quarter as the market has slowed quicker than expected. Why is this the case? This phenomenon can be partially explained by the introduction of the HST in Ontario and British Columbia during the year as well as the tightening of mortgage qualification rules. Yet, year-over-year prices are still up by 7.9 per cent.

But, as recent slowing GDP numbers indicate, growth in the Canadian economy remains a problem. The Canadian Real Estate Association has downgraded their forecast four times this year. Their latest forecast calls for a 1.6 per cent gain in average housing prices in 2011, down from 5.4 per cent. Canadian builders also seem to be gearing down as we head into the new year. Developers took out $6.2 billion in building permits in October, down 6.5 percent from September, according to figures released by Statistics Canada. A decline in both residential and

By: Gurpreet Purewal

Source: Flickr by pfala

non-residential sectors in Ontario and Quebec was responsible, according to the federal agency. However, the October numbers are comparable to levels prior to the economic downtown and are coming off a hot month. Building permits reflect the confidence of developers to build future projects. The value of permits declined in half of Canada’s metropolitan areas. Toronto has had the largest decrease as a result of declines in the residential sector. Residential permits were down by 41.9 per cent while the non-residential sector, which includes commercial, office, and industrial buildings, saw a gain of 37.5 per cent. Overall, the Toronto market saw a decline of 14.9 per cent. 2011 will be an interesting year for the housing market in Canada. Royal LePage, a leader in Canadian real estate, predicts that average house prices will rise 3 per cent, while some economists argue that prices should remain flat or decline. At the same time, many Canadians anticipate higher mortgage interest rates in the coming months which will have a negative impact on housing sales as it becomes more expensive. The Canadian Real Estate Association has already forecasted a nine per cent decline in sales. Overall, this should be a stable year for the housing market but should be viewed with cautious optimism.

eing a sound investor really just requires a certain control of your temperament and the ability to know what you know and what you don't know and occasionally act. It's just not necessary to do extraordinary things to produce extraordinary results. – Warren Buffet Common knowledge tells us that the fastest way to a thriving portfolio is buying low and selling high. However, there is another way that’s less extraordinary: investing in dividend-paying corporations. In such corporations, shareholders receive a dividend typically following a profitable annum. Dividends are distributed in varying forms, cash being amongst the most common. Interestingly, dividends are an important component of the total return of equities, accounting for a third of the total return of the S&P 500 since 1926. Dividends are easy, less risky, and prove the financial strength of a company. Shaun Connell, editor of StandStrongResearch. com, explains the advantages of dividend stocks: «Dividend stocks add income stability to one's portfolio. With a non-paying dividend stock, one can't typically earn an income during a down market, because selling the stocks would lead to an overall loss”. “With dividend stocks,” she says, “one can still earn a relatively modest income from the stocks during the down market, as well as have extra funding from dividends

ThE PowEr oF DIvIDEnDS to purchase cheap stocks that are more available during the market dip. As a result of stable business and efficient cash flow practises by a given corporation, dividend stocks are less volatile in contrast to the non-paying dividend stocks. Though stock prices do dwindle during economic dips, a dividend to the shareholder can make up for the loss. In turn, this is likely to increase investor financial security and confidence, particularly during a bear market.

Dividends are an important component of the total return of equities, accounting for a third of the total return of S&P 500 since 1926. (S&P Dividend Equity Index | Equity Indices) Dividend income bears a strong statement on the longterm prospects of the company and the investors' portfolio. Once a company has set a standard of paying a dividend, management is typically hesitant to mitigate these payments for fear of losing shareholder confidence in the company’s performance and future prospects. Net earnings not paid as a dividend are retained and reinvested in the company and help further future growth and earnings. Over time the increase in company value can likewise be cashed in through a capital gain.

Therein lies a manager’s dilemma: what percentage of earnings should be reinvested in the company versus paid to shareholders as a dividend? Should a dividend even be paid? Since 2000, Canada's cable giant, Rogers Communication Inc. (TSX:RD. B) (NYSE:RCI) has paid company shareholders a dividend, which actually increased 20% this past year and is now at $1.28. This simply means that, for every Rogers share you own, a dividend is declared at an annual amount of $1.28 each quarter. To use a numerical example, if you own 100 shares you should receive a cheque for $32 (1.28/4 *100) at the end of each declared quarter. Rogers was listed as one of Investor 500’s best dividend stocks in 2010. In addition, wholesale manufacturer Proctor & Gamble (NYE: PG) has been paying a dividend for 120 consecutive years since its incorporation in 1890. Notably, it has also increased the dividend for 54 consecutive years at an annual compound average rate of approximately 9.5%. However, companies are not forced to pay dividends. If a promising future is not in the forecast, it is then the decision of the Board. A recent example is General Electric (NYSE:GE). In 2009, the quarterly dividend was cut from $0.31 to $0.10, partly due to the recession. At the end of the day, just remember to always play the game wisely before investing your hardearned cash. Weigh the pros and cons. But, who knows, with a little bit of luck, victory may be yours!

April 2011 ArbitrageMagazine.ca

Finance & Economics

By: Andi Kisuri

Derivatives: Financial Ingenuity or Ticking Mess?

A brief look into the world of derivatives, their role in risk management, and the need to increase their regulation

here are things in today’s business world that the average person may not fully understand, but could if they took the time to make sense of it. Derivatives seem to be an exception. In 2002, Warren Buffet called derivatives “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” Buffet’s warning proved true. Derivatives have been partly blamed for the unravelling of the U.S. economy in 2008, leading to the financial crisis which we have yet to fully recover from. The problem with derivatives is founded in their ambiguity. It’s difficult to properly define derivatives, let alone understand them. Broadly speaking, a derivative is simply a financial instrument—typically in the form of an option, a future, a forward or a swap—that assumes its value from the price of some underlying commodity or financial asset. Confused yet? Simply put, a derivative is a bet. They are essentially contracts involving two parties which take opposite positions on an outcome such as how an index, a price, or even the weather is going to change. Because a business is exposed to unpredictable changes in input prices and interest rates, risk control is a priority. In theory, derivatives play an important role

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in risk management: they transfer risk from people who do not want to it to speculators who are willing to do so in return for the chance to make a profit.

"Simply put, a derivative is a bet. " To illustrate, consider an airline company whose profits depend on fuel prices for its airplanes. To minimize the risk associated with fluctuations in fuel prices, the airline may choose to create a contract now to pay a predetermined price for fuel in the future, regardless of the future market price. If the price of fuel skyrockets in the future, the airline is protected because it has already agreed to purchase fuel at a lower price. However, if the price of fuel drops, the airline is hurt because they are forced to buy at a higher price than the market. The contract is a sum-zero game, as the airline loses what the distributor gains and vice versa. Proponents of derivatives strongly highlight their role in promoting economic growth. Using our airline example, by locking into a guaranteed price of jet fuel, the airline can then engage in projects that would otherwise be too risky. In his article «Will Derivatives kill us or make us stronger”, columnist Daniel Gross argues that “the comparatively low and steady prices we pay for

staples like bread, vegetable oil, and coffee have everything to do with derivatives. ” Why then is the derivatives market dangerous? Well, there’s knowledge risk; that is, players do not understand the contracts they are getting into. How can we know the prices of assets in the future, today? Some argue that mathematics plays a role in pricing, but have you ever seen how complex the pricing formulas are? Considering that new forms of derivative contracts are invented almost daily, the calculations only grow in complexity. Now consider that in 2009 the Bank for International Settlements valued the notional amounts of outstanding over-the-counter derivatives at approximately $800 trillion worldwide, more than thirty times U.S. GDP. When the market is this huge; yet lacks economic rationality, often opting for gambling on hunches, there’s reason to worry. There’s also the accounting for derivatives. In the U.S., mark-to-market accounting is primarily used for derivative reporting. This means that worth of derivatives reported on balance sheets are partially based on the management’s estimates of what future prices may be. Ethics aside, managers whose compensation depends on earnings may be tempted overestimate the value derivatives. In turn, this distorts true earnings but more importantly,

places the company and shareholders in economic danger when these optimistic valuations fail to materialize. Well, perhaps we can properly regulate the derivatives market? That’s easier said than done. How does one regulate the over-thecounter derivatives market; where there is a lack of a centralized system of exchange? Indeed, the Obama administration has taken some steps towards increasing transparency by forcing more trades onto exchanges and through clearinghouses, which guarantee the transactions and require dealers and corporate endusers to post collateral and meet daily margin requirements. But when prominent businessman George Soros publicly remarked that the risks involved with derivatives may not be properly understood even by the most sophisticated of investors, how can we expect to define the problem and come up with a solution? How can we expect

government officials to have the sufficient know-how to regulate these complicated markets, which are constantly evolving? Can we maybe just let it be? Well, according to the Office of the Comptroller of the Currency, in the United States, the “top five institutions in terms of derivatives exposure—Citigroup, J. P. Morgan/ Chase, Bank of America, Morgan Stanley and Goldman Sachs—hold over 95% of derivatives exposure of the top 25 U.S. bank holding companies.” These same institutions have relied on the support of the public treasury during the recent financial crisis. This means that taxpayers have a direct interest in how the derivatives markets are structured and regulated. It’s unfortunate that the individuals most affected by the derivatives markets are those that understand it the least. The world cannot afford another financial crisis. But who can we turn to for the answer?

April 2011 ArbitrageMagazine.ca

Trends

By: Victoria Chau

Swine Flu SIFTING THROUGH THE

y July of 2009, the World Health Organization (WHO) declared the outbreak of swine flu H1N1 a pandemic. This was amidst a worldwide panic as the WHO continuously provided updates as to the seriousness of this new flu strain. Swine flu was deemed a pandemic after 332 deaths and the confirmation of less than 80,000 cases of swine flu around the globe.

