At 5 feet 2 inches tall, this diminutive lady has over the past week dramatically swung world events against Vladimir Putin. She was uniquely prepared for this crisis, and has almost single-handedly led the world in bringing Putin to his knees.

But let me rewind: Chrystia Freeland hails from the unlikely political hotbed of Red Deer, Alberta. Her dad was, from all interpretations, the son of a cowboy and a lawyer. Her mother Halyna Chomiak, who was Ukrainian by birth, was born a refugee in a displaced persons camp right after the Second World War in Bavaria, after her family fled the ongoing famine and Stalin’s takeover of Ukraine. Halyna became a lawyer and federal NDP candidate in Canada; and after moving to Ukraine in the early 1990s, was an author of Ukraine’s democratic constitution.

Ms. Freeland has a bachelors’ degree from Harvard in Russian History and Literature, and a master’s degree from Oxford in Slavonic studies. As a student, she spent several semesters in Kyiv studying and engaging with local activists seeking Ukrainian independence. There she acquired the KGB codename “Frida” and was actively tracked, engaged, and threatened by Soviet agents. The KGB, where Putin was building his power at the time, expressed concerns that she was doing material damage to the communist party as an activist, and used her as a case study. They had no idea what was coming.

After graduating she worked as a freelance journalist and eventually an editor for news outlets like the Economist, Financial Times, Globe and Mail, Washington Post and Associated Press over 20 years. Despite having been denied re-entry to the USSR in 1990, she eventually returned to and lived in Moscow as bureau chief for FT. Here she befriended Bill Browder and Igor Magnitsky and began to vocally report on the misdeeds of Putin and the Oligarchs. Insodoing, she became an existential enemy.

She returned to Canada in 2013 and entered politics, and has been at the right hand of the Prime Minister since 2015, originally as Minister of Trade and then Finance Minister. In 2014, she was one of 13 Canadians banned for life from visiting Russia by Putin himself — a list she declared herself proud to be on.

Even prior to Russia’s invasion of Ukraine, Freeland became Canada’s point person in response to the clear threat Putin posed to the country. On Tuesday Feb 22nd, days before the invasion, Chrystia began reaching out to her peers abroad and floated a number of sanctions that could and should be imposed against a belligerent Russian state. Among her proposals was the idea of cutting off Russia’s Central Bank — freezing the country’s overseas assets, prohibiting them from further borrowing, and nixing their so-called “rainy day fund” that was intended to be used as an economic buffer throughout this unprovoked war. She pitched this to the world’s governments and central bankers and quickly persuaded them to act after the invasion commenced.

The collapse of the Moscow Stock Exchange and the Russian Ruble, among other consequences, are a direct result of this action. Their economy is now in free-fall, by some estimates smaller than many African nations, and both Putin and his country are now flat broke. And she’s not stopping: our government is now, under her leadership, going after Russian assets in Canada — and encouraging other countries to do the same. She’s chasing the oligarchs right down into their financial rabbit holes.

The KGB was right about Ms. Freeland: but they picked on the wrong young lady, way back in 1989. This is her moment, and never has a person been so prepared for such consequential action. Among other résumé highlights, soon she may be able to add toppling a dictator.

Here, she is interviewed in 2000 about Russia’s bumpy and vastly unequal transition to capitalism:

I’ve actually reversed my earlier position — I think that now is the time for regulators to step in and enshrine the tenets of Net Neutrality that have helped the internet to flourish as the fastest growing communications technology in human history.

Here’s the PPT Slide Deck (better in its original Keynote form below):

… and better yet, here’s video of the event:

… as always, a huge influence on my approach to the internet, and communications technology in general, is David Isenberg… in particular his paper “Rise of the Stupid Network“.

I also gave an interview to the Vancouver Sun in 2017 underpinning the same argument: that is, that if carriers are permitted to prioritize traffic commercially, the result would be immediately chilling for early-stage ventures who can’t afford to pay the vig.

My position on Hillary (not that you care): Lots of Americans hate her. They think she lies. This may not be justifiable, but it’s understandable, and I think it was a mistake for Democrats to select her as their nominee. Why?

Because for 30+ years the Republicans and their wealthy donors have seeded a cottage industry of rumourmongering, legal wrangling, and Federal investigations targeting the Clintons. Among these efforts, more than $100 Million of public funds have been spent on partisan attempts to attack and disgrace the Clintons.

From Whitewater to the Impeachment, to Benghazi, to Emails there is little kindling to build a raging fire of corruption. But by promulgating these and more “scandals”, most manifested purely in the imaginations of Bannon et al, Republicans now assert a “where there’s smoke there’s fire” blanket indictment; even where the smoke has largely been billowing from between their own cheeks.

