The Whole World Driving Our Canada’s

is Greying Demographic Retirement Plan

Destiny

DECEMBER 2010

SNAKE, RABBIT and STOCK MARKET

the

the

the

BALANCING THE STRAINS OF TIME:

Canada’s Prospects For Its Aging Workforce

Demographics is

DESTINY
LEARN MORE!
CLICK HERE!
 DECEMBER 2010 To the Arbitrage Community,

Editor-in-Chief+CEO David Alexander With the release of our fifth issue, the
Board of Director Samita Vasudeva Arbitrage Magazine has taken another
Garin Kilpatrick giant leap towards maturing as Canada’s
largest, student-run business magazine.
MAGAZINE PRODUCTION TEAM The growth that we recently experienced
Managing Editor Kevin Kang has been phenomenal—all thanks to
Section Editor Saif Quershi our dedicated staff and you, our curious
Writing Staff David Tal readers.
Pawan Shamdasani   Within the organization, the hunt for
Alfred Yim fresh talent carries on. With our new
Victoria Chau batch of promising writers, editors,
Luis Fernando Arce
Troy Redick
designers, marketers and core support staff, the ARB will continue
Writer-At-Large Nicki Mossavar- to evolve and bring you pages upon pages of tasty food for thought.
Rahmani   Also, from this point onward, David Alexander, the founder and
Contributor Rabeea Wajeeha now former Editor-in-Chief of the ARB, will take on a more strategic
Sushil Tailor role as Chief Executive Officer. I will succeed him as the new Editor-
Alex Vo in-Chief, and together, we plan to make the Arbitrage a bigger,
Michael Moretto better and bolder read for students.
Charles Dreezer   To keep up with such an insightful and well-packaged product,
Art Director Ryan Trinidad the marketing team has been working even harder to bring the
Design Staff David Tal ARB to the student population. Our recent marketing event at York
Luis Ernesto Rojas University was a huge success and helped us connect with readers
Gonzalez on a more intimate level. We look forward to visiting many more
Akil Worrell
campuses in the near future.
Jennifer Lee
Mary Zhao   For now, sit back and dig in as we explore the impact of shifting
Trishaala Ninan demographics around the world. People are the heart of every
Laura Gonsalves economy and as the population undergoes dramatic changes
Katie L. Serensits within the next decade, the world of the future will undoubtedly be
affected. Browse through the magazine and leave your two cents in
ARBITRAGE SUPPORT STAFF the comment box on our re-vamped website. We want to hear what
Director HR Rabeea Wajeeha you have to say!
HR Coordinator Natalie Sekiritsky   Also, stay posted for the next issue, where we will continue to
Amritha Godishala delve into important—and potentially disastrous—trends that will
Sakthi Subas reshape our world. You can count on the ARB to shine a light on the
Andrei Dias
not-so-distant future of business.
Marketing Staff Sushil Tailor
Catherine Chen
Enjoy the read!
Web Designer Fu-Chieh Yao
Accountant Junwen (James) Wu

Kevin Kang
Editor-in-Chief
Arbitrage Magazine
Email: kevin.k@arbitragemagazine.com
LinkedIn: http://ca.linkedin.com/pub/kevin-qingyuan-
kang/17/729/418
LEARN MORE!
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 Features

8  BALANCING THE
STRAINS OF TIME
Canada’s Prospects for its
Graying Workforce

22  DRIVING TO OUR

DEMOGRAPHIC
DESTINY
Smoothing The
Demographic Curve To A
Healthy Economy
12
36  THE SNAKE, THE
RABBIT AND THE
STOCK MARKET
Will the Boomers Cause the
Capital Markets to Crash?
56
48  THE WHOLE
WORLD IS GRAYING 52
A Social and Economic
Analysis of the World’s
Major Economies: Japan,
24 China and the United States

58  CANADA’S
RETIREMENT PLAN
What to Do Now that
Canada’s Getting Older

33

December 2010 ArbitrageMagazine.ca 5

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

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

IN THIS SECTION… Click to learn more & join us!