HYSTERIA

Source: http://www.nobadtrips.com

The panic around pandemics and the money behind them

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Where, oh where, did the first piggy come from? Back in 2005, during November, a Wisconsin teenager helped his brother-in-law butcher 31 pigs for a nearby slaughterhouse. That same teenage boy spent his Thanksgiving with his family who had purchased a chicken and decided to keep the animal in the house because of the cold weather. As December rolled around, he suffered from a flu that lasted three days, went to see a doctor, recovered, and went home. A very typical story, with nothing unusual, except for the fact that the influenza virus that the boy suffered from was very different from the seasonal flu. It was a combination of wild-bird flu, a human strain of flu, and a strand from pigs. That minor episode was part of the origin of the swine flu that began to garner international attention in April of 2009, when Mexico and the United States reported an “influenza-like illness” in some of their citizens. Many of these cases of influenza-like illnesses were confirmed through laboratory results to be identical in both Mexico and the United States. This obviously caused concern as it was becoming a major outbreak

in Mexico, with a suspected death toll of around 65, the majority of which were healthy young adults. Fear of the Swine Much of the scare surrounding the swine flu was due to the fact that it was a new flu strain we hadn’t yet experienced which was attacking healthy age groups instead of only the elderly and the young. The WHO became especially concerned as its laboratories noted many genetic differences between this H1N1 strain and the seasonal influenza which was coupled with the ease that the swine flu spread geographically. Another factor that increased both the WHO’s concern and the mass panic around the world was its difference in disease pattern from the seasonal flu. This H1N1 strain produced a severe form of pneumonia that, unlike the seasonal flu strain, seemed to be especially fatal. Within four months (April 2009 to July 2009), the WHO confirmed that swine flu had spread to over 120 countries. In this time the WHO had already

declared a pandemic and was scrambling with governments to get vaccines available before the flu season of October-November began in the western hemisphere. Among the panic that swine flu was spreading rapidly throughout the world was the fear that the H1N1 strain could also mutate, similar to the fears of avian flu (H5N1) evolving. A mutation would cause the H1N1 strain to become more dangerous by increasing the fatality rate among those infected. The WHO was so convinced of a pandemic from the swine flu’s easy transferability from person to person and the potential for thousands of deaths, that the definition of a pandemic was actually changed so that swine flu would fit the parameters. Initially the WHO’s pandemic classification was for a disease that had “several, simultaneous epidemics worldwide with enormous numbers of deaths and illnesses.” The swine flu of 2009 met the first part of the parameters but not the latter. The WHO altered its definition in the Pandemic Influenza

April 2011 ArbitrageMagazine.ca

Trends

By: Victoria Chau

Preparedness and Response (A WHO Guidance Document) of an influenza pandemic to “occur when an animal influenza virus to which most humans have no immunity acquires the ability to cause sustained chains of humanto-human transmission leading to community-wide outbreaks,” so that swine flu qualified as a pandemic. It goes to show that the WHO was so concerned or determined that H1N1 was a pandemic, that it worked with the results of the H1N1 cases to classify swine flu as one. Wait! I’ve seen this piggy before! One of the main reasons for the mass hysteria that was induced by the WHO, the media, health agencies and the governments was that it was primarily affecting the young and otherwise hale. With seasonal influenza, those that became infected were always the very young, the elderly, and those already suffering from another sickness. H1N1 became very worrisome once the data came in showing that the average age of deaths was 37 years old, compared to 75 years for the seasonal flu. However, after the flurry of panic, it appears that there’s a very good reason for the young and healthy to be more easily infected: the older generation has seen this type of strain before. H1N1 was widely touted as a “first” and “never-seenn e v e r- b e f o r e - e n c o u n t e r e d ” influenza. This was very misleading, as H1N1 is not only related to a string of viruses from 1918 – 1956, but was also seen in an outbreak in the United States in 1976. Back in 1976, there were clinical trials conducted that demonstrated that those born prior to 1956 were for the most part protected from the strain. Carrying this forward to the situation in 2009, most of the population over 50 years old are

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somewhat familiar with the H1N1 virus, providing them with more immunity against swine flu. For those younger than 50, their bodies have not yet experienced any exposure to H1N1, which is why this younger (and healthier) age group suffered more severely. So why was this critical information never widely known or publicly provided by the media? It appears that it was simply glossed over; the high level of panic was simply maintained by the media, the WHO and the governments, and the general population never questioned it. Everyone was so busy trying to find masks and where they could possibly get Tamiflu or Relenza (the two main anti-influenza medications) before

the H1N1 vaccine was available, that the masses never bothered to look for this information. The WHO that cried wolf pig Even today, after the swine flu pandemic was declared over, not many realize the extent to which the panic was unnecessary when looking at the numbers. Every year, the WHO estimates that seasonal influenza typically infects anywhere from three to five million people severely, with a death count of some 250,000 to 500,000 deaths worldwide. To this date, H1N1 has killed approximately 18,000 people…around the world. According to Health Canada, some 4,000 to 8,000 Canadians

die each year from the seasonal flu from pneumonia or other related complications, as of January 28, 2010, the Public Health Agency of Canada reported 426 deaths from H1N1 – substantially less than the seasonal flu. In the United States, they see an average of 36,000 deaths from the seasonal flu annually, which are double the deaths that were seen for swine flu on a global scale. So why the WHO-induced panic? Speaking with Michael Fumento, journalist, author, attorney, researcher and analyst who has been writing about pandemics since AIDS in 1987, provides some further insight to the WHO that cried wolf, er, pig that is. Fumento has been on record

from the very beginning, arguing that the WHO “had absolutely no reason to declare it a pandemic because it was clearly vastly milder than typical seasonal flu,” which is supported by the data. The reason he provides for the WHO’s declaration of the swine flu as a pandemic is more of a selffulfilling prophecy. The WHO has been asserting since 2005 that avian flu (H5N1) was a serious threat that could possibly evolve to become a pandemic. These assertions have come despite numerous studies that state avian flu is very far from taking that type of evolutionary step. Fumento contends that when swine flu began to garner attention, the WHO simply said, “See! We

were right! There was a pandemic on the horizon!” and the media lapped it up, and consequently, so too did the general public. Much like the children’s fable, the WHO had cried pandemic, and we as the villagers simply said “where?!” What worsens the whole situation is that the governments and other health agencies were content to arm themselves against this threat of a supposed pandemic when really they should have known better. When the WHO elevated swine flu to pandemic status, governments began to order swine flu vaccine as well as Tamiflu and Relenza— anti-influenza medications that were provided to patients after they contracted H1N1—without questioning whether or not stockpiles were necessary. Understandably, the WHO is an international organization that should be both accountable and transparent in their actions, but the key words there are ‘should be’. No matter if the WHO was acting out of their own political motivations as Fumento argues, or were simply being excessively cautious with a flu they were unfamiliar with, he asserts that if he knew that swine flu wasn’t a pandemic, so too should have the health officials and governments. The data was available to everyone; it was a matter of looking past the hysteria of these deaths that the media and the WHO purported were popping up everywhere, anywhere, and constantly, and actually examining the hard facts. And the fact remains that had we done what Fumento did and went straight to the sources, “looked at the NUMBERS and not the pronouncements,” we would have known the truth: there was no pandemic on the scale the WHO and other health officials claimed where hundreds of thousands were at risk of dying.

April 2011 ArbitrageMagazine.ca

Trends

Trends By: Victoria Chau

Vaccinating against the pig

So, backtrack to July of 2009: the WHO has declared swine flu a pandemic, the masses continue on in their hysteria, and governments are scrambling. The solution to all this is vaccinations for everybody! Interestingly enough, Dr Wolfgang Wodarg, an epidemiologist who at the time was on the European Council, points the blame to the avian flu outbreak of 2004, since the panic during the time resulted in governments instigating ‘sleeping contracts’. These sleeping contracts were with pharmaceutical companies that are automatically triggered when the WHO declares a pandemic, to lessen response time in the production of vaccines, antivirals and any other necessary medication. Dr Wodarg claims that “in this way, the producers of vaccines are sure of enormous gains without having any financial risks,” so that when 2009 rolled around and the WHO freaked out about swine flu, or became overly cautious if you prefer, all the sleeping contracts held between governments and the big pharmaceutical companies became active. The result is that 25 pharmaceutical companies began racing to produce more than a billion doses of swine flu vaccines to the awaiting governments and the people. Of these 25 drug companies, more than 80 per cent of production was to be accounted by five major ‘big pharmas,’ which are: Sanofi Pasteur of France, AstraZeneca and GlaxoSmithKline (GSK) of Britain, Baxter of the

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United States, and Novartis of Switzerland. Canada also was a part of this scramble to prepare the population for the H1N1 vaccination program to be rolled out, ordering some 60 million doses of the adjuvant vaccine (which is comprised of two doses, with additives that increase its effectiveness). The cost for both the vaccines and the process of vaccination, developing strategic and emergency plans, keeping an eye on the outbreak situation, paying for staff and so forth totalled a whopping $1.5 billion, and that was only by November 19, 2009. The costs for the H1N1 vaccination, due largely to its pandemic status and the WHO’s recommendation that special patented products be used, is staggering compared to the cost of a seasonal flu shot. Take, for example, the province of Alberta: it placed a $100 million figure on the H1N1 vaccination, whereas it usually spends $3.2 million on the seasonal flu shot. That’s an extra $96.8 million that could have been used elsewhere in the province, and the same applies to all the provinces and territories across Canada. By the end of the typical flu season (starting in October), approximately 45 per cent of Canada’s population was vaccinated against H1N1, which left some 20 million doses unused. The cost doesn’t decrease with lack of use; Canadians will pay the $1.5 billion either way for the vaccine and all the programs that were put in place. Indeed, Medical Officer of Health for Ontario’s Hasting and Prince Edward Counties Health Unit, Dr. Richard Schabas, tells the Globe and Mail that this has been “the most overhyped, overblown exercise I’ve ever been a part of,” due to the exaggeration of the swine flu’s severity and fatality.