Why are they so fixated? Because Hillary once tabled a supposedly radical, single-payer health care proposal that threatened to sideline trillions of dollars of privately-owned health insurance and healthcare provider companies. That she dared to posit the notion that perhaps human wellness should be a sacred right and perhaps NOT a profit centre for a mature social democracy massively alienated much of corporate America. That this initiative might actually be SUCCESSFUL is a clear and present danger to the fundamental fabric of the Republican Party, as it could shift Americans appreciably to the left for decades to come.

The very same people who now criticize Hillary for voting in favour of the ill-advised, ill-conceived, ill-planned, and woefully-poorly-executed invasion and occupation of Iraq would have called for her to be convicted as a traitor had she done otherwise. And that, my friends, is the majority of Americans. Hypocrites, all.

Fundamentally and broadly, Americans now do what they’re told. And they believe what they are told to believe, largely without cross-checking information and/or throwing sources under the cold light of context. And the general theme across most major media is that Hillary is a liar and Trump (who is a baldfaced, habitual, and reflexive liar) is a straight-talking though controversial outsider.

Frankly it is amazing that a population could be so stupid as to follow this line, but I remind myself that many of history’s most savage and incompetent leaders were indeed elected and widely lauded.

I have seen so many Americans who support #Trump assert “facts” about their candidate or the other which are demonstrably false with even the smallest amount of effort that I am convinced we have entered the Post-Truth Era of American political life. In a Post-Truth era, that which confirms your uninformed beliefs supersedes that which might challenge them. We now value opinion and impulse as more favourable than reason and information, a condition which I suspect is only possible in the wake of a 40-year conservative assault on public education in North America and elsewhere. When you combine this with fuzzy notions of American exceptionalism and Randian rational self-interest (which are the same thing, really) this cocktail of objectivist bullshit is the result.

Similar to the #Brexit fiasco, the months and years following a Trump victory (and there is no question — he will win) will be endowed by a period of instant regret and malaise, political chaos, and systemic entropy. The logjam inflicted upon the US by the Republican Congress and Senate during the Obama years will be further intensified by an ineffectual, diffident President, floundering to gain this segment’s favour or that for easy gratification and political sustenance.

Little of consequence will transpire, which for many on Wall Street will be deemed favourable, and the rich will continue to raid the cupboards of the middle class until the phrase becomes a demented oxymoron. America’s role in the world will diminish, apart from a few conflicts here and there, and their shrinking buying power will throw many overseas markets into chaos.

For his part Trump, a modern-day Emperor Nero, will fiddle while Rome burns and American society and infrastructure decays.

This is bad for Americans, no doubt, but a decreasingly potent America will render new opportunities for nations brave enough to wade into a new paradigm. I doubt that will be Canada, for what it’s worth..

In summation: Trump is a symptom of a set of wider problems, not a protagonist. He will ultimately have little positive or negative effect on what has been a long-term decline in harmony and commonwealth during his reign as clown-in-chief. He will denigrate and embarrass the office and his nation, and will be openly corrupt.

I struggle to imagine how, apart from the denigration and shame thing, a Hillary Clinton presidency will ultimately differ. While she may have a steadier hand on the tiller, the nation continues to drift toward the waterfall of ecological, social, and economic collapse… all the while partying like it’s 1999.

Bummer.

Hi Jack;

While I think our current government has realized the error of its ways and is making the F-35 procurement process more accessible to the public, I still believe we are on a disastrous course to saddling the Armed Forces with the F-35.  I believe it is categorically NOT the fighter for Canada.  While Lockheed-Martin can point to a long list of NATO countries and US allies procuring or committed to ordering the F-35, Canada is the only nation that intends to field ONLY the F-35 in all air combat and air support roles.  This is reckless.

The fundamental problem for Canadians is that the DND procurement wonks are the proverbial tail wagging the dog.  The Conservatives are engineering policy in order to placate procurement staff who are either in love with an airplane that is simply bad for Canada as a solitary system; or intending to build upon the F-35’s inevitable failings to institute yet more purchases of military aircraft.

I wanted to give you some lines of critique for your team to research and use as this issues comes to a head:

1) Two Engines are Better Than One

The F-35 is a (less safe) single-engine combat aircraft, and will experience higher airframe losses due to engine failure than a twin-engine aircraft.  While the digital engine controls (FADEC) that have replaced hydraulic/mechanical engine controls provide greater reliability, the single Pratt & Whitney F-135 engine used in the F-35 is a brand-new design (first delivered in 2009) which will encounter teething problems as we’d expect with any new system.  Where the F-35 is expected to operate air interdiction missions over the sparsely populated far North, where there are few suitable alternate landing locations for a powerless aircraft to safely land, any engine failure is catastrophic.

When the F-18 was selected by DND for the Canadian Forces, there was significant pressure to purchase cheaper F-16s (single-engine), and much ballyhoo was made of the need for a twin-engine fighter by none other than DND Procurement.. due to safety.  Why the change of heart?