8  BALANCING 22  DRIVING 36  THE SNAKE, 48  THE WHOLE 58  CANADA’S
THE STRAINS TO OUR THE RABBIT WORLD IS RETIREMENT PLAN
OF TIME DEMOGRAPHIC AND THE STOCK GRAYING
DESTINY MARKET
Canada’s Prospects for
its Graying Workforce
By: Saif Qureshi
here is a change that is
occurring in our society;
one that’s enormous,
yet inconspicuous.
You can see it on the
sidewalk, hear it on the radio, and
feel it in the people around you.
Slowly, the world’s population is
aging. It is only a matter of time
before this shift in demographics
will prove itself as one of the most
powerful forces shaping the social
and economic landscape of the
near future.
A large part of our aging popula-
tion can be attributed to the “baby
boom generation” (referred to as
baby boomers). After WWII, there
was a spike in birth rates across
several of the Allied countries in-
cluding Canada, because the sol-
diers returned home and there was
optimism in the air. Couple that
with the fact that Canada’s natural
growth is also shrinking and the ef-
fect becomes more pronounced.
In the past few decades, birth
rates have been declining in devel-
oped countries due to factors such
as rise in wealth, education and ur-
banization. The fact of the matter
is that the baby boom generation
did not have many children or even
grandchildren. Along with that,
higher life expectancies have also
sped up population aging.
Jump to today, and the out-
comes of these demographic
shifts are starting to become more
visible in Canada. Many baby
boomers have reached their 60s
and are now starting to retire. The
effects of this are great as baby
boomers have made the major-
ity of our workforce for the last 30
years, and losing them means a
massive decline in human capital.
December 2010 ArbitrageMagazine.ca
On the bright side, the reduction
in the labour pool will lower
unemployment. The massive
retirement of boomers is going
to be a wonderful opportunity
for all the young and upcoming
graduates in the next few decades,
as there will be many job openings.
Within 10 to 20 years there
will be systemic labour
shortages in Canada.
Job Market
According to Statistics Canada
projections, by 2030, 1 in 4
Canadians will be of age 65 or
over–higher than the percentage of
seniors in Florida. In another study,
about 1 out of every 5 workers in
Canada was close to retirement in
2007. This means that every year
approximately 3.6 million people
9
 who are leaving the workforce will
have to be replaced.
This number will grow every
year. If current government poli-
cies and general trends continue,
chances are that very soon there
will be more workers retiring and
less young graduates who can fill
their places because of the decline
in birth rates.
In an interview with the Arbi-
trage, Tony Fang, Associate Pro-
fessor of Human Resources Man-
agement at York University, says,
“Within 10 to 20 years there will
be systemic labour shortages in
Canada. In the short term, gradu-
ates will feel the pain of the reces-
sion but in the long run there will
be dramatic changes in the labour
market. Organizations and labour
Companies that don’t force participants that can capture
harness this knowledge will these trends are most likely to suc-
ceed.”
have to discover it all over If population aging continues as
again, wasting precious predicted, the picture will likely be
time. much different than what it is now.
Students will graduate from univer-
sity in the subject they love most,
as jobs will be available in most
industries. They will get an entry-
level job in the company of their
dreams, and within five years they
will become one of the company’s
most senior and skilled employees.
Next they will be managing several
of the company’s large projects
with several people working under
them. To add to this, most of their
friends and peers will be in a simi-
lar position. Within 10 to 15 years
this could be the new reality of the
job market.
However, besides population
aging it seems there will be other
factors affecting the labour market.
“Certain factors will slow down
labour force shortages,” says
Fang. “Those factors include eco-
nomic slowdowns (recessions),
productivity growth with the ad-
vancement of technology (auto-
mation of different jobs which will
substitute for labour) [and also]
the outsourcing of jobs to low cost
countries such as China and India.”
10 ArbitrageMagazine.ca December 2010
Nevertheless, Fang thinks
that labour shortages will occur.
“Based on several studies done
in the US,” says Fang, “[they] will
be short of 10 million workers in
about 10 years. But the shortage is
not just about numbers but more
about a shortage of skills or skilled
people who are in large demand.”
“In the past you could get a high
paying job in manufacturing, retail
[or] trades. But [now] this is too
good to be true. Now it’s harder to
get a [good] job with a high school
education because these types of
jobs have moved to China or India.
And well-paying union jobs are be-
ing lost in big numbers.”
So even though many boomers
who are retiring spent their entire
careers in industries such as the
trades, retail and manufacturing,
there will be fewer jobs in these ar-
eas in the future, whereas jobs in
the service industry will increase.
Ultimately those with more educa-
tion and a higher level of skills are
more likely to succeed in the la-
bour market of tomorrow.
There will also be more jobs in
industries that are going to grow
due to an older population. These
include industries like healthcare
and financial planning. As more
boomers start to enter their sixties
or seventies, they will require more
medical assistance and drugs,
which means more jobs in places
such as hospitals and pharmaceu-
tical companies. Doctors, nurses,
physiotherapists and pharmacists
will all have plenty of work.
Careers in the financial industry
will also be growing. With the
number of people entering
retirement on the rise, these people
will turn to financial advisors to
manage their retirement savings
and other personal investments.
Many boomers might want to
withdraw their money and put
it into more short-term low-risk
investments that are more in line
with their personal objectives.
Choosing Your Path
Radical changes are coming
to Canada’s labour market. So
knowing all this, what education
and career path should students
pursue today? To answer this
question, the Arbitrage interviewed
Monica Belcourt, the Director of
the School of Human Resource
Management, and a Professor of
Human Resources Management
at York University. Her other
accomplishments at York include
being the founder of the largest
HRM program in Canada, and
creating Canada’s first Bachelor of
Human Resources Management
degree.
“I would advise students to
choose careers the way people
have been doing for generations,”
says Belcourt. “What do they like
to do? What professions really ap-
peal to them? What are their strong
skills (e.g. Math, English)? If they
won a million dollars, what educa-
tion routes would they choose?”
These are the sorts of questions
that students need to be asking
themselves. “If they have diffi-
culty answering these questions,
then I would advise them to book
an appointment with a  vocational
counsellor,” says Belcourt. “Every
university has psychologists in the
career centre who can help answer
these questions. Then, once a ca-
reer choice  has been identified,
go to the Stats Canada web site,
and discover what are the employ-
ment trends for that job.”
She further explains that “those
entering the workforce today can
expect to work for about five or
more decades, so it is impossible to
predict employment trends for that
period (and even harder to advise
which degree to choose), so that is
why I recommend starting a career
path by choosing jobs/professions
that you LIKE to do, rather than
what you or experts think will be
jobs with high employment rates.”
Another option that few people
think about is entrepreneurship.
As the population of older people
increases, there is a lot of potential
for doing business in areas
such as medical and healthcare
equipment. "If you have parents
or grandparents who have special
care or might need it now," says
Michael Reitz, a division president
of Genesis ElderCare Centers,
"ask yourself what service or
product you could offer that would
make life at home better for them."
Experience is Key
The aging workforce is creating
new opportunities for older
workers. Survey results from the
US show that some older workers
are thinking about delaying their
retirement. Two major bear markets
in the past eight years, combined
with the splurging habits of the
boomer generation, have left very
little in their wallets. However, the
positive part is that the labour
market will need their skills and
experience in the upcoming years.
Research shows that produc-
tivity levels are the same amongst
older and younger workers. The
only difference is in physical abil-
ity. Thus, it becomes in the com-
pany’s best interest to overcome
the age bias in the labour force
and develop a reputation as a ma-
tureworker–friendly organization.
Based on this knowledge, compa-
nies are trying out new strategies
to retain their older employees
past the traditional retirement age.
Part-time work and flexible work
arrangements are one solution.
Older employees can work less
hours or work on a project-to-proj-
ect basis in a consulting role. This
will ensure that their human capital
remains intact while at the same
time they are more comfortable.
Monica Belcourt’s vision of the
future workplace is similar. She
says, “The old model (going to an
office, working for a company for
a decade from 9 to 6 daily) will be
obsolete. With technology, work-
ers will now choose or negotiate
December 2010 ArbitrageMagazine.ca
contracts with employers that are
project based ...not based on lo-
cation, or face hours. Workers will
choose, when, where,  how and
with whom they will work.”
She adds, “Assignments, short
term contracts and projects will be
easier to find. Basically, there will
no longer be ‘cradle to grave’ em-
ployment.” Old and young workers
alike will be following this model in
the future, and because the nature
of work is changing, it will make
it easy to “hire” older workers for
short-term work.
To solve the problem of older
workers’ often outdated skills,
companies are providing addition-
al training to older workers to help
them deal with these changes.
Companies are also realizing the
advantage of having a multigener-
ational workforce. Younger work-
ers usually provide more energy
and enthusiasm while older work-
ers provide experience.
Companies such as General
Electric are leveraging their work-
force’s capabilities by creating
mentoring relationships between
older senior-level employees and
younger employees.
There is also the fear that the
knowledge that older workers pos-
sess, such as how to do their jobs
effectively, will be lost once they
leave the company. Companies
that don’t harness this knowledge
will have to discover it all over
again, wasting precious time. To
increase the company’s knowl-
edge base and productivity, orga-
nizations like the World Bank are
creating videos and audio record-
ings of employees in challenging
projects so that they can be used
when needed for reference.
Solutions like these will help
companies to deal with masses of
older workers who plan to retire.
For older workers, however, it
means increased opportunities
and a gradual retirement which
eases their financial burdens.
11
More Opportunities for
Immigrants
One area in which the Canadian
government needs to step in is
immigration. As the economy
continues to grow, Canada will
need more workers and will have
to rely on immigrants to fill the void.
“I think we will continue to see
changes in immigration policies
that favour  qualified workers over
family members for the immigrant
quotas,” says Belcourt. “As you
know, a key issue continues to be
that Canada certainly is capable
of attracting qualified immigrants
(doctors, engineers) in areas that
we have need; Canadian employ-
ers, however, seem to have dif-
ficulty recognizing, appreciating,
and paying for the education and
work experiences acquired in oth-
er countries.”
She further explains, “Some
not-for-profit organizations, such
as Career Edge, or TRIEC, have
been quite successful at creating
programs that allow employers
to ‘test’ immigrants for a year. In
nearly every case, the immigrant,
given a chance to prove himself in
a Canadian workplace, receives a
job offer in his field, commensurate
with his qualifications.”
However, with big shortages
coming in the labour market, all
this should change. Canada will
have a shortage of not only workers
but also skills. New immigrants
will be able to fill these needs and
employers will be more willing to Younger workers and those ever, the workplace needs to adapt
accept their qualifications. currently preparing to enter the more towards them. This means
workforce should take advan- that employers need to create flex-
The Silver Lining tage of this knowledge by looking ible and more viable opportunities
After emerging from one of the towards more education. In the for older workers so that they are
worst economic downturns coming years, higher-skilled jobs comfortable in their jobs. Employ-
in the century, it is hard to be will grow, whereas low skilled jobs ers also need to focus on retaining
positive about anything. With an will decline, meaning that despite this human capital before it’s too
unemployment rate of 8.1%, it the shortage of workers, employ- late or else they will be losing their
seems even harder to imagine that ers will be looking at candidates company’s most precious assets.
we will be facing a labour shortage who possess those skills that are Although there are plenty of
in a decade. However, economists needed. opportunities that will arise in the
are certain that this is cyclical The boomers need to prepare coming decades, it’s up to the
and in the upcoming decades the for the new labour environment members of the future workforce
workforce will be too small. also by upgrading their skills. How- to be ready to grab them.