Profiting from the swine flu bill Canada racked up a hefty bill of $1.5 billion, the United States spent more than $6 USD billion and Britain is looking at more than £1.5 billion. The end result? Billions of dollars wasted across all the continents and batches upon batches upon batches of unused swine flu vaccinations. The winners in this case are undoubtedly the WHO (if declaring a pandemic was their goal no matter the data provided) and big pharma. Of course, there is always a possibility that the swine flu could have exploded into a true pandemic of unprecedented proportions, with the death toll becoming higher than even the 1918 influenza. But with all things, there is always a possibility. The likelihood of it actually happening was extremely low in this case, but nonetheless the world played into the hands of the WHO while the major pharmaceutical companies walked away with billions of dollars for their bottom line. That’s not to say that the pharmaceutical companies can truly be blamed for increasing the mass hysteria of swine flu (although they did contribute to the hype around avian flu); they merely took the opportunity like any other corporation and did what was being asked of them. GlaxoSmithKline (GSK), one of the major producers of the H1N1 vaccine, stands to make more than £1.5 billion (£1 billion alone in the fourth quarter) due to the pandemic threat of 2009, the majority of which stems from the delivery of 195 million doses of vaccines to a variety of countries. GSK is also the manufacturer of Relenza, which, like the antiinfluenza Tamiflu, is being used to treat those that are already infected with H1N1.

Source: http://3.bp.blogspot.com

By: Victoria Chau

Statements released from GSK have rejected any claims that have been made in regards to the company taking advantage of the pandemic as it states that the costs of developing the vaccine have been as much as £1.5 billion, a large portion of which went toward ensuring its facilities could increase production of the vaccine once all the clinical trials have been completed. The major pharmaceutical companies have unquestionably gained where the taxpayers have lost, and in some cases GSK in particular proved unwilling to renegotiate with the countries from which it had received orders for swine flu vaccines when it became apparent there were going to be too many doses wasted. Indeed, pharmaceutical giant Baxter of the United States was willing to allow Britain to use the break clause in its contract, whereas the Britain-GSK contract held no break clause. Where, oh where, did that piggy go? By mid-August 2010, the WHO finally called the swine flu pandemic over with the end result of 18,000 deaths worldwide – a figure that doesn’t even come near

the number of deaths from the seasonal flu or the millions that died in previous pandemics such as the 1918 influenza. In spite of this, media releases and statements from the WHO firmly reiterate that the swine flu was a pandemic and that the lack of fatalities was from luck rather than a lack of danger from H1N1. On a side note, the 2009 flu season actually saw a drop in deaths related to the flu, as H1N1 actually eliminated the seasonal flu since it was more contagious but less severe. We cannot fault the major pharmaceutical companies for merely fulfilling their end of the bargain that was set up as a protection measure in the event of a pandemic, but we can certainly look to question the WHO, other health agencies and our own governments for going along with a ‘pandemic’ that was clearly not on that level of severity in terms of the fatalities caused by the swine flu. Even the government in a time of panic can use the hysteria to introduce programs or ‘fast-track’ vaccines that normally would take longer to implement. These processes were supposed to save lives, not unnecessarily waste huge sums

of taxpayer dollars. Although across Europe there has been a public outcry after the initial panic and hysteria died down, we have seen nothing of the like in North America. The public is simply going along with whatever the media has portrayed and has not done enough digging on their own to find out the true facts. In all actuality, there is not much digging needed, just a mere sifting through the dirt to determine what is truly important: the facts and the recognition of massive media hype. It’s all about being smart about what is being said in the news, no matter the source. In the end, of course the pharmaceutical companies profited monetarily, but what is even more important is what have we lost from this unnecessary hysteria. It may be that in the future, when there is truly a pandemic, the public will be much more sceptical and ignore warnings from the governments or health agencies like the WHO. After all, in the midst of the chaos we need to be able to look towards those that are in positions of power to lead with the surety that they will act responsibly and transparently.

April 2011 ArbitrageMagazine.ca

CULTURE Source: pmthouseofdance.com

This section tackles the issues we face in our local communities and daily lives. Between the proliferation of technology and the potential legalization of marijuana, our generation faces unique issues never before experienced by our parents and grandparents. Read on to see how our social framework is changing, and what’s in store for us when we inherit the world.

IN THIS SECTION… 42 How file sharing affects Canadian indie musicians?

46 more technology equals less productivity? The impact of new technologies on productivity in the workplace.

Click to learn more & join us!

47 Dirty Jobs

48 Making the Green Make Sense Legalizing Marijuana

Culture

By: Liam Scott

How file sharing affects Canadian indie musicians?

war is raging in the U.S., one that pits the Recording I n d u s t r y Association of America (RIAA) against individual file-sharers. Six years in though, the RIAA has spent $64.1 million on legal proceedings, winning only $1.4 million from its offenders. The result? The RIAA hasn’t even dented the web of peer-topeer file sharing services that have continued to grow over the last decade, despite superstar recording artists such as Metallica, Dr. Dre and, most recently, Gene Simmons of KISS, speaking in support of the cause. But while downloading the album of an established, worldfamous rock star might not take a bite out of the artists’ wallet, the spread of file sharing has begun to impact artists who do not have the luxury of a private jet or a world tour. “We were sleeping on the floors of friends-of-friends’s apartments. We had $10 a day for food, no per diem. We were definitely pinching pennies,” says Phil Maloney, drummer for Newfoundland band Hey Rosetta!, of their first tour. “It’s not until the third tour or so that

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you hope to at least break even.” For a band that has had their music featured in CBC Radio’s Great Canadian Song Quest, as well as on the hit Canadian TV show Flashpoint, one would think the album sales would be substantial. While that may have been true a generation ago, things are different now. “Albums are a dying form of income,” explains Maloney, a sentiment echoed across the Canadian indie music scene. Max Kerman, front man of Hamilton quartet The Arkells, says record sales provide “pretty little in the form of money. It’s probably like that for most bands.”

“(Physical record sales) are a bit of a joke, honestly” It’s not just the artists taking a financial hit from declining sales. Mike Greatorex of Sonic Entertainment Company says labels are being forced to find other ways to stay afloat as sales crash. “If (Sonic Entertainment) was just a record label, we would have gone out of business years ago,” says Greatorex, noting that Sonic Entertainment’s management of

bands is what generates most of the income. Sonic’s label has signed four acts in the past eight years but, ideally, the number of acts signed would be at least twice that. “(Physical record sales) are a bit of a joke, honestly,” admits Greatorex. “A lot of smaller labels don’t bother with major physical distribution anymore.” The root of declining record sales? Piracy. Since the inception of peer-to-peer file sharing service Napster, in July of 1999, the music industry has fought for its fair share of the revenue, always one step behind file sharers. “Our entire career has seen a rise in the popularity of our band and, at the same time, a drop in our album sales,” says Stephen Carroll, lead guitarist and manager of Polaris-nominated Winnipeg indie-rock staples The Weakerthans. The Weakerthans’s first album, Fallow, was released in 1997, when downloading music was all but unheard of. Carroll says the majority of their fans probably downloaded their last album, Live at the Burton Cummings Theatre. “Demand (for music) hasn’t gone down,” explains Greatorex, “but if the options are buying it

April 2011 ArbitrageMagazine.ca

Culture

By: Liam Scott

versus getting it for free, people will obviously choose free.” Websites like thepiratebay. org, operated out of Sweden, are the main culprits for harbouring illegal torrents. The Pirate Bay makes most of its revenue from advertising on the website, much to the chagrin of artists. “I have a real problem with websites that profit from banner ads without giving anything to the artist,” says Winnipeg singer/ songwriter James Struthers. “Just because copyright laws are different in your country, it doesn’t give you the right on any level.” Artists and labels may not agree with file sharing, but there’s no signs of their stance slowing it down. Greatorex used to track down and report illegal torrents of bands on his label, but soon gave up. “It’s impossible, so I stopped doing it,” he says, noting that in the time it took to contact the hosts and demand one be removed, two would pop up elsewhere. The murky legal and moral ground surrounding piracy is the reason behind its prevalence. Most people, primarily a younger demographic, don’t see it as stealing. “It’s the net, it’s going to get out there anyway,” says Michelle Zuniga, a nursing student at Ryerson University. She doesn’t see intellectual property as something one can claim ownership of, so it doesn’t count as stealing. Silver linings As artists and labels have come to accept the realities of file sharing, silver linings have presented themselves. Aaron Miller of Toronto-based Indie label Arts & Crafts thinks file sharing can benefit artists and labels, if used correctly. “It’s indirect, but the ability to spread music and disseminate products around the world like that, even illegally, can mean invaluable exposure,” says Miller.

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Struthers cites the overseas popularity of some Canadian bands like Broken Social Scene and The Weakerthans, which would never have been possible without the internet. “Broken Social Scene can tour China because of downloading. Nobody there has actually bought their album,” says Struthers. Last year, Broken Social Scene played shows in Singapore, Taiwan, and Tokyo, a long way from their roots in Toronto. The fact that these places have even heard of Canadian music, to which they are rarely otherwise exposed, is a testament to the power of piracy. The boost is felt at home as well as abroad, which leaves artists and labels in a grey area of support. “If people are digging the record and then come out to the show, that’s great,” says Kerman. Maloney agrees. He realizes that not all the people wearing Hey Rosetta! T-shirts and coming to their shows have purchased the albums. “It took them downloading the album to come to our show and buy a shirt in the first place,” he admits. Marti Sarbit, vocalist for Winnipeg duo Imaginary Cities, says that first and foremost, “music should be accessible.” The problem comes when the spread of the artists’s music is beyond their control. “It’s the artists’s living, and they’re entitled to it,” says Maloney.

“Our entire career has seen a rise in the popularity of our band and, at the same time, a drop in our album sales” The new normal The effects of file sharing on Canadian indie labels and artists are unavoidable, and it’s forcing the industry into a sink-or-swim situation. Many labels have taken

on management duties as well, to get a piece of revenue from their artists’s merchandise sales and live shows. “The degree to which a label is affected by (file sharing) does, to some extent, reflect the degree to which they have been able to diversify their revenue. With our licensing, management, publicity and event production wings, we have been able to stay afloat in the face of slumping sales,” Miller says of Arts & Crafts. Struthers says more labels are signing, “360 deals,” which are essentially record deals in which the label collects money from all revenue streams, such as merchandise, playing shows and music placement. This way, the label does not rely on album sales, which can be unreliable. Many of the bands have turned towards government grants and private organizations to support their careers. Maloney cites MUSICNL, an organization that provides funding to Newfoundland and Labrador musicians, as one of the main pillars of Hey Rosetta!’s career, saying, “we wouldn’t be a band if it wasn’t for MUSICNL.” Greatorex says Canadian musicians have far more grants accessible to them than their American counterparts, who have almost no support. Still, he says, “there’s something inherently wrong with an industry that relies to heavily on government funding.” Royalties from radio and television placement are also sources of income, and this only helps bands or artists that receive substantial radio rotation. “I guess (radio placement) is a major source of income if you’re Katy Perry or Lady Gaga or something,” says Carroll. Less money earned from music, coupled with lower cost of production, has created an influx of bands that are forced to play more shows.