Here are two USAF studies comparing losses of Single-Engine vs. Twin Engine Fighters:

http://forum.keypublishing.com/attachment.php?attachmentid=201441&d=1322018242   –   http://forum.keypublishing.com/attachment.php?attachmentid=201442&d=1322018242

2) Stealth is a Fleeting Advantage

“There are no invisible aircraft, only less visible” – Zoltan Dani, Serbian Anti-Aircraft missile battery Commander who shot down an F-117 in 1999.

This event (the destruction of an F-117 only three days into the war in Kosovo) predicated the retirement of the entire F-117 “Stealth Fighter” fleet.  The ground-based missile system used to shoot down this bird was a 1960s-era Soviet SA-3 Goa.  Dani has never specifically stated how he reconfigured his systems, but it’s likely that he tweaked the sensitivity of his missiles, and triangulated information from multiple detection antennae.  The point of this lesson is that claims that the F-35 can operate with impunity in denied environments are patently false.  As soon as the F-35 is employed in combat, commanders like Dani will set to work exploiting the unique characteristics of the F-35 to shoot it down.

In recent conflicts, such as during Vietnam and Desert Storm, the prevailing strategy was to use the active radar of SAM sites to detect them, and to send a very-high-speed missile down that signal beam, and blow up the site before it can target aircraft.

More on Zoltan Dani’s story:  http://usatoday30.usatoday.com/news/world/2005-10-26-serb-stealth_x.htm

Perhaps more perplexingly, the F-35’s tiny internal bay size means it will almost inevitable be flying with external stores mounted on wing pylons.  None of these objects are particularly stealthy, and so by nature of its mission alone the F-35 will be as visible and detectable as other fighters.

3) The F-35 Purchase is a (Dangerous) Force Reduction

The 138 F/A-18 Hornets currently in use by the CAF were delivered between 1981-1985.  The newest is now 28 years old, likely older than the pilots flying it, and may be as old as 40 by the time they’re retired for good.  About 20 have been lost, a few more mothballed or retired as museum pieces.  There are currently about 75 in operational use, and they will likely not be stood up for combat roles past 2015.

With the purchase of 65 F-35s, and assuming that the higher loss-rate of a single-engine fighter vs. multi-engine fighter does NOT happen, at best we can expect to see 40-45 F-35s airworthy, fulfilling the country’s many obligations at home and abroad, 20 years into the program’s budgetary life, assuming no combat losses.  By this point there would presumably be zero combat-capable CF-18s able to join them in in harm’s way, though they may be useful for training, Snowbirds, etc… all of which leaves Canada with its smallest fighting air corps since the close of the First World War.

While Canada generally doesn’t try to attain air superiority in combat alone, this certainly entrenches that for the foreseeable future.  More critically, Canada could not operate without NATO or US air support in any theatre of combat.  It could not even make a sizeable contribution to supporting its own ground troops, which is the single most important role for a combat aircraft in Canada’s arsenal, without phoning the Americans.

4) The F-35 Will (In Practise) Carry Less Ordinance than the CF-18

Officially, the F-35 has six hardpoints on the wings, and two internal bays for storing two missiles each, for a total of 10 weapons (for a total of 18,000 lbs).  The CF-18 has nine hardpoints, all external (total: ~14,000 lbs).

Sounds great, right?  But unfortunately, the second you strap some bombs and affix the wing pylons, any stealth properties of the aircraft you were hoping to exploit have been summarily negated.  The F-35 will be as visible to enemy radar as any 4th-generation combat aircraft designed in the 1970s.

The F-35 will only be able to exploit its much-hallowed stealth properties in Air-to-Air missions, therefore.. and not with particularly great hang time (with only 4 missiles) at that.  Unless DND’s strategy will be to ask its pilots to throw rocks at the enemy once they’ve depleted their tiny missile supply, these will return to base within a few short minutes of engaging an oncoming enemy air force, likely with the mission incomplete.

And since its range is more than 1000km shorter than the CF-18 it replaces, the F-35 will need to carry more fuel externally in drop tanks, further reducing its weapons load.

THE REASONABLE OPTION:

Combat aircraft have to perform basically three missions:  Air-to-Air interdiction, Tactical Bombing, and Ground Support.  Squeezing all of those missions into a single system inevitably compromises its abilities in each.  The F-35’s original design was strictly for Air-To-Air.  Amid the kerfuffle of cancelled programs at the US Department of Defense, attempts were made to turn this fighter into a jack-of-all-trades.  It remains to be seen whether this will work in any respect, but it is certainly the master of none.

My suggestion (and that of numerous actual experts) is to do what the U.S. Navy has done — hedge our bet.  In the mid-1990s, the Navy fooled US Congress into appropriating funds for the purchase of “more” F/A-18s by masking the development of an almost completely new aircraft, the Super Hornet, as an upgrade to the existing Hornet.  While the newer aircraft shares much in common with the original Hornet, it is in fact a ground-up redesign (and is actually 1/3 bigger and MUCH more capable).  Whereas the CF-18 is a 4th-generation fighter and the F-35 is a 5th-generation fighter, the F-18E/F Super Hornet is considered a 4.5-generation fighter and attack aircraft.