12 ArbitrageMagazine.ca December 2010

EMPLOYMENT:
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writers, graphic designers, marketers, communica-
tions and sales staff to work for the ARBITRAGE,
Canada’s first, national, student-run business
magazine. If interested, please send a cover letter,
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INTERVIEW:
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Email: letters@arbitragemagazine.com
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length. Not all material may be published.
INTERNATIONAL AFFAIRS 20  AFFIRMATIVE 27  CANADA'S
18  GOOGLE VS ACTION: DENIED! ESTIMATED
CHINA: THE LOSERS Are We Losing the Fight POPULATION
AND THE LOSERS Against Workplace
Google’s Showdown with Discrimination? FINANCE & ECONOMICS
China Comes to a Head 30  DEMURRAGE
21  WINDS OF The DNA of tomorrow’s
19  HOW IS CANADA CHANGE financial system?
GOING TO HANDLE Competition, Choice and
Consumerism in the
THE DEBT FROM Canadian Wireless Market
34  THE 5 GREATEST
BABY BOOMERS IN INVESTORS OF ALL
2020 TIME
Baby Boomers Drive Up And the Lessons that Led
Debt Generations of Investors

14 ArbitrageMagazine.ca December 2010

 Inter

35  TAKING AIM AT PERSPECTIVES STUDENT CO.

WALL STREET 56  CANADA’S 64  CAREER

Obama’s New Legislation FISCAL SPENDING SPOTLIGHT
Aims to Sweep Up the OUT OF CONTROL Financial Consultant: Where
Financial Mess Conservatives’ Fiscal Can Your Career Take You?
Reputation Under Siege
ENTREPRENEURSHIP
68  BREAKING IN TO
44  BUILDING YOUR 57  PLAYING A BAY STREET
BUSINESS RIGGED GAME Fellow Students Share their
The Tips You Need To Who Really Wins in the Stories About Making It
Succeed Financial Markets? BigHealthy Economy

47  INCORPORATING 70  TORONTO'S

YOUR BUSINESS ESTIMATED
Protesting the G20 Summit POPULATION

December 2010 ArbitrageMagazine.ca 15

Source: lh6.ggpht.com
INTERNATIONAL AFFAIRS
With an increasingly globalized world, issues that were once isolated in a tiny part of the
earth are now everybody’s problem. On one hand, it becomes overwhelming to learn of the
challenges our world faces, but on the other hand, learning about the world’s challenges is
the first step to helping us tackle them together.

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

IN THIS SECTION… Click to learn more CANADA’S

& join us!

35,000,000
ESTIMATED POPULATION
by Five-Year Age Groups, 1972 - 2008

30,000,000 70+

65-69

25,000,000
60-64

55-59

20,000,000
50-54

45-49

40-44

15,000,000
35-39

30-34

18  GOOGLE 19  HOW IS 20  AFFIRMATIVE 21  WINDS 10,000,000

27
25-29

OF 5,000,000   CANADA'S
20-24

15-19

10-14

5-9

VS CHINA: THE CANADA GOING ACTION: DENIED! CHANGE EXTIMATED

0-4
Source: Statistics Canada estimates
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 AGES

LOSERS AND THE TO HANDLE THE POPULATION

LOSERS DEBT FROM
BABY BOOMERS
IN 2020
International Affairs
By: Sushil Tailor, Staff Writer
Google vs China: The
Losers and the Losers
Google’s Showdown with China Comes to a Head
t was 1989 when 10,000
students and intellectuals
marched in Tiananmen
Square for reform against the
Communist Party of China.
The protests eventually culminated
into the government retaliation of
June 4th, when a lone scholar was
photographed standing in the way
of an enormous government tank.
This iconic photo became known
to the world as “Tank Man.”
Yet despite what had happened,
Tank Man is little known about nor
seen in China, particularly amongst
the young. Such an ironic situation
begets the question, “Why?”
The People’s Republic of China
is known for its censorship regime
known as the Golden Shield
Project, often snidely referred
to by Western nations as The
Great Firewall of China. Internet
content that is deemed against
the favour of the ruling Communist
Party is censored. Dissent is also
disallowed, resulting in Internet
forums being held liable for what
their members post.
Thus, Tank Man had been
censored and prevented from
being seen by Chinese citizens.
Today, websites that operate in
China or wish to have a presence
in China must either comply with
censorship regulations, or be
censored.
Known as a proponent of
free speech for both ethical and
practical reasons, Google faced
criticisms from the press and
internet users for succumbing to
Chinese censorship rules.
In 2009, a cyber-attack, dubbed
Operation Aurora by security
18 ArbitrageMagazine.ca December 2010
experts at McAfee Labs, took place.
It attacked a variety of companies
which had a physical presence
in China such as Adobe, Apple,
Microsoft, and Google. Google
alleged that Chinese hackers
tapped into the Gmail accounts
of Chinese human rights activists
and then proceeded to attack their
corporate infrastructure.
The combination of this attack
and public dissent led Google to
strike back and announce that it
would stop censoring its search
results in China. It then followed
through by shutting down its
Chinese domain and redirecting
users to the unfiltered Hong Kong
portal.
"This was no surprise to
Google when they first
entered the Chinese search
engine market in 2005, and
as required by law, Google
censored their own search
results. "
In turn, the Communist Party of
China accused Google of colluding
with US intelligence and a standoff
between the two giants ensued.
The government began to put
companies that had contracts with
Google under pressure to break
them. They also threatened to not
renew Google’s internet content
provider’s license.
Among Chinese citizens, some
supported Google, whereas others
boycotted the search engine
and instead used Baidu, China’s
dominant search engine.
Google’s supporters were
largely Chinese academics and the
business community, who needed
Google’s services for work.
Google simply provided access
to information and research that
Baidu did not.
In a survey conducted by
the science journal Nature, it
was found that 80% of Chinese
academics regularly used Google
to search for academic papers and
that 60% used the site to stay on
top of research. Google Docs and
Gmail had also been censored,
which resulted in plight for small
businesses which relied on such
free cloud computing and email
services.
Who won in the end? Arguably,
no one.
For Google, China is a massive
market, and by backing out they
would lose out on ad revenue.
For China, Google pulling out
of their market would result in
greater cultural isolation, which
was not what the government had
in mind. Google was a window to
the outside world for the Chinese,
and despite initially succumbing
to Chinese censorship rules, it
was still the least restrictive of the
search engines available.
In the end, the true losers
were not Google or the Chinese
government: it was those who rely
heavily on a competent search
engine for information