“We used to book shows two, three months in advance for a tour. Now we have to book at least six months in some locations,” says Carroll. He fears this will create a, “race to the bottom,” with bands playing more shows for less pay to compete for gigs. Massive tours are certainly the norm for Hey Rosetta!, who played 85 shows between February and November of 2010, 50 of those between June and October. “That’s pretty much how bands exist now, by playing lots of shows,” explains Maloney. So what is next for Canadian music? One thing that is certain is piracy is here to stay. “Everybody’s done it at some point,” says Maloney. “I’ve downloaded music for free.” The problems arise when one considers the prospect of

prosecuting something that nearly everybody has a part in. “Ideally, there should be some way to regulate it,” says Imaginary Cities’s other half, Rusty Matyas, but the music industry has yet to find a way of doing so. Despite the prevalence of file sharing, the future of physical music is not as bleak as one might think. “There’s something to be said for tangible media,” says Maloney. “The cover art and lyrics make it more personal.” Matyas says that CDs are dying fast, but “vinyls (sic) are definitely making a comeback.” Carroll says that certain dedicated fans buy vinyl records. He estimates that about 10 per cent of their overall sales are vinyl, and while that number is on a steady rise, it’s done almost nothing to combat the rapidly declining overall sales. The future is unclear, but a shared sentiment is that the shift of control away from major labels and towards the artists is imminent, as exemplified by Radiohead’s decision to self-release their 2007 studio album In Rainbows through their website and allowed their fans to decide how much they wanted to pay. Since then, other popular acts like Nine Inch Nails have followed suit. While these releases make an impactful statement on the music industry, the artists in question had already established a massive fan base and considerable wealth, minimizing promotional costs and negating any budgeting worries. “(Radiohead’s method) is more of a statement than a reliable business model,” says Greatorex. Most smaller bands, especially those just starting out, can’t take the risk of not recouping the money lost making the record.

Struthers says it wouldn’t be farfetched to see a variant of this model catch on. “Within five to ten years, all the music might be available for free from the artists themselves,” he predicts.

“I guess (radio placement) is a major source of income if you’re Katy Perry or Lady Gaga or something” “The music industry is really learning a lot about itself right now,” says The Arkells’s Max Kerman. “They’re still trying to figure out how to connect with people and make up for their losses.” In recent times, profiteering from wars and devastations has grown in prominence. But what will happen to these industries and companies that profiteer from wars and disasters in the future? Will they proliferate or diminish? As long as natural disasters and wars keep occurring, these companies and industries should realistically continue to flourish. “In the future, certainly, we are going to get more climate disasters related to global warming as it’s becoming a growing issue. A lot of these corporations are going to look to get into these disaster-hit areas to provide food and water at exorbitant prices,” Woof remarks. At the other end of the spectrum, corporate social responsibility is also becoming increasingly important to businesses. But this begs the question: can the general public differentiate between the two? And, are we making it too easy for some companies to exploit CSR for profiteering purposes? Regardless of your personal conclusions, we can no longer play the bystander role. April 2011 ArbitrageMagazine.ca

Culture

By: Vahida Badat

By: Amy Ward

more teChnology equals less produCtivity? The impact of new technologies on productivity in the workplace. dmit it. You are addicted to your gadgets. Might as well face it, because technology is changing the way we do things. We are always looking for ways to stay connected with others even when we are on the move. We’re either texting, e-mailing, or Tweeting several times a day. It is never really a challenge to remain connected though, because of the powerful devices that we clutch in our hands and insist on carrying around with us everywhere we go. Since the Industrial Revolution, it is believed that more technology means more productivity. In any workplace, it isn’t difficult to find desks that are home to personal computers, smartphones, notebooks, and other gadgets. In a culture where technology has become so integrated into our daily lives, do these Blackberrys and iPads help or hurt a company’s productivity? Today, there are countless web applications that have become available over the Internet for businesses to use. Some of these tools include Yammer (“The Enterprise Social Network”), Google Documents, and Dropbox. These web applications give coworkers the ability to collaborate in real-time without constantly sending emails back and forth containing updated files. This means that employees are able to work together despite geographical barriers. On the other hand, these technologies also bring a great amount of e-mails, instant

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messages, texts, news feeds, and Tweets that fight for attention. According to data collected by AOL and Opinion Research Corporation in the United States, 59% of Americans check their e-mail every time a new one comes in. In addition, 83% of survey respondents admitted to checking their e-mail everyday while on vacation. We might like to think that we are the kings and queens of multitasking, but this is not true at all. The volume of email being sent and received is not only stressful to employees, but also decreases productivity. Once we lose our train of thought, it is impossible to immediately go back to what we were doing before.

"83% of survey respondents admitted to checking their e-mail everyday while on vacation." A Microsoft study suggests that it takes workers at least fifteen minutes before they are able to refocus after receiving an email or phone call. Once an employee gets distracted from their work, they will be less productive. Employees are becoming so invested in their technological devices that the boundary between personal and business uses of these technologies is blurring. Workers use their laptops, mobile phones, social networking accounts and blogs for personal

and business activities. While some employees prefer to go home and forget about their work day completely by popping open a beer and watching a movie, other individuals stay hyperconnected. These individuals are those who are available to be contacted even on the weekend. Ultimately, what we want to know is, does this hyperconnectivity increase or decrease productivity in the workplace? Robert Solow, an American economist, made a witty remark back in 1987, in regards to computers and productivity. He said, “You can see the computer age everywhere but in the productivity statistics.” Solow’s statement still stays true to this day. Unfortunately, at this time there is no concrete answer to this question. It seems as though we do not have the tools to correctly calculate if technologies help or hurt productivity in the workplace. Perhaps in this hyperconnected world, no one can find the time to come up with such a device.

Source: Flickr by kowitz

uick: what’s your favourite movie? Chances are, it’s not about people living happy, peaceful lives of prosperity. It’s about conflict, disaster, and strife. Even when we seek reality in documentaries, we look for trouble. The creators behind this art seek out crisis and make a profit from it. Is this a bad thing? There's something gruesome about taking someone’s trouble and making money from it. There’s no business like snow business, say the contract plough drivers, but to the mailman, you’re one slushy driveway away from worker’s comp. Making a living from disaster need not be a bad thing. For every rioting looter, military contractor, or short-side hedge fund manager, there are countless sports injury chiropractors, basement flood drainage experts, and ER nurses who provide support to people in trouble.

Dirty Jobs In Canada, crisis is a growing business. According to the Insurance Bureau of Canada, insurance claims due to natural disasters increased from $373 million in 2008 to $750 million in 2009. The 2003 SARS outbreak led to the creation of the Public Health Agency of Canada, and heightened attention on West Nile and H1N1 influenza. Around the same time, Public Safety Canada was created to amalgamate the Canada Border Services Agency, the Royal Canadian Mounted Police, and the Canadian Security Intelligence Service. Given the rising frequency of infectious disease, terrorism, and climate change, some particularly hot areas include: business continuity planning in IT, infectious disease research, and emergency response leadership. Several colleges, including George Brown College and Fanshawe, offer programs in emergency management.

The idea of profiting from the emergencies of others can leave one squeamish. On the other hand, for service professionals, there is no better opportunity to have an impact than by helping those in need, whether they require healthcare, an emergency loan, or a bedbug fumigation. Look at it this way: the more you profit from disaster, the more disasters you can help resolve. Given Canada’s historic role as a peacekeeping nation, we have global expertise in cleaning up the messes of others. One person’s war is another’s rebuilding mission. Expect this niche to continue as global pressures for clean water, economic stability, and other resources continue to escalate. If you’re looking for a constantly evolving career in a real growth industry, think about how to deal with the troubles of the future. Sometimes the best business to be in is solving problems that don’t yet exist.

April 2011 ArbitrageMagazine.ca

Culture

By: Victoria Chau

Making the Green Make Sense Legalizing Marijuana

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ore than 10 million Canadians are guilty of having committed a crime, according to Canadian law, by smoking marijuana. To this day, the drug continues to be an illegal substance in Canada for recreational use and makes up a large portion of the budget that goes towards enforcing and policing the drug trade. Critics argue that keeping marijuana illegal in Canada is much like alcohol prohibition in the 1920’s—ineffective and unsustainable. However, the Canadian government is not inclined to legalize it anytime soon. Marijuana was originally banned under the 1923 Opium and Drug Act of Canada, and those who are caught in possession of the drug are penalized under the Controlled Drugs and Substances Act of 1997. Although Canada was the first country to implement a regulatory system to allow the medicinal use of marijuana back in 2001, recreational users of the drug can still get up to five years in prison. The resistance towards the legalization of marijuana stems more from misconceptions and misinformation than anything else. The plea for keeping marijuana illegal is always about how it’s a ‘gateway’ drug to hardcore drugs such as cocaine and heroin, a fact that has been challenged by the Senate Committee on Illegal Drugs. Even the leaders of the Conservative and Liberal parties, Stephen Harper and Michael Ignatieff, find that this is one issue they agree on. According to Ignatieff in 2010, “the last darn thing I want you to be doing is smoking marijuana…I want you to be out there digging a well, digging

a ditch, getting a job, raising a family…doing stuff, instead of parking your life on the end of a marijuana cigarette.” He adds, “legalizing marijuana would create problems in dealings with the U.S. because the drug would remain illegal there”. Clearly, Ignatieff needs to brush up on some U.S. policies, since marijuana has already been legalized in more than 20 states. Harper’s position on marijuana is along the same lines, but he makes sure to add that he’s a parent of two children (ages 14 and 11) that “are at that age, where, you know, they will increasingly come into contact with drug use, and I guess as a parent, you know, that this is the last thing I want to see for my kids or anyone else’s children.” But, of course having the legal sale of alcohol and tobacco is perfectly fine in comparison? Both of these comments resonate with countless voters, but seem to have flaws in their reasoning. If our respected leaders were to see the results of recent studies on the use of marijuana, maybe they too would realize that even back in 2002, according to the Senate Committee on Illegal Drugs led by Senator Pierre Claude Nolin, “scientific evidence overwhelmingly indicates that cannabis is substantially less harmful than alcohol.”