Its mission systems and designs would be familiar to a Canadian Forces already servicing the CF-18 (which is basically a US Navy F/A-18C).  It would allow training to step more smoothly up to the Super Hornet.  It carries more ordinance and flies faster than the F-35 with a full load.. and best of all, it’s less than 1/3 of the flyaway cost, at $65M, of the F-35.

On the assumption that the F-35 will eventually become the aircraft its proponents already claim it is, punting the F-35 purchase down the road would allow other air forces to be the crash test dummies in shaking out the bugs from early-production F-35s.  Buying the Super Hornet (perhaps 60 copies), which is a FAR more capable aircraft in supporting ground troops than the F-35, and buying a small number of F-35s (say, 25) further down the road for Air-to-Air missions, makes a lot more sense, and saves money.  It puts more planes in the air, and fulfills the full spectrum of mission requirements of the Canadian Forces with aircraft optimized for the job.  And is less risky on all fronts.

Not only did the US Navy pursue this strategy when setbacks and disappointments with the Fifth-Generation Fighter projects rear their heads, the Australians did the same.  The RAAF has 24 Super Hornets already in operation, and may elect to purchase more.

With the cash savings from an early Super Hornet purchase, the purchase of 20 AH-64D Apache Helicopters (at $28M a pop) will make the government very popular with ground troops.  In the last few years, these proved invaluable as armed escort for CH-47 Chinooks, and in the close quarters of the Korengaal Valley in Afghanistan.. both missions which a fighter jet cannot fulfill at all.  Canada is woefully bereft of combat helicopters and our troops are dying because of it.

CONCLUSION:

Canada has a very important global role in peacekeeping and stabilization.  Thanks to IEDs and more advanced Guerilla Warfare methods, these missions are more deadly than ever before.  We need a force that is rapid, air-mobile, and that has real teeth.  While I am (like you) not a warmonger, I am ultimately concerned with our ability to accomplish such missions with as much safety for the troops on the ground as possible.

I encourage you and your staff to delve further into the critique of this key Defense issue.  Committing our forces to its largest procurement ever for a mission system that is completely unproven, encountering real problems, and which weakens our nation through its lesser numbers, is potentially a HUGE mistake and will affect the safety of troops on the ground for two generations (and is already).

If Canada continues with the purchase of 65 F-35s, to the exclusion of the other systems necessary to complete its full mission, we will be the ONLY country in the world to rely solely on the F-35 for all aspects of its air combat strategy.

This is not likely to bode well for the soldiers it is supposed to protect.

Yet, you could not look forward from the late 1960’s and early 1970’s and, as Steve Jobs said, connect the dots on the great outcomes that changes in our view toward Telecommunications would bring us.  In those days, the behaviour of the AT&T monopoly simply felt wrong.  Initiated by the US DoJ and the FCC in 1974, both believed (and were able to prove) that AT&T was price gouging in a number of categories to subsidize its network builds.  Established as a government-sanctioned monopoly in 1913 by the Kingsbury Commitment, AT&T held a grip on the population so strong that for most of the 20th century it was actually illegal to own a phone in the United States (and in Canada, which held similar policies) — you needed to rent yours from the phone company.

Predictably, as a result there was very little innovation or diversity in the telephone handset marketplace.  The echoes of Ma Bell’s behaviour during this time still resonate today: a key strategy for crushing the independent regional Bell companies in the US was to refuse to connect them to its long-distance network (compare this to the modern refusal of major Instant Messaging networks to interconnect).

A little-known inventor challenged the monopoly in 1968 with his device, the Carterfone.  The Carterfone provided operator-assisted calling between ship-to-shore radios and the telephone network, and Thomas Carter sued AT&T to allow his devices access to the phone network.  This led to a landmark FCC decision to allow 3rd-party equipment to connect to telephone lines via a protective coupler.  AT&T had suggested during the trial that to allow 3rd-party devices onto their network would potentially cause damage to the networks (this was largely BS) or would allow hackers to commit toll fraud (this was true, as the telephone network had very weak controls right up to the 1990s). Eventually the requirement for the coupler was dropped and the phone jack in your home became, legally speaking, yours.

It took roughly 10 years from the instigation of the 1974 DoJ Antitrust case to reach a settlement, which culminated in AT&T’s divestiture from the Regional Bell Operating Companies (RBOCs) in 1984.  But it took another 20 years to have a material effect on the industry — largely because the telephone system had been designed around top-down, centralized, monopolistic, end-to-end control.  From 1984 to 2004 the telephone network was transformed using more open, decentralized, and interoperable technologies largely driven after the mid-1990s by Voice-Over-IP and technologies which leveraged Internet Protocol signalling. The network shifted from circuit-switching to packet-switching, and voice quickly became just-another-rider on a global network that is now almost entirely optimized to carry data, not voice circuits.