how is canada going to handle the
debt from baby boomers in 2020
Baby Boomers Drive Up Debt
Source: www.kqed.org
anada is recognized
for being one of
the world’s most
indebted countries
today by the Fraser
Institute. In the past decade,
Canada’s national debt reached
more than 70% of GDP, but since
then successive finance ministers
have managed to reduce it down
through continued surpluses.
However, as thousands of baby
boomers approach the retirement
line, this will fundamentally change
the Canadian labour market and
lead to a soaring federal budget
deficit.
Since the 1950s, there has
been a steady decline in Canada’s
birth rate. Also, there are not
enough immigrants arriving. “So
the «providing ratio» — that is, the
number of working-aged Canadians
relative to those over 65 — will
fall,” states Matthew McClearn,
of Canadian Business magazine.
Currently the ratio is 5:1, but experts
expect it to decrease to half by
2040.
This will result in an erosion
of the tax base as more retirees
outnumber the young people
who intend to replace them in the
workforce. By the next decade, the
number of retirees relative to those
in the workforce will grow by 7%.
Government spending will rise
as the graying population indulge
themselves on pensions, health
care benefits and old-age benefits,
resulting in a fiscal squeeze for
Ottawa and the provinces. At the
moment, health, education and
elderly and child benefits account
for 15% of GDP. However, by 2056,
these expenses will shoot up to
more than 19%.
This represents almost $68
billion in additional government
spending each year, which Canada
is not prepared to absorb. William
Robson, CEO and president of the
C.D. Howe Institute, reports that
Canada will have a liability of $1.5
trillion over the next five decades.
A combination of fiscal and non-
fiscal measures will be necessary to
tighten the demographic squeeze
alongside policies to enhance
labour productivity and make up
for the declining workforce. Canada
will also require more budgetary
discipline which has enabled it to
reduce its debt over the past 10
years.
A careful examination of the
rising social costs for healthcare
and public pensions will be likely as
well. But it is clear that many young
Canadians will have to work longer
before retiring and pay higher taxes
than previous generations.
"Permanent fiscal actions
– either through increased
taxes or reduced program
spending, or some
combination of both, will
be needed to avoid ever-
increasing government
deficits…"
“Permanent fiscal actions –
either through increased taxes or
reduced program spending, or
some combination of both, will be
needed to avoid ever-increasing
government deficits,” says Kevin
Page, parliamentary budget officer.
He warns that if corrective measures
are not implemented quickly, the
problem will grow “exponentially.” If
December 2010 ArbitrageMagazine.ca
International Affairs
By: Pawan Shamdasani
1997-1998
over $550 billion
1995-1996
1993-1994
over $490 billion
 70% GDP
1991-1992
2005-2006
over $480 billion
 60% GDP 2007-2008
over $450 billion
1989-1990
 50% GDP
 40% GDP
2002-2003
1989-1990
over $330 billion
2007-2008
 30% GDP
1985-1986
over $200 billion
Source: http://blogs.usask.ca/the_bolt/archive/2009/01/
canada_debt_gdp_2009.html
Infographic Created by: Trishaala Ninan
imposed after 10 years, the solution
could cost about $30 billion in
spending cuts or tax hikes.
These demographic pressures
will possibly lead to a grim financial
future. At the end of 2008, Canada’s
federal debt was about $458 billion.
However, Dale Orr, an independent
forecaster, anticipates $150 billion
in additional government debt until
2014-15 due to the financial crisis.
He believes that the financial burden
will not be as harsh as in the 1990s.
Christopher Ragan, an economics
professor at McGill University,
expects the demographic squeeze
to be felt largely between 2020
and 2040. He claims that we could
be left in a vulnerable situation of
rising interest rates and dwindling
money supplies that instead could
be contributed towards social
spending. In other words, Canada
would be subject to debt levels
similar to the mid-1990s.
The government and politicians
need to think long term and realize
the risks of changing demographics
if we are to save Canada from diving
into an era of increasing deficits.
19
International Affairs
By: Luis Fernando Arce
Affirmative Action: DEnied!
Are We Losing the Fight Against Workplace Discrimination?
s Canada taking a huge step
backwards in the fight against
discrimination? In July of this
year, Treasury Board Director
Stockwell Day announced
that the federal government would
be reviewing its Affirmative Action
policy. Immigration Minister Jason
Kenney has backed the decision,
asserting that it will not cause
discrimination to re-emerge, but
rather will elicit a more transparent
process of hiring based on merit
and not on race.
The decision to review the policy
came one day after a woman
complained that she had been
denied access to an administrative
position with Immigration Canada
after she’d disclosed that she was
Caucasian in her application. of discrimination in the workforce.
The conservative government
has now reviewed the practice of
reserving some roles specifically
for minorities. Affirmative Action
has proven extremely helpful for
the case of minorities, but the fight
wasn’t won in one day. In fact, even
the complaints weren’t heard in
one day. It seems woeful that what
took nearly a decade to implement
as policy from the day it was first
suggested has been threatened
and changed by a single complaint.
It seems hard to believe that in
a place like Canada, workplace
discrimination before the 1990s
was all too common. Nevertheless,
it is precisely that grim reality
that prompted the creation of
the Employment Equity Act of
1995. The Act looked to eradicate
the then covert discriminatory
practices against women,
aboriginals, visible minorities
and persons with disabilities.
20 ArbitrageMagazine.ca December 2010
I say covert, because until the
latter half of the 20th century, the
exclusion of these groups from the
workforce still occurred explicitly.
It was only after the 1950s, when
the workforce had become so
diversified in number and skill-
set that the government felt the
impending need to implement
some kind of legislative safeguard
for this diverse group of people
that would only continue to grow.
That is why in 1995 the
government enacted the
Employment Equity Act to help
increase representation of those
discriminated against in the
workforce. No one can dispute
that the legislation was a huge step
towards the systemic eradication
"…it seems woeful that
what took nearly a decade
to implement … has been
threatened and changed by
a single complaint…"
However, questions about the
feasibility and the ethics behind the
move have emerged from different
circles, including political parties.
NDP MP Paul Dewar has
deemed the manoeuvre “partisan
food” for a party desperate to retain
supporters. The criticism stems
from the fact that although many
cite “reverse discrimination” as the
counterargument for Affirmative
Action, current data proves that
a greater number of individuals
belonging to minority groups are
being hired—despite inefficiencies
in the system—thanks to the policy.
Source: BlackAmericans.com
For instance, figures show that
60% of the federal workforce is
composed of minority groups.
However, that figure comes
after decades of struggle. Even
throughout the 1990s, after
the policy had been enacted,
publications by Statistics Canada
showed that minority groups
and aboriginals continued to
experience discrimination or
harassment in their workplace.
Even as recently as 1999,
approximately one-third of minority
federal employee respondents
said they had experienced
discrimination at work. The
2006 Census showed that new
immigrants (91% of who have
higher education) systematically
experienced higher unemployment
rates than their Canadian
counterparts. In yet another study
in 2009, representation of visible
minorities was deemed to be 1.9%
below their availability.
Particularly because Canada
is entering such a unique
demographic phase where a huge
number of people are entering
retirement simultaneously, the
need for economically active and
producing individuals is amplified.
This also means that the strain
on the federal service will also be
amplified as more of the retirees
require social services despite a
shrinking tax base. There seems
to be very little space to deny
minorities a chance to stimulate
the economy, particularly when it
depends highly