“Scientific evidence overwhelmingly indicates that cannabis is substantially less harmful than alcohol.” The legalization of marijuana would actually help to control its use and the sale to minors, while the drug dealer around the corner could care less if they’re selling to a minor or not.

The biggest contradiction in favour of marijuana’s legalization is that we currently legalize substances that are much more harmful than marijuana. Alcohol can lead to a whole plethora of health problems that include liver disease, high blood pressure and increased risk of cancer. Interestingly enough, the government shells out $3.3 billion annually to pay for the direct health care costs of alcohol abuse. In terms of the green—and no, not marijuana—the Canadian government is missing out on a large revenue stream. Canada’s current production costs for a gram of marijuana for its medicinal use program is 33 cents; throw in a distribution and retailing cost of 10 cents (the cost for tobacco), giving us 43 cents per gram. In today’s marijuana market (illegal though it may be), a gram sells for around $10. That’s a mark-up of $9.57 per gram. The current estimates for Canada’s illegal marijuana trade: $7 billion. Don’t forget that the Canadian government also spends $500 million a year fighting the drug trade, while two-thirds of the country’s 50,000 annual drug arrests are for marijuana offences. Overall, it makes sense to legalize marijuana. Studies show that this isn’t a gateway drug and the addiction rate is less than 10% of all users. The government would actually be able to better monitor the sale of marijuana to minors, and this is a chance to increase tax revenue. It seems ludicrous that we allow alcohol and tobacco to be floating around legally under our laws, and yet being caught in possession of marijuana could very much ruin your future by putting a mark on your criminal record. No matter what the government says, it’s high time we “legalize it”!

April 2011 ArbitrageMagazine.ca

Trends Text to come…

By: Shindu Parameswaran

Profiting vs.

War, devastation, and who’s cashing in on them

Profiteering

By: Shindu Parameswaran, Staff Writer

hat’s the r e l a t i o n between a multinational conglomerate like General Electric (GE) and the Iraq war? How do governments, compared to the Bush administration, help companies take advantage of devastated countries involved in wars or recovering from natural disasters? How do credit companies, such as MasterCard, Visa, and American Express, turn a profit from the earthquake in Haiti? All of these questions revolve around a derogatory term: profiteering. Profiteering—the act of making unreasonable profit by means deemed unethical—has become a more prominent issue since the start of Afghanistan and Iraq wars and in response to the increasingly frequent natural disasters. In particular, the Iraq war has brought about greater awareness to the issue of benefiting unethically. Albeit the Iraq war cost nearly $3 trillion to the U.S. economy, the war has brought about some winners. For everyone from military contractors to construction companies to suppliers of bodyguards and ammunition, the war in Iraq has been a lucrative “cash cow”. Arguably, one such company that has greatly benefited from the war in Iraq is KBR Inc., formerly a subsidiary of Halliburton. It’s reported that KBR, one of the largest construction and oilfield service companies in the world, gained $17.2 billion in revenue from

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2003 to 2006. This is estimated to be about one-fifth of KBR’s revenue in 2006. Likewise, Halliburton, the former parent company of KBR Inc., also benefited from the war as it won a $7 billion oil and infrastructure contract. The relations between Halliburton and the U.S. government have been heavily criticized because of the ties the company had with former CEO and U.S. Vice President at the time, Dick Cheney.

This allowed Halliburton to win the $7 billion contract for which, strangely, Halliburton was the only company allowed to bid! KBR and Halliburton are only a few of the many businesses that have cashed in from the war in Iraq. Veritas Capital Fund, a private equity fund, has also exploited the money-spinning opportunity in Iraq. But how does a private equity fund benefit significantly from the Iraq War? Veritas owns a portfolio of companies— specializing in the defence and aerospace industries—which held large Iraq-associated contracts. DynCorp International, one such company that Veritas held, offered security services, police training and logistical services in Iraq. Other profiteers or enterprises that profited unethically include: Washington Group International and Fluor, both which repaired,

restored and maintained oil fields, military bases and municipal utilities; Environment Chemical, which managed the disposal of munitions; International American Products, which provided electricity to military camps; L3 Communications, similar to DynCorp, offered security screening, training and linguistic services as well as lawenforcement services and some replacement of equipment; and Lockheed Martin, which is the largest arms manufacturer in the world. The above mentioned are only a handful of businesses which were clear winners during the Iraq War. However, these were companies that you and I may not identify off the top of our heads. Did any of the more renowned, recognized companies gain from the Iraq War? HSBC, the third biggest financial organization on the globe, expanded its wealth with the start of combat in Iraq. The company purchased 70% of Dar Es Salaam Investment Bank, an Iraqi national bank, and converted it into the first private bank in Iraq after the fall of Saddam Hussein’s regime. As mentioned earlier, GE, the multinational corporation that produces household electrical appliances but also controls NBC, a large media company, was another business which profited by dishonourable means in Iraq. General Electric’s subsidiaries were able to win contracts to supply

medical and water purification equipment under the United Nations’ oil-for-food program, which provided aid to Iraq in the prelude to the war. In July 2010, GE was charged by the U.S. Securities and Exchange Commission (SEC) to pay $23.4 million because its subsidiaries had paid illegal kickbacks—some in payments, others in goods and services—to the Iraqi government to win the contracts. An additional firm that benefited greatly from Iraq was Bechtel, the largest engineering and third largest private company in the United States. It gained a $2.4 billion, no-bid reconstruction contract for Iraq`s infrastructure as a result of its close ties with the Bush administration. How did these companies— most of which, if not all, were U.S.-based—gain these profitable contracts from the reconstruction and restructuring of Iraq? We need not look far for the answer: the Bush administration. In an exclusive interview with the Arbitrage, Bill Woof, an Associate Professor who has been teaching Ethics, Social Responsibility and Sustainability at the Schulich School of Business for over ten years, remarked, “The Bush administration clearly planned this invasion not only as a method to provide security for American oil requirements, but also as an original experiment to bring a lot of multinational corporations, which was purposely planned. A

number of American corporations, which were all lined up in advance, came into Iraq to capitalize on the underdeveloped economy.” The Bush administration’s primary goal in entering Iraq was to gain control of Iraq’s oil fields. In order to accomplish this objective, the United States had to overthrow the opposing Saddam Hussein regime, as well as form alliances with the local militias in Iraq who were hostile to other militias against the U.S. insurgency. As Woof explains, As a result of this, the American government then helped form contracts with large, mostly American companies, enabling these companies to profiteer from the Iraq War. Unfortunately, profiteering from war is only a subset of the problem. Profiteering from devastated countries hit by earthquakes, floods, tsunamis, hurricanes and so on is also prevalent in the contemporary world. In the past months, floods have caused severe damage and casualties in Sri Lanka, Australia, Brazil, and Pakistan. In the past several years, there have been various catastrophes such as the Haiti Earthquake in 2010, Hurricane Katrina in 2005 and even the 2004 Indian Ocean earthquake and tsunami. With various natural disasters happening from month to month and from year to year, it provides companies the opportunity to

April 2011 ArbitrageMagazine.ca

Trends By: Shindu Parameswaran

profit from the distress faced by the casualty nations of such disasters. One such example is the profiteering activities by corporations after Hurricane Katrina. A review of documents related to contracts given out postHurricane Katrina by Gulf Coast Reconstruction Watch reveals that there was a total of at least $136.7 million in corporate fraud. Bechtel, who profiteered in the Iraq War, received a contract worth $575 million for construction. Similarly, AshBritt received a $500 million contract, Fluor obtained a $1.4 billion contract, and the Shaw Group was awarded a large contract worth $950 million. These entities profiteered from these multi-million dollar contracts after Hurricane Katrina. Some of the contractors failed to meet their obligations and charged the government for work that was never performed or fulfilled because of the lack of oversight. Similarly, a recent report from the Disaster Accountability Project (DAP) explains that

....many relief organizations have left donations, obtained for the Haiti earthquake reconstruction, in their bank accounts, earning interest rather than helping the people in Haiti. One of the roots of this profiteering is the significant lack of transparency, once again.

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As mentioned earlier, credit card companies like MasterCard and Visa are using the earthquake in Haiti to profiteer. About 97 percent of donations, when paid through credit cards, will truly make it to the selected organizations - but the remaining 3 percent will be pocketed by banks and credit card companies to cover their “transaction costs”. American banks and credit companies were able to make enormous profits of $250 million thanks to this hidden fee. Credit card companies rarely waive these fees in times of crisis. Not-for-profit companies do not question these credit card companies as it’s a crucial service to them as well as the huge amount of money at stake. To this point, everything discussed revolved around companies profiteering—benefiting immorally and unethically—from wars and natural disasters. But, is it fair to generalize that all companies gaining from wars and disasters are doing so unethically? Not so. Woof clarifies that there are three ways to gain from wars and devastations:

“The legitimate and ethical way to profit from wars is supplying medical supplies and equipment, which you need in any kind of a disaster.

The neutral way to profit is when a supply of a product is reduced because of a disaster in a country. This allows other suppliers in the different countries to raise the price for the product. This is inadvertently profiteering, as they do have to raise the price because of a decrease in overall supply. The negative way to profit – profiteering – is where companies produce and provide munitions and weapons.” An example of a company that had benefited ethically from a disaster was Wal-Mart. WalMart helped the people displaced or affected by Hurricane Katrina by providing clean water before even the government was able to assist. Like Wal-Mart, many other multinational corporations are trying to maintain and gain a better corporate image and focus on corporate social responsibility. However, not all companies look to gain from wars and devastations ethically; several companies profiteer from these devastated regions. In recent times, profiteering from wars and devastations has grown in prominence. But what will happen to these industries and companies that profiteer from wars and disasters in the future? Will they proliferate or diminish? As long as natural disasters and wars keep occurring, these companies and industries should realistically continue to flourish.