Unquestionably, with increasing openness there has followed increasing innovation, opportunity for entrepreneurship and investment, reduced cost to the consumer, and greater diversity of choice for consumers in the telecommunications marketplace.  An early sign of this that I’m fond of pointing out was the Sports Illustrated Football Phone.

By the time of its release, in the mid-1980s, the cost of a telephone was so cheap that the device could be included for free with a magazine subscription.  10 years earlier, families paid $120/year for each phone in their home, simply because there was only one choice for where to get one — the phone company.

Does that sound ridiculous to you?  It should.  However pockets of this monopolistic verticalization persist today, whether it’s regulators’ continued support of mobile phone subsidies with 3-year lock-in and the right to refuse interconnection with any “unapproved” 3rd-party devices; or more egregiously, the absolute verticalization of the Cable Television monopolies, particularly with High-Definition Cable TV.

In Canada, if you want to buy a Personal Video Recorder you can *ONLY* purchase a unit which is distributed via your cable company (even when you buy it at Future Shop for a ridiculously overpriced sum).  These are apples and oranges, but compare the cost in the US of a Tivo ($149) to a roughly equivalent but vastly inferior Motorola ($348) PVR (which is what you get in Canada from Shaw).  That Motorola PVR, which was released last year, replaced a unit first released in 2004 — which should give you an idea of the glacial pace of innovation in the PVR market.  If that didn’t drive the point home, the Motorola device uses the exact same godawful user interface as its 8-year-old progenitor.

The Tivo, which has a brilliant user interface vastly superior to that of the Motorola or Cisco devices and allows you to skip commercials altogether, is not available in Canada and likely never will be.  This is because the CableCard standard, which theoretically allows consumers to slap a PCMCIA card into any manufacturer’s PVR, is not mandated by Canada’s CRTC (the standard was birthed by the US Telecommunications Act of 1996).  And even in the US, where CableCard was supposed to open the marketplace to competition from Consumer Electronics manufacturers, the going has been very rough because CableLabs (which is controlled by the Cable companies) must certify each new product offered through a rigorous and tedious certification process.  This has caused most CE manufacturers to steer clear.

It is a ridiculous circumstance that results in Cable companies forcing us to use cheap hardware with terrible user experience design, while charging a premium price.  They couch their argument for maintaining the status quo in notions such as “copyright protection” and “customer service”.  In this utopia of Big Cable, we are still using $20 rotary-dial telephones, and paying $10/mo. in perpetuity for the privilege.

Companies have a right to earn a profit for their shareholders in fair markets.  They do not have the right to leverage taxpayers’ resources and government regulation to operate unfair and anti-consumer business practises, stifling innovation and competition.  With the epic consolidation currently being allowed to happen in Canada — where the same company can own the hockey and basketball teams, the stadium they play in, the television network which broadcasts their games, and the physical cable company that distributes the signal — we are moving more quickly toward the days of Ma Bell and her predatory behaviour than ever before.

Whereas the CRTC focused its efforts during the 1990s on doing an ineffectual job at tearing apart the monopolies of the major Canadian telecom companies, they were apparently completely unaware of the increasingly monopolistic behaviour of Big Cable.  Rogers and Shaw were very late to the party in launching VoIP-based residential phone service, taking advantage of regulations intended to provide competitiveness to “Over The Top” phone companies — and when they did launch, they immediately set about attempting to block and throttle those same companies from effectively servicing Cable broadband customers.

In Canada, there are precious few voices for the consumer.  One such voice is OpenMedia.  They need your support, whether it’s lending your voice to their campaigns and petitions, or your dollars to fund their operations and administration.  Second, you my dear citizens need to get fighting mad.  You need to unleash a torrent of reasoned, sane abuse toward the diffident bureaucrats at Canada’s CRTC; and by the same token support them loudly when they undertake a rare pro-consumer initiative, such as their policy against increased volume for television commercials.

Finally, you can do what a large number of Americans are doing during these darker economic times, and pull the plug.  There are many ways to consume television media online, from the torrent networks to television networks’ web sites.  You can buy internet set-top boxes from Apple and Boxee, and stream your entertainment on-demand.  Sometimes markets only respond when you vote with your feet.

11 years ago… I woke up to my good friend Greg Lensch frantically calling me at 5:45AM, aware that I was supposed to be flying from Newark to San Francisco on that clear blue September Tuesday morning. Instead he found me slumbering in San Francisco having changed my plans. Together (by phone) we watched the towers crumble and watched a nation humbled over the next two hours.

America was actually so very beautiful on that day — humble but proud, resolute and unified, somber but strong. I drove under the Burlingame overpass and a man quietly held a giant American flag over the railing of the bridge. No one honked, no one cheered or hollered… cars just proceeded serenely past along the snaking 101.

I realized then that the USA was at a fork in the road. Along one path lay the opportunity to become a more benign, mature, and constructivist global citizen. Along another lay a journey toward blood lust and the thirst for revenge.

