February 13, 2011

The TMX Takeover and Alternative Business Models

By admin

Canada has a basic financial industry that has become very complicated over the last few decades (possibly centuries), largely because of our messed up Constitution.

Because we’ve always tolerated provincial jurisdiction over financial regulation, we’ve never been able to develop a robust financial market compared to similar-sized economies.

The impact of this is that we’ve always been reliant on external providers of capital to fund our economic activities.

Recently, things started to change as demands for a consolidated national regulator have emerged.  The world’s top companies probably woke up to the fact that companies like Potash would be buying them instead of the other way around if we were able to streamline our regulatory environment.  This explains the array of takeovers in recent years.

The London Exchange bid for the Toronto Market Exchange (TMX) Group is just another jump in this direction.

Of course, in the most bizarre state of irony, Canada’s west – represented largely at the federal level by Conservatives – are getting socialism and Canada’s central provinces – dominated by Liberals and the Bloc – are getting fierce capitalism.  I say this because in order to protect votes in the west, the Conservatives are protecting key assets from non-US foreign interests (Potash, the Tar Sands) and letting Ontario go to ‘hell in a hand basket’ by insisting on transaction such as those involving the TMX, Domtar, Dafasco, etc.  All of these actions carve out the base of Ontario’s manufacturing and financial infrastructure, ultimately penalizing those who don’t support the Conservatives.

Socialism for us, capitalism for the rest of you, indeed.

Sorry … that’s a big side-bar discussion that should take place elsewhere.

Getting back to the real story:  I believe that the takeover of the TMX will occur and Canada will lose all of its financial security and industry because people in Toronto simply don’t vote for Conservatives.  This will be a political rather than economic decision and Canada’s blue-blood Bay Street business base will lose as a result.

What’s the good news?  Inevitably, people that want money will demand alternatives.

The even better news?  There are lots of alternatives available.

In any basic market economy, the following are ways that you can organize a business or organization:

  1. Sole proprietorship
  2. Partnership
  3. Incorporation – privately held
  4. Incorporation – publicly traded (ie. on an exchange)
  5. Registered Not-for-profit
  6. Registered Charity
  7. Co-operative Business / Organization

I believe that the vacuum that will be left by the TMX will push demand for nearly every form of organization listed above with the exception of ‘Incorporation – Publicly Traded’.  For many, this may be a bad thing because it means those with big dollars will continue to invest in good ideas and people, but those with relatively few dollars – ie. your basic RRSP holdings – will have nothing to buy in the early stages of growth.

This can be seen as a failure of our capitalist system to encourage efficient use of ALL savings – not just those of the elite – when it comes to investment opportunities.

Arguably, our system has failed most people because we’ve been living that way for some time.  ‘Angel’ and institutional investors absorb a lot of risk with new ventures, but they also reap most of the returns.  Crumbs get thrown to the general public.

What we need to do is figure out the best ways to promote and foster local growth in Canada.  The only way to do that is to look into things like co-ops, non-profits and other organizations like Community Supported Agriculture (CSAs).  All of these will materialize more readily if we make it easy to push our personal savings into these organizations.

Here are a couple of ways to do this:

  1. Expand the definition of qualifying companies that one can put in their RRSPs.  Investing the market has become a bit of a joke, as we all know the last ones who actually profit from any activity these days are shareholders.  The world has become so packed with insiders manipulating stock prices that Ponzi schemes and gambling are starting to look more attractive.  Adding co-ops, small businesses and other organizations to the list of eligible securities is a great way to make investments AND shelter return on capital.
  2. Make contributions to or support of CSAs tax deductible.  We make music classes and gym attendance tax deductible.  Why not put real, organic, natural and local food on the table with a tax deduction as well?
  3. Expand the deductions that people can make when contributing to qualifying not-for-profits.  NFPs contribute just as much – if not more – to our economy than many of the ‘big business’ magnates pulling for tax rebates and public-paid bonuses.  We need to improve on ways to accelerate getting our funds from our savings into their hands.
  4. No penalty for small business deductions from RRSPs.  If I manage my own small business and I’m fortunate enough to have an RRSP, I should be able to finance my company via RRSP deductions without penalty.  We’ve done this in the past with home ownership loans and we should do it for small businesses.

These are just a few basic ideas, but you get the idea.  Once we start to function without a capital exchange, we’ll come to realize that there are extremely economically viable options out there.