LEARN MORE! CLICK HERE!

April 2011

SCIENCE & TECHNOLOGY Source: flyingfamilies.net

Progress is the fuel of tomorrow. With the future charging at us at an everaccelerating pace, it’s clear that science will mark the landscape of our world. From the explosion of social media to the latest gadgets, this section explores the themes of contemporary technology and their impact on the way live and interact.

IN THIS SECTION… 56 keeping the internet free for all

Click to learn more & join us!

58 The Sky is Falling. Let’s Tweet About It.

The role of social media in a time of crisis

60 THE ULTIMATE SMARTPHONE FACEOFF

Blackberry vs. iPhone. Which smartphone measures up?

Science & Technology

By: Liam Scott

keeping the internet free for all magine the following: you’ve paid for 200 liters of water a month for as long as you can remember. One day you get a call from the water company telling you that from now on you’ll pay the same amount, but will only be able to use 25 litres every month; every liter you drink after this will come at an extra five dollar charge. Sound unfair? Well, if Bell and the Canadian Radio-Television Commission have their way, Internet users across Canada will soon find themselves in a similar predicament. It’s called Usage Based Billing (UBB), and due to a recent CRTC ruling, Bell, Canada’s largest telecommunications provider, will soon lower their bandwidth caps from 200GB to 25GB per month. The CRTC also wants to force smaller Internet Service Providers who lease internet lines from Bell to match these rates. Consumers will be charged up to eight dollars per gigabyte for exceeding their monthly cap, meaning significantly higher rates for consumers that are already paying 20% more than Americans for Internet access.

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This establishes a dangerous precedent for the future of the Internet in Canada. Bell claims these hikes are the result of their inability to keep up with high Internet usage. The numbers, however, tell a different story. The cost of transferring 1GB of data is approximately $0.01 - $0.03, but under the ruling Bell would start by charging users $2.00 for every GB over their limit. This is a price markup of about 6666.66%. To put it in perspective, this is the equivalent to paying $30,066.37 for an IPod Nano. Calvin Tennant, a Toronto designer who organized an antiUBB rally in Toronto’s YongeDundas square, says that the proposed plan would “stop innovation and stifle competition in Canada’s online economy.”

“Dinosaurs will die,” says Layton. “We can’t let the big telecoms shut out the smaller, emerging companies.”

Source: Flickr by sombrerero_loko

Websites like Netflix and Hulu, which are currently just breaking into the Canadian market, would not be viable under UBB as they use too much bandwidth. And the problem will only get worse as those services take off. “Soon, most internet applications are going to need high-speed connection and consume gigabytes of data just to operate,” says Tennant. “With [usage] caps like these, Canada will be left behind in the digital economy.” National Democratic Party leader Jack Layton also spoke at a rally in Toronto’s Yonge-Dundas Square in support of the Anti-UBB movement, drawing on Facebook founder Mark Zuckerberg for inspiration. “We have websites like Facebook that were started in a dormitory,” said Layton. “UBB affects students and innovators first and foremost.” Layton also signed a petition against the system, joining over 463,000 Canadians. “I thought they do these kinds of things digitally now,” remarked Layton, to which the crowd replied, “it takes up too much bandwidth!”

The movement seems to have gotten itself heard, as all three of Canada’s major political parties have opposed the ruling. Tony Clement, the Conservative party’s Minister of Industry, told the CRTC to reverse the ruling or the government would. The CRTC has delayed the decision and put it up for review. For many, this is not enough. “It’s a bunch of crap,” exclaims Tennant. “They’re giving everybody 60 days to forget about it and then they’ll pass it anyways.” Such actions would probably not go uncontested, as over 80% of Canadians pay for Internet access. But even if the ruling is struck down, the pressure on Canada’s telecoms and the CRTC will not relent. Tennant has big dreams for the future of Canadian Internet access. He proposes that a third party be added to compete with Rogers and Bell, both of which currently dominate most phone and internet service in Canada. He also called for a “complete overhaul” of the CRTC, which he believes is dominated too strongly by former employees of the very telecoms they regulate.

“We need to totally change the infrastructure,” Tennant believes, in order to secure affordable, accessible Internet for Canadians in the years to come. As a long term goal, he dreams of a day when there is free, publicly-funded wi-fi access for all Canadians in major cities. He acknowledges it’s going to take some work, and admits that the technology might not be there at the moment, but believes it’s “definitely something worth pushing for”.

opposition at its current strength, Bell and Rogers will likely be forced to make some changes to the way they provide their consumers with access. Tennant will be involved in organizing what’s being dubbed a “Day of Action” against UBB. It will take place February 26, 2011 in Toronto’s Queen’s Park, and already has hundreds of people planning to attend. “The Internet should be free,” believes Tennant. How far this sentiment goes is up to Canadian consumers.

Layton agrees that the playing field needs to be leveled for smaller telecoms, but said he thinks consumer action will show Bell and Rogers that Canadians care about their Internet. “Dinosaurs will die,” says Layton. “We can’t let the big telecoms shut out the smaller, emerging companies.” The future depends on how fiercely Canadians oppose these proposed regulations. But with the April 2011 ArbitrageMagazine.ca

Science & Technology

By: Ellen Stevens

Text to come…

The Sky is Falling. Let’s Tweet About It.

The role of social media in a time of crisis

EMPLOYMENT: Source: Flickr by ffg

SUBMISSIONS: ave you ever wondered what happens when a repressive government restricts journalists from reporting on a protest? Or what happens when people across the world are infected by the same virus and are looking to support each other? Or when an earthquake shatters a country to ruins, and organizations turn to the World Wide Web in search for financial support? In 2009 during the Tehran protest in Iran, the Iranian government restricted journalists’ access to events. This created outrage and protesters were determined to undress their country’s coat of secrecy. The protesters turned to Twitter as the platform to direct the public and journalists to videos, photographs and written material about events unfolding at the protests.

Twitter became a means to organize protests due to its untraceable nature. Users agreed to use the tag #IranElection to find related material with ease. The downside was that some Twitter users spread false facts via the Twittersphere. In 2009 the Swine Flu Epidemic hit the world stage. Twitter gave

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people the opportunity to reflect, grieve and engage each other in discovering new information about the virus. During this upheaval, Twitter once again became a favoured conversation deck for information and public gatherings. Unfortunately there were those who used this trust to build fear. In 2010 Haiti experienced a 7.0 magnitude earthquake. This left the country in devastation with victims looking to the world for a helping hand. Immediately, social media was on the case. According to Nelson.com, Micro-blogs were the leading source of discussion about the quake. On top of which the Twitter account for the Red Cross began adding 50-100 followers per day. Since then, the Red Cross has gained more than 10k followers. Following this trend, charitable organizations reached out to these outlets of conversation and organized donation baskets. Overall a lot of money had been raised for Haiti. Sadly some Twitter users set up false accounts for money transactions. During these times of trouble, social media companies like Twitter make themselves readily available for a worrying public. During a catastrophic event there is a human need to connect with others that can relate. Social

media platforms are ways for people to fulfill this need. This is why during a crisis social media giants gain tremendous power as raw communication channels and information channels. But beware.

While microblogging sites and social media sites like Twitter, Facebook, and Blogger gain tremendous clout, it is wise to use them at your own risk.

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:

OTHER QUERIES:

query@arbitragemagazine.com

LEGAL NOTE:

Many social media sites don’t have a filter for false information, and blind trust can render you misinformed. Today I dipped into the world of social media for myself. My Facebook updates inform me that my friend peeled off his face (I assure you he hasn’t, he’s sitting next to me). My friend’s blog has the latest rant on a self -divulged theory on telepathic lab mice who communicate with aliens in outer space. Twitter’s latest trend for the night is called “Rip Justin Bieber”. The validity of the last one you can check out for yourselves. I guess this really goes to show that experimenting with social media is sometimes like dating a really bad liar: if it sounds like cheese, it probably is. LEARN MORE! CLICK HERE!

Science & Technology

By: Sushil Tailor

THE ULTIMATE SMARTPHONE FACEOFF Blackberry vs. iPhone. Which smartphone measures up? ar past the traditional flip phone, modern ‘smartphones’ almost replicate desktop computers. While these new mobile devices offer a wide range of features and services, including Internet access, voice activation, and video, the phone’s added complexity demands a far more thoughtful purchasing decision. Two of the most popular smartphone models of today are the iPhone 4, manufactured by Apple, and the BlackBerry Torch, manufactured by Research In Motion (RIM). So here it is, the smartphone wars! Let’s first consider the design of the phone. After all, it is all you’ll be looking at anyway right? The Blackberry is the ultimate haven for connecting businesslike individuals. The Torch is the world’s first smartphone that has both a full QWERTY and on-screen keyboard. The sliding QWERTY keyboard is extremely user friendly because it is very easy to use. By contrast, the iPhone is a marvel of modern design. With a full touch screen and a single button, this is one of the most known embodiments of Apple’s minimalist design ethic. Both devices are compactable. Though the BlackBerry Torch is bulkier than the iPhone 4 they both fit into your pocket just fine! The Torch measures in at 111 x 62 x 14.6 mm, and weighs in at 161 g. The iPhone’s dimensions are, 115.2 x 58.6 x 9.3 mm, and weighs 137 g. The Torch’s versatile keyboard adds more weight to the phone.

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Both phones have excellent, high-resolution screens that can play high quality graphics and video content. The iPhone 4 LCD screen is 3.5 inches across, while the Blackberry screen falls slightly short at 3.2 inches. Text is crisp and has high readability on both phones. Web browsing is a more immersive visual experience on the iPhone than on the Blackberry. Unfortunately, the iPhone’s virtual keyboard has a steep learning curve and it is unreliable for heavy email composition.

"The Apple App Store offers over 300,000 applications to download; surpassing BlackBerry’s App World, by far." The operating systems on both phones do the job very well. The Torch which runs on a Blackberry 6.0 operating system, though loved by fans, is not nearly as advanced or powerful as the iPhone 4. The iPhone’s high speed and advanced OS allows the platform to provide support for a vast number of thirdparty downloadable applications. The iPhone OS 4 is one of the world’s most advanced mobile operating systems. The Apple App Store offers over 300,000 applications to download; surpassing BlackBerry’s App World, by far. The downside to the iPhone however, is that the operating system and user interface are not very customizable. The Blackberry allows users to tinker with its interface for customization and personalization, which the iPhone does not offer.