We all know which path the nation’s leaders steered the public down next..

Writing in Salon, David Sirota observed the cheers and celebrations of Osama bin Laden’s death in 2011, saying: “we have begun vaguely mimicking those we say we despise, sometimes celebrating bloodshed against those we see as Bad Guys just as vigorously as our enemies celebrate bloodshed against innocent Americans they (wrongly) deem as Bad Guys.”

In Iraq, perhaps as many as 131,000 civilians have died. In Afghanistan, perhaps as many as 50,000 are dead and hundreds of thousands are internal refugees. Between the two wars nearly 8,000 NATO soldiers have perished under fire and estimates are that more than 100,000 will have been wounded in combat in some way. More than $9 trillion has been spent by the United States on Defense, Homeland Security, and the wars in Afghanistan and Iraq since 9/11, leading largely to America’s current fiscal woes.

I cannot imagine that we in the West are more secure as a result of any of these. And at the risk of preaching on a day when we should be honouring the memory of those souls lost on 9/11, I wonder whether they would have thought that this was all worthwhile?

“If you seek revenge, dig two graves.” – Chinese Proverb.

To technology entrepreneurs, the 2012 federal budget, tabled in May, is conspicuous in not meddling with the Scientific Research and Experimental Development rebate program (SR&ED).  This despite numerous signals sent by the federal Conservatives throughout 2011 that, in their view, SR&ED is the object of rampant abuse and in need of reform.  However, as often happens in politics, a gentle ripple on the surface of the water can signify a massive shift in the current just beneath.

For the uninitiated, SR&ED exists to provide an incentive for Canadian companies to innovate in many aspects of doing business, whether that’s creating new technology-based products and services, or optimizing business process through the utilization of new or improved technologies.  Via SR&ED, which is administered by the Canada Revenue Agency (CRA), qualifying Canadian companies can seek partial reimbursement of labour, technology and even overhead expenses related to “eligible technological innovation.”  In the case of profitable companies, the reimbursement comes in the form of credit against taxes owed (up to 35%); for unprofitable companies, cash rebates apply. It’s not chump change, and the federal government doled out roughly $3.6Bn in SR&ED credits and rebates in 2011.

SR&ED is “sectorized” into multiple camps, and a substantial number, if not most of Canada’s startups, are associated with the information and communications technology (ICT) sector. Mysteriously, with relatively minor tweaks in the SR&ED program design in the 2012 budget, the Harper Government expects to reduce the outflow of SR&ED rebates to ICT companies this year by as much as $400 million.  How will they do it?

Before we get to that issue, let’s talk about what SR&ED means to startups.  Starting a company anywhere is difficult, but in Canada entrepreneurs face the added challenge of highly limited sources of early-stage financing.  Raising the money it takes to build your first product or prototype, or to test design theories and perform experimentation, is almost impossible from a cold start in Canada.  However, if you can scrape together a paltry sum from friends and family, that could be matched by an IRAP grant from the National Research Council or from Telefilm Canada’s New Media Fund (CNMF).  Then, at the end of your fiscal year, you could apply for your SR&ED rebate, which might provide the cash you need to conquer Year Two.  The first two sources of funding are pre-qualified (i.e., you know whether you’re going to get it before you start).  In contrast, the SR&ED program is retrospective—you spend the money, file your claim, and hope for the best.

This is all Greek to anyone from Silicon Valley, where I developed my first tech startup, and where public research grant programs and tax rebates are a largely irrelevant afterthought.  Silicon Valley is, of course, blessed with a very healthy ecosystem of investors hungrily gobbling up investment opportunities at every point of the spectrum and affording companies favourable valuations.  It is literally easier to meet an angel investor for an omelette at Buck’s of Woodside, walk through your six PowerPoint slides to glory, and hammer out a term sheet on your MacBook than it is to fill out grant applications and tax rebate claims.  So that’s what entrepreneurs in the Valley do.

In Canada, we are not so blessed.  So SR&ED, IRAP and CNMF are essential policy tools promoted to encourage domestic innovation and dissuade companies from heading stateside. They are the simplest answer (among a rather short list) that an entrepreneur can provide to the question, “So, why don’t you just move to Silicon Valley?” given that NAFTA visas are so easy to come by, and that there’s even a visa for relocating your company from Canada to the US.

That’s why, while on the surface it appears like business as usual, it’s disturbing that our government has chosen to meddle with SR&ED—not in the limelight of public debate, but behind the scenes—by tinkering with how it’s administered by CRA.  In recent months, a growing number of startups have reported aggressive auditing tactics by SR&ED reviewers that result in very significant clawbacks.  This is all but confirmed by a perusal of the 2012 federal budget, which earmarks $4 million for additional administration of SR&ED, and of LinkedIn, which reveals a flood of new auditors coming on to manage, and presumably cut down, the claim flow in the past 18 months as part of an effort to meet that $300 million to $400 million budget cut.