Source: msnbcmedia2.msn.com
hey say that competition
is good for consumers.
If true, then the
introduction of a slew of
new wireless providers
into the Canadian market is a good
omen. The telecommunications
industry here has traditionally been
composed of a handful of corporate
giants, increasingly moving toward
a relative oligopoly. Numbered
among these heavyweights are
well-known companies such as
Bell, Rogers and Telus. Adding a
handful of new providers into the
market brings with it an inherent
aspect of competition. As such,
this recent shake-up has come
at a good time for Canadian
consumers. Furthermore, these
new companies explicitly market
their products to a younger,
budget-conscious and tech-savvy
customer base, emphasizing
value, affordability, transparency,
flexibility and customization. This
has direct benefits for students, a
demographic with particular needs
and constraints.
Perhaps the most recognizable
of the new telecom providers
is WIND Mobile. The company
emerged in late 2009 amidst
controversy regarding its foreign
ownership. Marketing itself as a
cheaper alternative, with more
straightforward and transparent
billing and no-term contracts,
WIND does appear to be
particularly attractive to students.
WIND offers data plans at a lower
price point, so smart-phone users
may be intrigued. It also allows
customers to forego contracts and
to buy specific features without
bundling.
WINDS OF CHANGE
Competition, Choice and Consumerism in the
Canadian Wireless Market
However, the coverage of WIND
users is confined to WIND Home
Zones located in major cities such
as Toronto, Calgary, Vancouver,
Edmonton and Ottawa, or Wind
Away Zones, again in areas
surrounding major cities.
Nevertheless, students inside
the available areas may find WIND
to be a desirable alternative. The
next wave of new companies
includes Public Mobile, launched
on March 18, 2010, and Mobilicity,
launched May 25, 2010. Both of
these companies offer various
plans and services at prices
lower than the status quo, but
this discount comes at the cost of
quality. Both companies have been
plagued by accounts of customer
complaints about lost- and poor-
quality calls.
Due to the type of network
it uses, Public Mobile does not
offer data plans or a wide variety
of handset devices. Remember
though, that considerations of
price versus quality are integral to
consumers. For users on a tight
budget, who are looking for basic,
unlimited plans and for whom the
occasional technical difficulty is
not overly troubling, the added
options these companies offer are
a welcome change.
The newest mobile provider to
emerge is Chatr Wireless. Chatr is
owned by Rogers (who also owns
Fido) and is the giant’s response
to the new competition in the
industry. Chatr aims to provide
customers with more choice and
lower prices. It also claims to
have better wireless coverage
than Public Mobile or Mobilicity,
with advertisements touting
December 2010 ArbitrageMagazine.ca
International Affairs
By: Troy Redick
“fewer dropped calls than new
wireless carriers.” Interestingly,
Rogers has artificially limited Chatr
coverage to match the coverage
zones of WIND, Public Mobile and
Mobilicity.
Regardless of whether any of
these new companies successfully
rise to challenge the existing
oligopoly (although some project
that the aggregate market share
of these new telecoms will
near 25% by 2014) the spirit of
competition they represent bodes
well for consumers of its own
accord. The very existence of
alternative providers prevents any
form of tacit-collusion or price
manipulation. Not to imply that
any such behavior was occurring
previously, but a market with a
diversity and breadth of option,
which did not exist in Canada
prior, precludes such behaviors by
default.
In any event, consumers stand
to benefit from the competitive
lowering of prices that naturally
accompanies true competition, as
well as a broader array of plans
and services from which to find
one best suited to their particular
needs and budgets. In the end,
the result is a procession of lower-
cost, customizable plans where
the real winners aren’t the telecom
companies, but consumers
21
 e tend to think
that more is
better. Why
wouldn’t we?
When we like
something we want more of it. Our
entire economy is based upon this
philosophy. We demand something
because we find that it’s useful to
us; then manufacturing companies
supply it.
Retailers stock their stores
and market those products as
enticingly as possible based on
this relationship. More production
and more consumption are good
for manufacturers, consumers,
and the economy.
The Gas
When it comes to people, more
isn’t always better. Those familiar
with Malthusian theories of
resource depletion know this. Yet
we continue to hear dire warnings
22 ArbitrageMagazine.ca December 2010
about a depleting workforce and
the need to step up population
growth to avoid it. Although these
claims aren’t entirely unfounded,
seeing as how the workforce is
indeed the juice that sustains an
economy, this doesn’t translate
into economic growth or wellbeing.
A country cannot prosper in
the face of political, economic,
and environmental catastrophes
based solely on the size of
its workforce. Economies are
complex mechanisms that need
much more than just working
people; they are systems based on
rules, policies and regulations, all
of which have become increasingly
interconnected across the globe.
Let’s think of an economy like
an automobile and of the working
force like the gasoline that we
pump into it. Without it, we can’t
drive anywhere. However, for the
gasoline to be burned efficiently
and get the most possible miles
per gallon, the car must have a
finely tuned engine.
Much the same way, an
economy needs people to propel
it forward and to benefit from
its services. Like the car, the
economy also has an engine that,
if sharply tuned, will determine
whether a country can prosper in
the face of adversities, such as a
depleting workforce brought about
by changing demographics.
The Engine
Although the mantra of the
capitalist economy is the lack
of government intervention, it is
impossible to envision a successful
economy fully void of it. A quick jog
down memory lane can refresh our
memories.
The first economists considered
the free market a self-ordering
mechanism that also served as an
 By: Fernando Arce
impetus for growth as individuals
pursued their private interests.
While all investments were driven
by the desire for profit, the market
would subtly work behind the
scenes to ensure the full utilization
of society’s capital (things like
full employment and balance
between supply and demand),
contributing therefore to what
Adam Smith called the Public
Good; any intervention from the
government would have distorted
this seemingly natural process.
The government was seen as
a mediator, at best, who would
overtake responsibilities such as
erecting public institutions and
developing an infrastructure that
would in turn facilitate the flow of
commerce, but not influence it.
The success of their theories—
and of capitalism—was magnified
by the fact that society was
breaking off from the feudal
past. In this context, the benefits
of liberalization of trade and
the freedom of individuals to
engage in this activity had been
blown up, portraying any outside
intervention as regressive and
counterproductive.
But history proved otherwise.
When the Great Depression
hit, the foundation of capitalism
was shaken, and the feasibility
of alternatives like communism
and fascism loomed precariously
over their heads. With more than
one third of the labour force
unemployed in the United States
and increasingly negative profit
margins, the government began to
question whether the invisible hand
that was thought to lift all boats to
the same tide was not an anchor
drowning them instead. It was
around this time that John Maynard
Keynes emerged, advocating a
type of mixed economy where the
December 2010 ArbitrageMagazine.ca
public sector played a large role
in the undertakings of the private
sphere.
The evidence is abundant:
Governments are important
for the economy.
His analysis of macroeconomics
essentially asserted that, left
unattended and unregulated,
microeconomic-level decisions
would lead the economy into
inevitable cyclical instability. In
a way, Keynes played the devil’s
advocate—and succeeded—as
he persuaded governments to
adopt policies that would assure “a
stable process of reproduction and
adequate levels of employment.”
Although Keynesian notions
lost some of their influence during
the 1960s and 1970s, they’ve re-
emerged in the wake of the 2008
23
global economic crisis. We’ve
seen government bail-outs, tax
cuts for some, and lower interest
rates for others. More literature has
popped up everywhere advising
governments to implement policies
that would monitor the activities of
lending banks more closely and
even “require [them] to prick asset
price bubbles” when necessary
(a great example is George
Cooper’s The Origin of Financial
Crises). The evidence is abundant:
Governments are important for the
economy.
Backstage
When speaking of large
populations we think of China
and India almost instinctually,
since they rank first and second
in the world respectively. At first
view, these massively populated
countries have some of the highest
ranking Gross Domestic Products
($8.748 trillion and $3.57 trillion
USD respectively). This appears to
imply some relation between their
size and their economies.
Around the world, thoughts
considering India’s important
position as an emerging market
continue to brew, and China’s
status as the next possible
superpower is an issue sitting on
the tip of our tongues. But like
spectators watching a play, we are
oblivious to the ropes and pulleys
behind the curtains making the
stage come alive.
From backstage, the magnitude
of China’s and India’s GDPs,
which rank third and fifth in the
world, seem like mere props. By
taking a look at the standard of
living for both of these countries,
we can see that, despite large
annual GDPs, the average income
per capita in these countries rank
quite low: both of their respective
Incomes Per Capita are lower than
Ecuador’s, where the population
ranks 66th and the GDP ranks
65th, eking out just over 100 million
dollars in 2009—a minuscule
fraction compared to China’s or
India’s GDP.
24 ArbitrageMagazine.ca December 2010
The unemployment levels in
China and India are both higher
than in Canada, a country with a
GDP just over 1 trillion dollars. To
see it from yet a different point of
view, Luxembourg’s population
size ranks 170th in the world (with
just over 400,000 people), its GDP
was only about 40 billion dollars
in 2009, yet the income per capita
levels ranked third in the world,
higher even than Canada’s (over
$79,000 USD); their unemployment
levels were also lower.
Large GDPs are general
indicators of the magnitude of
the economy, which to a degree
are influenced by the population
size. Asserting the quality of the
economy, however, is a bit more
intricate than that. Remember,
the people are gasoline; to know
their condition, we must examine
the engine that moves them: the
government.
Examining the Engine
By looking at factors that developed
nations have in common, we
can apply them in developing
a framework for what a healthy
economy’s demographics should