While both phones can send and receive email and maintain users’ inboxes, the Blackberry was designed from the ground up with email in mind. The inbox can be tied into many different accounts, and email notifications are prompt. The Blackberry’s full-sized keyboard is also geared towards email composition. The Blackberry can handle anything that is normally covered by Outlook, Hotmail or any other email service you prefer. Though it may be easier to read email on the iPhone due the larger screen, composing an email is not nearly as easy on the virtual keyboard. Further, the iPhone doesn’t yet have a gold seal for security and privacy. It is clear that the iPhone still has more to prove before it can even approach the Blackberry for supremacy in the business world. The Blackberry is not only for Bay St. The phone comes with the most amazing feature - BBM! You can PING away all day. If a message that you’ve sent to someone has been ‘read’ and they did not reply back to you, well then you know who your real friends are. Price is another sticking point. Each with 16GB of storage and no fixed term, the BlackBerry Torch costs $609.99, and the iPhone is $649 with 16GB of storage.

Figures are quoted from Rogers Wireless. If purchased with a two or three year commitment, the price usually drops significantly. The Blackberry has a slightly longer battery life than the iPhone, and despite endless rumours, both phones provide reliable service. The iPhone uses a superior audio codec to the Blackberry, and voice quality shines as a result. The BlackBerry Torch and the iPhone 4 are a duo of elegancy. The question of which one is better, is completely a subjective matter and leads to the next question. What would you like to do with your smartphone? The Blackberry is primarily a business device, and that direction shows in the design and in the designers’ priorities in terms of functionality. While it has excellent email and messaging capabilities, it is slow for browsing or any sort of media consumption. By contrast, the iPhone is an exclusive consumer product, and performs well for downloading websites, watching video, or playing games. Unfortunately, the iPhone falters in regards to email and composition in particular. The Blackberry is a more ‘grown up’ phone, and the iPhone a bit more fun. Regardless, kudos to the remarkable engineering!

April 2011 ArbitrageMagazine.ca

BIZ START UP Source: flickr.com/h.koppdelaney

A spark of inspiration can grant an entrepreneur the potential to shape the world. This sections hopes to provide you with tools to fan a spark that ignites into a full-fledged venture. Go forth and make your mark on the world as a future business leader!

IN THIS SECTION… 64 DoRM Room, Inc.

Click to learn more & join us!

66 Remi Boudreau: Bringing Magic to Business 21 Year Old Magician Named 2011 Student Entrepreneur

Biz Start Up

By: Amy Ward, Section Editor

DORM ROOM, INC.

efore they became the most powerful CEOs on the planet, Bill Gates, Steve Jobs, and Mark Zuckerberg were college students with side obsessions. Why waste your time with a McJob and student loans when you can turn your university experience into an incubator for your entrepreneurial ideas? Here are some ideas for businesses you can start while still in school.

1. Geek Out The dot-com era may be obsolete, but there are still plenty of ways to make money online. Long after venture capitalists stopped drooling over anyone with coding skills, Harvard student Mark Zuckerberg built Facebook from a simple campus social network to the life-sucking virtual entity it is today. Cultivate your idea to build the next-generation social network, or use your tech skills to build the next Plants vs. Zombies game and sell it on iTunes. 2. Feel Crafty The perfect relief from a world full of mass-produced junk is anything that is custom or hand-crafted. If you have great tactile skills and a strong sense of design, try selling your handiwork through eBay, local consignment stores or craft shows. Who knows? By selling your artwork, jewellery, or clothing designs, you just might become the next da Vinci or Prada.

"Starting a charitable organization can be just as stimulating as making your first million. " 3. Be at Your Service Wherever there are chores to be done, there is always someone too busy to do them. Use your youthful energy and your attention to detail to take the work off of someone else’s plate. The more clients you have, the easier it is to develop expertise, acquire a range of equipment, and build up an army of assistants to do the work for you. Think about offering services

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in landscaping, snow shovelling, tax preparation, babysitting, dog walking, or moving. If you have access to a car, you might want to offer a service specialized to busy students with limited transportation options such as laundry services or grocery deliveries. If people want it done, you can sell it. 4. Build by Design If you’re artistically inclined, try offering your creative services for hire. Post your portfolio online and tap your network to find people looking for your creative input. The stronger your portfolio, the more people will be willing to pay for your talent. Try designing websites, decorating interiors, or taking wedding photographs and pet portraits.

5. Sell Cool Are you an expert in what’s hip? Become a consultant on what’s cool to help tap marketers into youth culture. This one involves a master level of self-promotion and a keen eye on what’s up and coming. If this sounds like you, you probably already know how to sell your knowledge to companies looking for buzz. 6. Go Where the People Are Owning a store might be a cool idea, but it can be hard to find startup funding or maintain regular store hours while still in school. Turn these problems into opportunities by embarking on a new trend in mobility – the store on wheels. An old ice cream truck can become a mobile t-shirt store, art gallery, or gourmet snack shop. The store is open when and where you like it – street festivals, school districts, downtown shopping areas – and mainly in the summer months. The principle of scarcity says if the store could disappear tomorrow, people will shop today. Just check local business regulations before going this route. 7. Feel Generous Instead of working for profit, try collecting money for others. Starting a charitable organization can be just as stimulating as making your first million. Plus, it’s altruistically rewarding. You can also build in a charitable element to your for-profit business, for example donating unused materials to a homeless shelter or providing internships. Any business can be socially conscious, whether by donating money or goods, providing services to those in need,

or giving opportunities to people who could use a hand. Who knows, maybe you’ll find your next genius business partner in the process. 8. Be a Star If Justin Bieber catapulted to fame via YouTube, there’s hope for us all. Your random blog musings or exhibitionist webcam stream might be your ticket to fame, fortune, and all the power that a person living in a fishbowl can hope to have. Look at Justin.tv, which started as a 24/7 web broadcast of Justin Kan’s life, via a camera attached to his baseball cap. Kan appeared on the Today Show and Nightline to discuss his rise to fame. With 31 million users a month and $7.2 million in venture capital, the lifestream site is now the biggest portal for live video,

giving the trainers at the gym a few tips, you should try teaching. Even while you master a subject, your current level of expertise can help someone still learning the ropes. Share the wisdom as a tutor, personal trainer, or private instructor in an area you’re passionate about. The entrepreneurs of the future will thank you.

9. Build a Better Mousetrap If you think the world’s problems can be solved through engineering, you might want to take the patented route of business success. Dean Kamen dropped out of college because he was so obsessed with his own inventions. Kamen went on to create the Segway scooter, a water purifier for use in developing countries, and the first insulin pump. Once you have the blueprints, let someone else handle the mass production so you can free yourself up to become the next Iron Man. 10. If You Can’t Do, Teach Your skills as a student are always valuable to someone: another student. If you excelled in a first year course, studied violin for a decade, or find yourself

April 2011 ArbitrageMagazine.ca

Biz Start Up By: Vahida Badat

Remi Boudreau: Bringing Magic to Business 21 Year Old Magician Named 2011 Student Entrepreneur emi Boudreau of St-Antoine, New Brunswick, does it all. Not only is he a full-time student studying Business Administration at the Université de Moncton, but he’s also the proud owner and operator of Remi BoudreauMagician/Illusionist. On February 15, 2011, Boudreau was named 2011 Student Entrepreneur New Brunswick Champion by Advancing Canadian Entrepreneurship (ACE). ACE Canada, a charitable organization, along with corporate sponsor CIBC, operates the Student Entrepreneur national competition. Since the tender age of 10, Boudreau was fascinated with the world of magic, so much so that by just 13 years of age, he decided to pursue his dream of becoming a magician. Since 2002, Boudreau has owned and operated his own business of professional magic shows, offering magic interlaced with humour. He performs at various different events, ranging from birthday parties, corporate events, festivals, casinos and much more. He aims to establish connections with his audience through modifying his performances to the audience’s expectations and draws upon various effects. That said, Boudreau’s volunteer performances for the Children’s Wish Foundation and Relay for Life are what he has found most rewarding. “While performing on stage, I could see the smiles on their faces, which made me very happy as well to help out this great cause,” explains Boudreau. For the past three years, Boudreau has been getting as

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many as one hundred clients per year, and he has been featured on various local television shows for his magic skills. When asked what excited him most about being an entrepreneur, he explained that, “At first, I didn’t realize that I was playing the role of an entrepreneur. I was only pursuing my dream of becoming a magician.” Yet, he added that what really excites him as a magician is being able to meet different people and establish connections and relationships with his clients across the Maritimes. His advice for budding student entrepreneurs is to keep in mind that building your own business is no easy feat. He says, “To perfect your business is very hard, but every mistake you make will be a learning experience that will guide your career to perfection.” Boudreau claims that it is an honour for him to take part in the national ACE competition, and will remember it for the rest of his career. From here, the 21 year old magician will move on to represent New Brunswick in the regional round of the competition at the 2011 ACE Regional Exposition in Halifax on March 11. Regional Champions will receive a $1,000 cash prize and will then move on to the final round of the competition, which will award a $10,000 cash prize to the National Champion. For the future, Boudreau dreams big. He hopes to be able to perform on a cruise ship, tour across Canada, and perform in Las Vegas someday. “To my knowledge, being a magician is the best job in the world.” In the end, his biggest dream has already come true.

LEARN MORE! CLICK HERE!

STUDENT CO. Source: www.ise.uk.com

Where do you want to be in 20 years? We all want success, whether it be a large pay cheque, early retirement, prestige, or simply the ideal career. But how do we get there? The complex world of business is filled with risks and rewards. Taking the right step on your career path may lead you to your dream job, but taking the wrong step may result in a major setback. The Arbitrage Magazine strongly encourages you to explore your options and keep an open mind. Arm yourself with the insights found in the following articles, and get informed about some of the most important choices you will ever have to make.