According to CATA, a leading non-profit advocate for R&D funding in the ICT sector, your odds of having your claim selected for audit by the SR&ED offices are somewhere between one in three and one in five.  And, if you’re selected for audit?  There is little evidence to suggest that any claim survives the audit process fully intact, regardless of legitimacy.  I have direct knowledge of a claim that was reduced by nearly 80%.

The reasons your SR&ED claim are perilous under the new regime are twofold:  First, the legislation that created SR&ED is incredibly vague about its definition of “eligible technological innovation.”  This means that judgment is left in the hands of CRA auditors, who are obviously not incentivized as objective midwives of the claim process, and who follow guidelines that have become much more restrictive in recent years—guidelines to which you and I do not have access.  The second reason is even more sinister, because it is an absolute killer:  CRA requirements for documentation of the research and development process for creating software are massively out-of-step with the best practices of software development organizations, particularly those who ascribe to the Agile methodology, which abhors paperwork.

The one-two punch of subjectivity and the ever-present shared knowledge that your tracking and documentation is, in the CRA’s view, not up to snuff means that SR&ED is actually becoming a highly unreliable source of financing for startups.  And if you are like most startups—underfunded and under-revenued—both you and your auditor know that if the game of chicken goes on long enough, you will lose.  Many startups already are losing these fights with the CRA and closing their doors, or being forced to sell out early.

Given our proximity to the more freely-flowing capital (and other advantages) of the U.S., Canadian startups need everything they can get to justify staying within our borders.  And, the country needs it too, because eventually we will run out of the dead trees and decaying dinosaurs upon which our economy has historically relied.

Like many government policies, ambiguity favours the politicians.  With the uptick in enforcement, and a markedly more aggressive tone from CRA auditors, SR&ED (particularly for startups) is becoming increasingly like a game of Russian Roulette: five out of six times you pull the trigger and nothing happens—you get your cheque and everybody’s happy.  But if you really are depending on that cash to move your business forward, each time you pull that trigger there’s a fair chance it’ll blow your head off.

Startups already have plenty of risk heaped upon them.  If Ottawa is determined to be of two minds about this program, then we should expect the sensible technology companies and workers to continue their southbound exodus.

Twitter is, for so many of us (yours truly included) the loudspeaker for a great deal of idiocy.  It’s also a permanent archive.  The latter is why I find it so disturbing that many Boston Bruins fans are playing the “nigger” card in calling out Washington Capitals 4th-liner Joel Ward for his overtime heartbreaker goal, thus crushing the hope of Bruins fans that there could be a repeat of their Stanley Cup theft victory from 2011.  Spout racist comments from behind closed doors or with your beltline polishing the brass rail at the local public house, and I will be disappointed but unsurprised.  Belt out your ignorance via Twitter and you are essentially telling me that you think there’s absolutely nothing wrong with insulting and denigrating an entire group of people simply because of their skin tone.

Kudos to Caps’ owner Ted Leonsis for taking a stand against such keyboard courage on his blog.  Let these tweets serve as a permanent display of the ignorance of their authors.

I cannot help but think that embers of this racism were most certainly fanned by Tim Thomas’ very public snub of Obama for the White House visit for Stanley Cup champs earlier this season.  His actions and words, along with those of the Tea Party that he so adamantly supports, very often cross the line into baldfaced racism when it comes to criticizing Obama.  In fact, the polarizing rhetoric of the past 5 years has likely led to a rise in racism (or at least a rise in the open expression of latent racism) in America, and it’s increasingly disturbing to see the various ways in which that seeps through the cracks in society.

The NHL (and hockey, and sports in general) has always maintained an awkward relationship with racism, as the infamous banana peel incident that started the 2011-2012 season illustrated.  Whether the banana peel was an oblique reference to NHL player Wayne Simmons’ race or not is up for grabs, but the fact that so many people leapt to assume that it was betrays what most of us already know — that racism in the ranks of the NHL, and its fans, is indeed rampant.  And that’s disappointing.

Where players such as Tim Thomas use their prominence to give rise to racist thoughts or ideas, the NHL has an obligation to institute campaigns, penalties, and programs to communicate to players AND to fans that this is NOT acceptable behaviour and that racism needs to be ejected from hockey and every other corner of society.  While it’s too late to police Tim Thomas, he could go a long way to establishing himself as a class act by speaking out publicly against this racism.

And to the Bruins fans who tweeted “what has Joel Ward ever done?” I will say this:

Joel Ward fought through two decades of bigotry and name-calling, exclusion and ignorance — on top of the hard work and uncertainty that it takes to get one of the fewer than 900 available jobs as an NHL player — so that he could score the game-winning goal that knocked the defending champions out of contention for the 2012 Stanley Cup.  All while you sat on your La-Z-Boy and tweeted about it.