look like. Although population size
may affect the size of the work-
force, there are other demographic
data far more influential of the
living standards of the people and
of the economy. The level of social
security that a country offers has a
strong influence on its demographic
make-up: things like education
levels, employment security and
healthcare strongly impact fertility
and birth rates, which in the end
affect the economy.
York University Professor of
Public Policy and Administration
Thomas Klassen sat down with me
to briefly discuss how governments
influence the standard of living
indicators, and what factors are
really important to the health of the
economy
According to him, economies
are determined more efficiently
by their demographics, of which
population sizes play only a
small role. The grand scale of
China’s economy is partly due to
the fact that there are “relatively
few young and old people…and
many between 20 and 60 who are
working.”
In India, there is an opposite
trend as the country is running
rampant with a lot of small children.
Where there are fewer children and
elderly people, the workforce is
immediately boosted alone by the
number of women who’ll be able
to seek work instead of caring
for large families—that is without
considering the amount of money
saved on public pensions and
healthcare.
Small families are now the
norm since most people don’t
own farms which need to be toiled
by succeeding generations. But
perhaps the most influential factor
in the reduction of family sizes is
the provision of social security by
governments. Public spending and
pension plans mean that parents
don’t have to have many children
to care for them in their autumn
years.
Furthermore, public spending
allows families access to more
resources which can reduce the
number of unwanted pregnancies.
In many poor countries, the
high costs of contraceptives
and healthcare, for example,
deter individuals from getting
them, spiking the number of
unwanted births and shaping the
demographics of the country.
The accessibility to education is
also very important to the make-
up of a country’s demographics.
Research shows that higher levels
of education lead to lower levels of
unwanted pregnancies. In India,
where the literacy level reaches a
mere 61% of the population, the
Demographics and Health Surveys
programme showed that in 2006
the actual fertility rate was 2.7 (now
2.65), while the wanted fertility rate
was 1.9.
The accessibility to basic and
higher education in India are long-
term challenges linked to the fact
that India’s government spending
and taxation as shares of its GDP
are, according to the CIA World
Factbook, “among the lowest in
the world.” In contrast, in a country
with a literacy rate like Canada’s
(99%), the actual fertility rate is
1.58. Educated people are better
able to plan for their future and
the future of their children, making
sending two or perhaps even three
children to university much more
plausible than sending seven or
eight.
Educated people also have
higher standards of living.
Professor Klassen asserts that
“countries with high education
levels tend to have people who
are wealthier” and who therefore
contribute to a healthier economy.
Individuals that are educated not
only find better-paying jobs, but
tend to find partners with similar
levels of education. As their
household income increases they
are able to plan for their future
more effectively by, for example,
opening a savings account, or by
investing their money, contributing
again to the general economy.
By subsidizing education and
implementing social securities
such as RESPs, for instance,
governments can help the cycle
continue and contribute to the
growth of the economy.
The demographics of a country
are largely affected by the level of
social security that it offers, which
consequently plays a huge role in
the health of an economy.
Demographics
Knowing the demographics of the
country is one of the most powerful
tools for policy makers. Once
established that social security
and government expenditures on
public services are necessary to
help increase the living standards
of individuals, the next step is to
figure out how to properly allocate
these funds.
For example, referring to the
Canadian “demographic time
bomb,” Professor Klassen gave
some examples of how a large
baby boomer cohort is influencing
government as well as private
decisions.
“The TTC is putting elevators
everywhere, in part because of an
aging population. You probably
don’t want to build a lot of schools
right now, because there aren’t
going to be a big group of children
to attend schools in the next 20
years.…[And] you probably want to
encourage people to stay at work
(which is why they’ve taken away
the mandatory retirement age).”
Determining what sectors of
society need more public spending
was one of the major contributions
of the Mandatory Census,
which was recently converted
into a Voluntary Survey by the
conservative government. The
move has been criticized widely for
many reasons, including its effect
on public policy.
“Some decisions could be
skewered,” said Professor Klassen,
adding that those most affected by
it will be precisely those groups
that depend the most on sound
government policy. “It will be poor
people…single parents who are
too busy cooking and cleaning”
after coming home from their jobs
to fill out a 45-minute survey. The
head of Statistics Canada agrees,
suggesting that it will be aboriginals
and new immigrants that will most
likely not respond.
As healthcare costs rises
because of over 70 million people
going into retirement over a
relatively small time period, taxes
need to be collected accordingly
and a proper account of all other
groups in need is necessary so
that resources that should go to
them do. Moreover, tracking the
mobility of people, including new
immigrants, is imperative in the
formulation of what Naomi Alboim,
the vice-chair of the Policy Forum
at the Queen’s University School
of Policy Studies calls a “cohesive
immigration framework” whose
objective should be to integrate
more newcomers into the economy.
December 2010 ArbitrageMagazine.ca
The Toronto Region Immigrant
Employment Council website
reports that the number of
temporary foreign workers has
skyrocketed compared to the
number of skilled labourers who
settle permanently in Canada.
The report also shows that there
is massive underemployment and
underpayment of newcomers who
have post secondary education.
A framework of sound policies
overseeing this problem can only
be made with full statistical data,
and not with a 50% response rate,
as Statistics Canada expects the
Voluntary Census to be.
Conclusions: Smoothing
the Curve
The economic growth levels
of the last 30 years must be
maintained to mitigate the
blast of the “demographic
bomb”
The size of a population by itself
does not give us very much
information about the economic
prospects of a nation. Professor
Klassen disagrees with arguments
suggesting that in the face of
population decline, economists
struggle to maintain a growing
economy. “Many [wealthy]
countries today, like Japan,
Germany, Italy, have populations
that are declining,” he points out.
The demographic composition of
the country, on the other hand,
together with efficient government
planning, including sound
economic policies and public
spending on social securities, are
much better indicators.
Professor Klassen also
stressed the fact that urbanization,
education, and moving the
economy toward higher value-
added products will help improve
the condition of people.
We’ve already seen how
providing education can help
reduce the number of unwanted
pregnancies, helping to smooth
25
the demographic curve. Research
also shows that fertility rates begin
dropping as income rises, to which
education is a precursor. Typically,
higher income per capita is a strong
indicator of a healthy economy and
healthy demographics.
Urbanization is also imperative
for personal and national economic
success and demographic
stability. Both India and China
have low levels of urbanization,
with only 29% and 43% of the
population living in urban areas
respectively. In particular, India is
a country where services are the
major source of economic growth,
“accounting for more than half of
India’s input”; having more than
half the population still working in
agriculture is counterproductive.
Canada and Luxembourg, both
wealthy nations, have rates of 80%
and 82% respectively.
Raising the standards of
living should be among the first
objectives of the government.
A country like Ecuador, despite
comparatively higher personal
incomes than Chinese or Indians,
may not be said to be economically
healthy when more than 30%
of its population is unemployed
and services like employment
insurance are nonexistent or
at best exceedingly inefficient,
inadequate and even promoters of
informal labour markets. In India,
it makes little difference that the
GDP is the fifth highest in the world
26 ArbitrageMagazine.ca December 2010
when over 25% of the population
lives in squalor.
During the recent global
financial crisis, millions of workers
were laid off and thousands of
companies closed their doors.
Had governments worldwide not
stepped in with bailouts to provide
stability and increased security to
the markets, we may have seen an
even deeper hole in the financial
markets.
Despite some high levels of
unemployment in these countries,
it is quite possible that these rates
could have skyrocketed had the
subprime debacle been allowed
to continue without government
intervention. This supports
the argument that government
intervention in the market actually
can help regulate demographics,
in this case, the unemployment
rate.
The other piece of the puzzle
imperative for the formulation
of sound policies is the need
to have a clear sketch of what
the population’s demographic
composition is. In the case of
Canada, research has shown
that to mitigate the effects of the
baby-boomers retiring, the levels
of economic development must
be maintained (even with a smaller
workforce).
“[Health and Welfare Canada’s]
research indicate[s] that…
income per person, and income
per household…” are affected
minimally by changes in the size
of the population. The economic
growth levels of the last 30 years
must be maintained to mitigate the
blast of the “demographic bomb”
for at least, as calculations have it,
another 50 years.
So what aspects of a country’s
demographics can be used to
determine whether or not it has
a healthy economy? We looked
at some key issues that helped
promote higher standards or
quality of living, and they all
suggested that the size of a
country’s population doesn’t have
a strong correlation—positive or
negative—with its economic well-
being. Rather, a combination of
high education, low fertility and low
unemployment rates tends to be
a strong indication that a country
has the right demographics to also
have a healthy and prosperous
economy.
These demographic factors
are able to be influenced by
government policies, which for
Canada increases the importance
of having a mandatory census.
A mandatory census is much
more accurate and effective in
determining government policy.
With complete and accurate data,
policy makers will be able to better
determine how we can maintain
economic growth levels with a
shrinking work-force.
 International Affairs