IN THIS SECTIONâ&#x20AC;Ś 70â&#x20AC;&#x201A; Career Spotlight

Interview with Nancy Moulday, TD Business Banking

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Student Co.

By: Kevin Kang

Career Spotlight

Interview with Nancy Moulday, TD Business Banking

ancy Moulday is the Manager of Recruitment for TD Business Banking and recruitment lead for the Commercial Banking Associate Program, targeted towards new graduates. With 23 years of experience at TD, in an exclusive interview with Arbitrage Magazine, she spoke about her experience with the company and shared key insights into working at the Business Bank. Currently, Nancy manages recruitment for the Commercial Banking Associate program which includes overseeing an 8 – 10 month training program for new hires. Nancy is also the past president of CACEE (The Canadian Association of Career Educators and Employers) and currently sits on the CACEE advisory committee. Q: What are some of your main responsibilities as the Manager of Recruitment? In our Business Bank, one of my main responsibilities is to manage the Commercial Banking Associate Program. Through this program, we look for individuals who have either an undergraduate business

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degree or an MBA. We recruit 4 times a year, and every quarter, we bring in about 35 associates. I’m responsible for screening, sourcing, reviewing candidates, conducting first round interviews, organizing second round interviews, as well as managing the offer, onboarding, and training processes. We have about 50 commercial banking centres that I’m responsible for staffing. We also look for experienced hires through our TD.com job posting site, job boards, social media, alumni, and placement agencies. Overall, I am responsible for many varities of external and internal recruiting. Q: As an undergraduate business student, what kinds of full-time opportunities are there within TD? If you’re an undergrad looking for opportunities at TD, we have a number of associate programs that you may be interested in. One example is the Commercial Banking Associate Program that I mentioned earlier. This program is a combination of using your finance and accounting background as well as your customer service and

sales skills. You will analyze customers’ financial documents and at the same time, you’ll also be involved with sales, and building relationships with bank clients. It’s a nice blend of the hard number-crunching skills and your soft skills. This training program is ideal for those who know they want to work with business customers. We also have a TD Canada Trust Rotation Program. This is a management program that will take you through four different six-month rotations. You may spend some time in a branch, some time in a head office product group, maybe in finance, maybe in marketing—it’s customizable! There will also be a dedicated manager who works with the new associates coming into that program. The program is an excellent opportunity for undergrads to get into the TD Canada trust world and see a bigger picture of the organization. It’s also great iwf you know that you want to get into banking and financial services, but you’re not sure what area of the bank you want to get into. TD Bank Group as a whole has a finance and accounting associate program which is very similar to the

Source: NFSA

TD Canada Trust program. It’s also four six-month rotations, but you will get a chance to see the various finance and accounting functions from a head office perspective. And of course, we have a lot of opportunities from our TD Canada Trust retail world. A lot of folks who are going to school right now actually work for us on a part time basis. Because we’re open eight-to-late and now seven days straight in many of our branches, it’s great for students who want to work on evenings and weekends. These roles are really flexible with school schedules. Many students are coming in, as I did, as a Customer Service Representative and then careerpathing into different roles at TD. The great thing about TD is that you can start off in one area and do a few years there and then go into a different area. I mean, I’ve been at TD for 23 years and I’ve had 14 mini careers! Q: Are there any internship opportunities within TD for students who are still in school? It depends on what area of the organization that individuals are interested in. The Commercial

Banking program that I manage is an 8-10 month program, so you could do it through a back-to-back coop or internship. Some universities don’t have co-op programs so you may have to look at summer work. At TD Bank Group we have part-time opportunities in TD Canada Trust for those who want to join us in the branch environment. We also do a lot of recruiting in TD Securities for their summer internship program. The Wealth Management area and Head Office function also brings in interns as well. We do a lot of internship and coop recruitment and the majority of those are over the summer. I used to manage recruitment in our IT group, and they recruit year-round into coop and internships as well. There are lots of opportunities for folks and those positions are all posted on our TD.com career site. Q: Do you have some tips for students when they’re writing their resumes? At the Commercial Bank, we have an applicant tracking system which shows us only the text version of your resumes and whatever else is attached. The most basic thing

I look for is that individual has an accounting or finance background from an academic perspective. That’s the prerequisite for the Commercial Banking Associate Programs. When screening a resume, I always look for well-roundedness. I know it’s hard these days because when you look, a lot of students are working part-time 20-30 hours a week, volunteering, and completing their education. It can be difficult to juggle all that and we understand, but I do look for those who get involved with their community—the on campus community as well as the community that they live in. TD is very big on community support and if I see individuals who are already doing that, then I think it would be more natural for them to fit into the culture at TD. Q: What kind of culture does TD Commercial Banking have? The culture at TD Commercial Banking is very team-based. Yes, you do work independently, but you’re part of a team and are accountable as such. It’s almost like you’re at school and you’re working on group projects.

April 2011 ArbitrageMagazine.ca

Student Co.

By: Kevin Kang

We work very hard but we also get involved in supporting the community. We have many opportunities for our employees to work together and give back. To sum up, the culture is really a supportive, team-based environment that gives people the opportunity to grow as well as the opportunity to excel. There’s no real set time you’re on a job: it’s all based on how you perform and our business needs. You can progress at your pace and we recognize that. Q: Some students looking to get into banking and finance do not have a business degree. Is it still possible for them to get hired? You don’t need a BCom or MBA, but you do have to have a basic course in accounting and finance. As an associate, you’re apprenticing to become an analyst. You need to have that core understanding of accounting and finance if you want to succeed. I have recruited art students if they’ve taken an accounting or finance course. If someone who approaches me doesn’t have these courses at all, I’m also willing to sit down and talk to them about courses they can take to complement their transferrable skills. There are a number of colleges and universities that do offer financial statement analysis or accounting 101, and students can take these courses to supplement their undergraduate degree. Q: When selecting candidates, do you look for any designations such as CFA or CA? For the Commercial Bank, you don’t need any designations other than an undergrad or MBA. We understand that folks want to continue to learn so if they do want to look at continuing their education with a part time MBA, CFA, CGA, CMA, or CA, we support that. We

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have a policy in place that will help employees with getting external education. I’m finding that more and more students are taking the CFA. In fact, they’re enrolling in the first level of the CFA and writing it in their last year of school—not that it’s required, but it’s the trend that I see. Q: How much do marks matter when students apply for TD Commercial Banking? Not as much as perhaps other areas of the organization, but you need a good understanding of accounting and finance. I look at the whole transcript: I want to see the type of person and what electives they’re taking. You don’t need to be an A++ student. Again, I like the well-rounded individual. It’s hard for someone to get straight A’s, work part time, and volunteer. It’s not impossible, but we understand it’s difficult when you’re splitting up your time to different accountabilities. An average of B or B+ is fine. Certainly if you’re getting stronger grades it’s great, but there’s not as much weight put on grades in the business bank. Q: What are some other ways for students to stand out above the crowd of other applicants? The more times a student approaches me at an event, the better I remember them. For Schulich, I was on campus 6 times before I started screening my candidates. As a recruiter, we attend panel interviews, job info nights and career fairs. If you’re doing your due diligence and you’re really interested, make sure you get out there and make the effort to reach out to us. All you have to say is, “Hi, my name is … and I’m interested in the commercial bank.” Seeing someone more shows me that

they’ve got initiative, they’re interested in my role, and they’re trying to build a relationship. Then, when it comes to screening candidates, I can say, “I know Mary, I’ve seen her 4 times”, or “Bob’s been to my information session twice.” It really helps you stand out! My biggest piece of advice is that if you’ve targeted a company, make sure that you go to the events that you feasibly can get to. Meet with the recruiter and make an impression. Also work closely with the career centre, because they have all the recruiters’ names. Another way to for students to distinguish themselves is to tap into the alumni. It could be a current student you know who worked for a summer at the company, or someone who has given your career centre permission to contact them to introduce students who are interested in learning more about the company. Get some names and get a chance to network. Ask them to grab a coffee or just to chat over the phone for ten minutes. My other piece of advice is to not wait until the spring of the year you graduate. Start in first year or second year. It’s hard because some students are in business but don’t know what they want to specialize in, but if you know you want to get into financial services, make sure you at least get into the banks’ info sessions. It’s 2 hours, 1 night, and it’s a great opportunity to start making these relationships. Q: What’s the work-life balance like at TD? In TD Commercial Banking, the work-life balance is pretty good. I would say it’s usually about a 40hour work week. However, when we get down to crunch time, you know there are some extra hours that need to be done, but it’s certainly a healthy balance. We also look at flexible work arrange as well and all of this information is posted on our career site. We’re very transparent

and students can find most of the information they need. Q: What’s a typical career path within TD Commercial Banking? The great thing about TD is that there is no typical career path— you can really go anywhere in the organization. In the Commercial Bank, they start off as an associate, come in for the training program, and then are promoted to an analyst position where they have their own portfolio. Some of our associates go into an account manager role as well. There are also more senior analytical and relationship-based roles, and you can potentially spend your whole career in different parts of the commercial branch. Some folks move around to our head office areas like our products groups and sales. We’re also big exporters of talent to other areas of TD. Employees can start

off here and move on to Wealth Management, TD Securities, or Corporate Banking, etc.. Q: What advice do you have for finance students and aspiring bankers? The advice is similar to what we have woven into our conversation. I feel that it’s very important to tap into alumni, work with your career centre, and have a chance to visit the workplace. Go grab a coffee or have a phone chat with people already within TD—it will help a lot. Investigate and look on our website and find out more about the jobs. We have “day-in-the-life” scenarios for Commercial Banking, job postings year round, and other crucial pieces of information. My best advice is to encourage students to work with the career centre and alumni, and while the recruitment season is in full swing, get out there to info sessions, and make a good impression even if

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Source: Nancy Moulday, TD Bank

you’re in first, second, or third year. Interviewee bio: Nancy Moulday, Manager Recruitment for TD Business Banking; has held various positions with the organization during her more than 23 year-career, including roles in the branch environment, HR and recruitment. She has been involved with hiring of hundreds of employees from both inside and outside the bank and on campus.

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April 2011 ArbitrageMagazine.ca

What is ACE? What is ACE?

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