Kell Petersen

May 3, 2000

Page 1 of 4

John A. Rudnick

Branch Manager

Business Development Bank of Canada

313 Bernard Avenue

Kelowna BC

V1Y 6N6 

Dear John:

RE: Government’s role and BDC’s role in our Canadian democratic governed mixed economy.  

Thank you for our recent meeting discussing BDC’s role in the economy – tying into the issues we addressed to BDC in 1998 and 1999.  I appreciated the opportunity for such open discussion. 

Beside our professional work, it is P&A’s policy as a member and “shareholder” of the community to be pro-actively involved in the strategic issues facing the community.   When our strategic audit, strategic analysis, comparable and sociopsychiatric studies detect government intervention that does not promote real income in our mixed economy, we may volunteer our analysis through discussion papers that address the issues and propose approaches to solution.   

Since 1996, we have addressed problems with federal and provincially shared transfer programs including for example HRDC, Community Futures, FRBC, BDC, etc. that fail to meet minimum standards for government intervention in a mixed economy. However, as Franz Kafka wrote: “the message is delivered, nothing changes”.   

These interventions continue to damage the market and pricing mechanism and consequently are hampering investment in economic production. 

In the BDC case, a specific experience of the credit and monitoring routines between BDC and a corporate borrower was what initially prompted us to address these issues to BDC.  That case also involved federal and provincial shared transfer programs. Indications are that the BDC needs to audit its role in the economy and refine its analysis, client support, monitoring, and loss prevention and aftermath analysis system. 

The lack of aftermath analysis in cases as Sonax in Oliver and Van Steyvoort Woodworks in Osoyoos both BC, does not encourage confidence and investment.  Aftermath analysis of failure is imperative for all development whether in the aircraft and car industry, in business, or in government programs.  The two companies is prime examples, where it is reasonable to conclude that both companies could have been successfully reorganized and a significant number of jobs (80-100) bee secured had the government acted accountable.  

Reflecting to the lack of aftermath analysis.  The same or greater accountability should apply to both the government institution who approve and to the corporations and social establishment that receive tax transfer or corporate welfare, as to individual members who seek society’s help for their social and financial problems?   

It is also our analysis that the facilitating middleman service business BDC is operating does not pass a test for government and quasi government organization intervention in the pricing mechanism.   Particular in BC, BDC is contributing to fuel a economic guild behavior of medieval style in the communities around the province.    

That does not imply criticism toward members of the community who pursue transfers. If government offer transfer private sector will pursue transfer - that is considered shrewd business. In Canada being a member of a guilt and pursuing transfer under the banner of helping small business or whatever is in the short term the fastest way to advance ones wellbeing.  It is not private sector role to set the standards in a mixed economy - it is strictly government’s role.   

It is no criticisms towards shrewd management for pursuing transfer as for example Western Star. The management’s first responsibility is to theirs shareholders and no to the community.  Management simply has a obligation to pursue transfer the government offer.  The question and concern is whether or not transfer passes a test for government intervention in the pricing mechanism.  In the Western Star case whether a test was even done -  and whatever an Aftermath Analysis will be done.  

The problem is when the government lacks prudent analysis and injects transfer that damages the pricing mechanism. Realizing that transfer can only be on the expenses of other aims and business in the community.   

The issues we address are not personal.  The issues are BDC’s role in the economy and which services our government should provide and not provide via BDC.

To date, it would appear that the BDC has not attached the same importance as we do, to the issues we are addressing.    As long as that is the case, we have no expectation that our analysis and approaches to solution will be recognized and used by the BDC.    

Broadly government’s role is to provide such service the private sector fails to provide - not to provide services that compete in the private sector or that endanger the pricing mechanism.  

Our constitution states: government is committed to … “furthering economic development to reduce disparity in opportunities”. 

The fundamental problem is that the government is simply not able to secure jobs and social satisfaction with the same methods that worked in the past.  Post war government and central bank policies and an inflated equity and financial sector are not translating to better paying jobs and better socioeconomic standards in the community.  We are creating an increasingly segregated world and socially eroding community complete with longer food lines.   

The problem is outdated post and Cold War programs that fail to pass a test for Government intervention in a democratic governed mixed open economy. The BDC included.  

Particularly in BC, government intervention is damaging the free market pricing mechanism, which is central to stimulating a globally competitive private and industrial sector. Instead the system stimulates transfers from government and fails to encourage lateral private investment in economic production.  

For example, in British Columbia’s Forest sector, industry failed to identify the economic and market shifts and ecological issues and therefore did not adapt. The government also failed to monitor and recognize the problem in the market/pricing mechanism and to intervene to correct the problem.  

During the good times, the system failed to encourage long-term investment, adding value, and using fewer resources. During the bad times, it conditioned industry to expect government assistance and bailouts and generated ‘grant seeking behavior’ that further distracted industry from the needed strategic analysis and development.  Unsolved since the middle of the seventies, it has escalated into adversity in the nineties.  It is not less than a national tragedy, that government is supposed to remedy.  

What is most disturbing is that under the banner of renewal, the post-war thinking that caused the problem and destroyed the pricing mechanism continues to implement post-war outdated solutions – also in BDC.   It is a kind of democratic failure. 

The present slow acting system will be increasingly inadequate. 

When problems show up in financial statements, ecological problems and in Auditor General’s reports - it is too late.  Applies also to BDC.

BDC is one government intervention in the pricing mechanism that was designed for post-war closed economic conditions that no longer exist.   Although our comments are not always popular, we stand by our analysis.  That BDC and other government institutions must adapt to a new role for government intervention in an open and knowledge driven lateral economy, or wither on the vine.  

OISD; In that perspective we take the opportunity to inform you that we are forming the Okanagan Institute for Strategic Development. The initial focus to be on Government’s role and accountability to society from local to federal level in a mixed economy.  Our analysis of the federal and provincially shared programs - including BDC - has been a strong contributing factor for the decision to launch the institute and the first project.

We remain interested and prepared to assist with the necessary changes, but in good conscience will not pursue transfers and work from programs that do not meet certain economic standards and accountability for government intervention in the private sector and pricing mechanism.  

I realize this letter will probably not be perceived as a promotional letter.  Nevertheless, if the objective is to realign programs to meet the Canadian constitution’s standard and that promote real economic production and real income in BC and Canada in large, we would be happy to discuss how we could assist.  

We always welcome a dialogue.   

Yours truly,

 Kell Petersen  

cc:        Bernd Schroder President and CEO BDC
Other this may concern.                                                                             /…..

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