CANADA’S ESTIMATED POPULATION

by Five-Year Age Groups, 1972 - 2008

35,000,000
30,000,000 70+

65-69

25,000,000
60-64

55-59

20,000,000
50-54

45-49

40-44

15,000,000
35-39

30-34

10,000,000
25-29

20-24

15-19

5,000,000
10-14

5-9

0-4
Source: Statistics Canada estimates
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 AGES

December 2010 ArbitrageMagazine.ca 27

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INVESTORS OF ALL TIME WALL STREET
Finance & Economics
By: David Tal
Demurrage
The DNA of tomorrow’s financial system?
n July 5th, 1932,
a miracle took
hold in the small,
Austrian town of
Worgl.
The Great Depression was in full
swing and of its population of nearly
5000, a third were jobless, and
about 200 families were bankrupt.
The situation was desperate. The
town would try anything.
And in these extraordinary
times, the town mayor, Michael
Unterguggenberger (it’s actually
fun to pronounce after the third try),
decided on a radical intervention.
The town had 40,000 Austrian
schillings left in its reserves.
This was nowhere near enough
to finance all the redevelopment
projects Unterguggenberger
planned. So instead, the mayor
decided to invest this money into
a special savings account as a
guarantee to back a new type of
money.
Back then, this new money
was called ‘stamp scrip’. This is
a ‘complementary currency’ that
works by placing a kind of usage
fee on money. In Worgl, the usage
fee amounted to 1% per month
of the money’s value, stamped
directly onto the paper bills each
month. This means that $100 at
the beginning of the year would
30 ArbitrageMagazine.ca December 2010
shrink to $88.64 by year’s end,
compounded monthly.
As one can imagine, this usage
fee turned the whole concept of
saving and hoarding money on its
head. Why would you save your
money when you know that the
more you do, the more it loses its
value?
But that’s the trick.
Instead of saving one’s money,
stamp scrip creates the incentive
to invest. And so did the residents
of Worgl.
With stamp scrip in place,
they spent their money as fast as
possible so they could spend it
while its value lasted. They would
spend on necessities, they would
invest in their homes, lend to
friends, some even paid their taxes
early!
Meanwhile, the tax revenue,
combined with the stamp scrip fee,
the town collected was more than
enough to cover the costs of the
town’s redevelopment projects. In
fact, the town generated enough
money to build new houses, a ski
jump and a bridge.
But the miracle lay in the fact
that amid a global depression,
Worgl reached full employment.
Again, the key was stamp scrip.
The speed that money changed
hands (14 times higher than the
national schilling) helped keep
local businesses afloat and, in
time, brought back the town’s lost
jobs.
Things looked up for Worgl and
Unterguggenberger. The town
did so well that six neighbouring
villages successfully copied the
system and over 200 grew an
interest in following suit.
That’s when the Austrian central
bank panicked. They saw its
monopoly rights on printing and
gatekeeping money threatened. As
a result, it outlawed Worgl’s stamp
scrip system.
Soon after, Worgl saw its
unemployment shoot back up to
30%, forcing its fall back into the
country’s economic depression
(the same happened to all other
townships that copied Worgl’s
system).
The brief history of money
The history money is a study unto
itself. But generally speaking,
money wasn’t so much an invention
as it was an evolution where form
followed function.
As Sam Lanfranco, Professor
Emeritus & Senior Scholar,
Economics, York University,
explained through an online
interview, “Money was not invented
in one place and then spread by

knowledge migration. It evolved in
many places in response to a troika
of needs: for a unit of account, for a
unit of exchange and for a durable
store of value.
“Originally all monies were
commodity monies, be that
stones, shells, or various metals,
so long as they were durable and
relatively fixed in supply. Gradually,
fiat (paper) monies evolved first as
a convenience (as in the case of
Italian goldsmith receipts) and then
as a business, with the emergence
of fractional reserve banking.
“Finally, in all cases, fiat monies
in circulation have become a
government monopoly.”
The concept of demurrage
When talking about money’s history,
the topic of demurrage tends to
come up. The modern omnibus
term for stamp scrip (described
above) and ‘negative interest’,
demurrage refers to any system
that places an additional (per diem)
cost to holding (or hording) money.
One can argue other factors like
inflation or interest share this same
trait, but these have very different
characteristics, as we will soon
see.
The concept of demurrage
has a long history, as long as
the notion of rent. For centuries,
The town of Worgl: http://commons.wikimedia.org/wiki/File:Wörgl_von_Süden
different cultures used demurrage
as a way to account for products
with a limited shelf life or charge
for holding items of worth. The
Egyptians, for example, used this
system when managing their stores
of grain; the reason being that
since grain eventually went bad, it
made sense to charge a monthly
fee to account for the spoilage. In
Europe, demurrage was simply the
fee charged for holding gold in the
goldsmith’s vault.
As a result, wealth will shift
from those who have the
most to those who give the
most and power will shift
from those who have $1000
to those who have ten
people owing $100 each.
These examples continue
into the modern day, even if
they’re no longer referred to as
demurrage. Prof. Lanfranco
noted how this concept is heavily
used in the area of transportation:
“(demurrage) commonly refers to
the additional per diem cost of
keeping possession of a transport
unit (truck, railcar, vessel, etc.) that
is tied up by loading or unloading
delays beyond the time agreed
December 2010 ArbitrageMagazine.ca
Finance & Economics
By: David Tal
upon. Railroads frequently keep
each other’s rail cars for extended
periods of time and settle up
payments from a demurrage
balance sheet.”
But as a theory, while notable
greats like John Maynard Keynes
and Irving Fisher supported
demurrage as an ideal, economist
Silvio Gesell has always been
known as its greatest champion.
Velocity
Using Gresham’s law, that “bad
money drives out good,” Gesell
argued that demurrage fees did
the best job of speeding up a
currency’s circulation (as seen
in Worgl, where people couldn’t
spend their money fast enough).
Especially on the open market,
when people know that keeping
money is equal to losing money,
then buyers and sellers will more
actively engage with each other to
meet in the middle and make deals
and sales.
As any ecomonist would say,
when the velocity of exchanges
and liquidity increases, so does
overall economic activity. That is
what Gesell believed demurrage
could offer society.
In fact, such a system even
has the potential to work wonders
during economic downturns.
31
Finance & Economics
By: David Tal
Since during recessions, the
natural inclination is to save and
hoard money (thus worsening the
recession), demurrage encourages
the opposite—thus, cutting down
the recession’s life span and
improving economic resiliency.
Wealth diffusion
Another advantage Gesell noted
was that demurrage can potentially
discourage wealth accumulation.
Today, just owning money makes
you more money (through interest).
But with demurrage, wealth comes
with a carrying cost. The more
money you have, the more money
you will lose on a recurring basis.
Due to this new reality, a person’s
natural inclination will change from
wanting to own to wanting to give.
Under demurrage, if you have
more money then you are able to
spend, then it would make more
sense to loan out that money
(even at zero interest) to preserve
that wealth, rather than keep the
money and lose it gradually. As a
result, wealth will shift from those
who have the most to those who
give the most and power will shift
from those who have $1000 to
those who have ten people owing
$100 each.
The inflation killer?
Some would argue though that
inflation does the same thing
as demurrage, since inflation
reduces the value of your dollar
over a period of time. But more
important, inflation is known to ruin
economies (Zimbabwe anyone?),
so if demurrage is similar, isn’t it
bad as well?
The answer depends on your
perspective. Traditional currencies
tend to get devalued by interest
and inflation, as both work to create
larger quantities of money, which
oddly reduces its wealth (read the
last issue’s feature article, All the
world’s a cage, to learn more).
Demurrage meanwhile is
anti-inflationary. Since it works
to reduce the money supply, it
effectively increases the value of
money (because less of it exists).
32 ArbitrageMagazine.ca December 2010
The death of short-term
thinking
Our accounting systems
promote clear cutting forests for
immediate profit instead of logging
sustainably forever, while our
politicians promote robbing the
future to pay for the tax breaks and
subsidies of today. During an age
of global warming, peak oil and
demographic change, one of the
greatest challenges facing mankind
is its inability to plan beyond the
next fiscal quarter or election cycle.
Negative interest is modern
day demurrage. It turns the
concept of a bank account
on its head, since instead This storage fee, which
of savers earning interest originator Silvio Gesell called
on their deposits, they are demurrage, would encourage
actually paying the bank to everyone to spend what they need,
and find other ways to ensure
keep their accounts!
storage of wealth, such as capital
investments, loans, etc.”
That is why the most important
quality demurrage may offer is
Too much of a good thing?
its encouragement of long term
While demurrage has its
financial planning.
supporters, there are still many
As noted above, demurrage
who have reservations about its
punishes those individuals who
effectiveness (no surprise here,
keep their money instead of
considering demurrage is barely
using or investing it. As a result,
mentioned these days). Those who
demurrage will train society to
oppose demurrage rarely do so on
focus on how they can use their
ideological grounds, as many of the
wealth to generate a comfortable
reasons demurrage is argued for—
living by investing in the long
like to address issues of inequity,
(instead of short) term.
poverty, social justice, etc—are
As explained by Jordan B.
widely supported.
MacLeod, author of New Currency:
The main reason demurrage
How Money Changes the World as
isn’t supported is that it fails to
We Know It, “Because of the …
meet, what Prof. Lanfranco calls,
charge for idleness, money in the
the “What, Why, How” test.
future will take on greater value than
For one, supporters of
the present. This would reverse the
demurrage usually tend to
current trend, where money in the
argue that money is the only
future is discounted in favor of the
commodity without a holding cost.
present. This would make interest
Unfortunately, this ain’t the case.
free loans attractive to the lender as
As Prof. Lanfranco puts it,
a means of planning for retirement.
“There are three basic opportunity
It would also create an economic
costs. The first is deferred
orientation favoring longer term
consumption. The second is the
planning and projects that integrate
interest foregone if balances are
the concerns of society as a whole.
not loaned out. The third is that
inflation deflates (money’s) worth
as a store of value.”