The term Branch Plant Economy is not a new one, and gained specific relevance for Canada in the early 20th Century, when US Companies began to build factories in Canada to circumvent pricey tariffs on importing their wares to the Canadian market.  One example where this really took hold is the automobile manufacturing industry, centered in Ontario, that has churned out Chevys and Chryslers, among other makes, for both Canadian and foreign markets.  While NAFTA destroyed the tariffs that caused these plants to be set up in the first place, Big Auto successfully lobbied the Ontario and Federal governments for subsidies and tax credits that helped their north-of-the-border plants remain cost-effective, and in some ways cheaper to operate, than their US counterparts.  That lobbying strategy has been highly successful, and while it was overshadowed by the US auto industry bailout, the Ontario and Federal Government bailout of Canada’s auto industry was $3.3Billion, nearly 20% of the proposed US bailout package in 1998.

The Canadian auto industry typifies the modern idea of the branch plant economy.  The term really grew legs in the 1960s and 1970s during a rise in Canadian economic nationalism, and fears that our country was becoming a U.S. Protectorate as a cause célèbre during Trudeaumania.  Most of the rhetoric around this idea is centered on the not-so-great visage of a nation whose factories (literal and metaphorical) and workforce are wholly owned and commanded by foreign companies, with the profits and fruits of their labour remaining largely overseas.  For economists, this is tantamount to the surrender of the nation’s sovereignty.  If your paycheque in Canadian dollars is signed by a US-based company you are likely keenly aware how much command and control of your company’s destiny resides this side of the border.

In a white paper from the Canadian Advanced Technology Alliance, the organization argues that our country’s philosophy on innovation is all wrong.  On that point I couldn’t agree more.  The CATA argues that while we have many programs in place to fund R&D, whether it’s the soon-to-be-reformed SR&ED or the NRC’s IRAP program, we have none in place which explicitly helps our countrymen reap the benefits of this R&D through commercialization.  The white paper suggests that the effect of this more than $7Bn/year in R&D subsidy spending is for taxpayers’ money to act as a stimulant to profitability outside of Canada’s borders.

Why?  Because funding the research without funding commercialization leads to a familiar story for those of us in the technology scene: the flip.  Canada’s venture financing having been aenemic as it has during the past ten years, Canadian companies chasing great ideas have had to bootstrap, scrape, and starve their way forward — typically leading early investors and founders to the mutual desire to sell the business early.

Many of us, myself included, bemoan that while some great products and technologies have emerged from Canada (such as Flickr or BumpTop or Radian6) we typically fail to commercialize these in scale until they are purchased by a US entity.  Certainly these companies’ (mostly Canadian) investors are happy — since Flickr went to Yahoo!, BumpTop to Google, and Radian6 to Salesforce at sizeable bumps in valuation — but the profits generated from these innovations will be realized by a US entity, and in most cases the workforces don’t even remain in Canada.

A pessimist’s way to evaluate those three deals, presuming that they all claimed SR&ED / IRAP / CNMF money at some point in their evolution, is as the Canadian taxpayers in effect assuming R&D risk to the benefit of US companies and, arguably, a handful of investors.  In other words, much like the film and video game industries, not to mention the automobile manufacturing business, Canada’s tech industry functions as a Branch Plant Economy at worst, or as the equivalent of a Junior A hockey league at best.

The CATA advocates that the SR&ED program be reformed in a few trivial ways and, using the savings, that the subsidy be expanded to support commercialization activities associated with innovation.  This is an interesting idea and worth the read.  On the other hand, having read the tea leaves I believe that the government’s position is that if it’s supporting the R&D component, the investment community is incentivized to fuel commercialization.

However, this is clearly not how things are going down in practise.  Next to RIM, or previously Nortel, Canada can boast very few large-scale domestic tech industry successes.  Anecdotally there are as many examples of global companies, such as Lululemon, which were built in Canada without any form of subsidy as there have been tech giants facilitated by giant R&D grants.  Across the border programs like SR&ED and IRAP are unheard of, though the US Government has subsidized a great many technologies via DARPA and NASA.

And startup veterans such as myself frequently argue that Canada’s SR&ED, IRAP, and CNMF funding strategies represent a rare advantage over founding and operating a technology company in Silicon Valley — so long as they are well-run programs and do not overburden startups with oversight and administrivia.

As for our neighbours to the south, it may simply be that proximity to their more free-flowing investment economy and greater density of large tech-oriented businesses (not to mention a market 10x the size) is too much of a temptation to resist for fledgling Canadian tech ventures.  Perhaps our nationalistic pride is a whimsical relic of the past, and we should instead just stop worrying and learn to love the bomb.

Does the CATA solution of subsidizing the commercialization, and not just the R&D component, of new technologies carry water for Canadian tech startups?  Maybe.  Does it open up SR&ED to even greater abuse by recipients who do not require it?  Probably.  Is there anything we can do to mitigate the prevailing trend of Canada’s tech industry as a Branch Plant Economy?  You tell me.