The second problem one has
to consider is that in today’s
advanced economic system,
implementing demurrage may
simply have no effect. In today’s
markets, adding a demurrage-
like charge on money may just be
absorbed into the system as yet
another “cost” of holding money,
like interest or inflation.
“It is hard to understand,”
Prof. Lanfranco added, “how one
additional element in the cost of
holding money would address
the long list of socio-economic
ills highlighted by proponents
of monetary demurrage. A fixed
demurrage fee would simply be an
additional fixed factor for monetary
policy to deal with, and there is
clearly no scope for a second
independent monetary authority
with demurrage fee setting rights.
“There is virtually no evidence,
nor a direct link, to suggest that
using monetary demurrage to alter
the opportunity cost of monetary
balances would do anything other
than complicate the application
of monetary policy in the pursuit
of broader policy objectives.
Unlike transaction tax proposals,
designed to reduce short-term
speculative activity in currency
markets, demurrage (if even
practical) would have no more
impact on financial system stability
than do changes in central bank
rates.”
Demurrage today
With the world recovering from its
most dramatic economic seizure in
decades, is the idea of demurrage
even considered anymore?
A clue can be found in Sweden
of all places. On July 8, 2009,
Sweden breached the “zero
barrier.” It cut one of its key interest
rates (its deposit rate) to negative
0.25%
What does this actually mean?
Basically, Swedish banks were
paying 0.25% interest on all the
deposits they were holding in their
reserves.
Does this sound familiar?
It should. Negative interest is
modern day demurrage. It turns
the concept of a bank account on
its head, since instead of savers
earning interest on their deposits,
they are actually paying the bank
to keep their accounts!
Why did Sweden do this?
Because they wanted to discourage
people and banks from hoarding
their money and encourage them
to spend, invest and loan their
money to benefit the economy.
The results of this strategy
have yet to fully researched, but it
proves demurrage is still alive and
well.
December 2010 ArbitrageMagazine.ca
Finance & Economics
By: David Tal
No silver bullet
Best said by Prof. Lanfranco,
demurrage shouldn’t be seen as
a silver bullet for what are really
difficult socio-economic problems.
“(This would imply) that
what are ethical challenges
(what should we do?)
are nothing more than
technocratic challenges
(monetary demurrage).”
This writer remains confident
that demurrage may become a
great tool the future uses to shape
a fairer economic system. But it’s
important to remember that ending
issues like poverty, disease and
global warming can only happen
when humanity learns to work
together through shared values
and morals, and not through
financial incentives.
33
Finance & Economics
By: Kevin Kang
THE 5 GREATEST
INVESTORS OF ALL TIME
And the Lessons that Led Generations of Investors
hat is the
difference
b e t w e e n
a good
investor and
a great one? Whether it’s market
knowledge, large returns, or
the uncanny ability to see
opportunities, these five financial
gurus have separated themselves
from the crowd. You cannot live in
the world of finance without hearing
their names, so take the time now
to memorize the stories of the five
greatest investors of all time.
Benjamin Graham
“The individual investor should act
consistently as an investor and not
as a speculator.”
Benjamin Graham was a
professor at Columbia Business
School as well as a professional
investor. His 1934 books, Securities
Analysis and The Intelligent
Investor, are two of the most
influential texts on investments
and are used as a guide for new
and experienced investors alike.
Graham passed away in 1976,
but continued to be a huge influence
in the world of finance. During his
time as a professor, he taught his
theories of “value investments” to
his students. Two of his brightest
pupils, Warren Buffett and Irving
Khan, still use his style to amass
fortunes of billions.
John Templeton
“The four most dangerous words
in investing are 'This time it's
different.'”
According to Money magazine,
Sir John Templeton was “arguably
the greatest global stock picker of
the century.” As a British citizen,
34 ArbitrageMagazine.ca December 2010
Templeton started his investing
career in 1937. His investment
strategy was an extreme version of
“buy low, sell high”: he purchased
shares in companies during times
of war and extreme pessimism.
Templeton also created some
of the world’s largest investment
funds, focusing on the international
market. Templeton was also an avid
philanthropist, donating millions to
science, religion, and education.
"The individual investor
should act consistently as
an investor and not as a
speculator"
Peter Lynch
“Go for a business that any idiot
can run – because sooner or later,
any idiot is probably going to run
it.”
Peter Lynch is known for
popularizing the strategy of “invest
in what you know.” He believed that
laymen can identify a good stock
if they understand the business.
Lynch claimed that he found many
of his good investments when out
shopping with his family.
While earning his MBA from
the Wharton School of Business,
Lynch caddied for the president of
Fidelity Investments. In 1996, he
was hired as an intern, and quickly
rose through the ranks to become
Director of Research in 1974.
Currently, he continues to work at
Fidelity Investments as a research
consultant.
Irving Kahn
“Investors have no reason to feel
bearish. True value investors are
glad the markets are down.”
Source: istockphoto.com
At age 104, Irving Kahn is
currently the oldest financial
analyst on Wall Street. Khan was a
Teaching Assistant to the investor
Benjamin Graham, and adapted
Graham’s style of value investing.
Throughout his career, Kahn
has built an impressive resume,
including director of six different
companies, president of the New
York City Job and Career Centre,
one of the first round of Certified
Financial Analysts, and chairman
and founder of Kahn Brothers
Group. He continues to play an
active role in researching stocks
with his sons for his company.
Warren Buffett
“Rule No.1 is never lose money.
Rule No.2 is never forget rule
number one.”
Known as the Oracle of Omaha,
Warren Buffett has amassed a
fortune of billions through his
investments and is widely known
as the greatest investor in the
world. In 2008, Buffett beat out
Bill Gates to become the richest
person in the world according to
Forbes Magazine.
In 1965, Buffett acquired the
failing Berkshire Hathaway textile
company and transformed it into
a holding company. He used it
to purchase other companies
at low prices during the market
collapse of 1973-74, and by 2006,
these holdings had grown to 240
billion dollars. His style of “value
investing” was influenced by his
professor and mentor, Benjamin
Graham. He claims that this
strategy laid the foundation for his
success and wealth.

Taking Aim at Wall street
Obama’s New Legislation Aims to Sweep Up the Financial Mess
Source: planebuzz.com
t has been nearly four years
since the beginning of the
financial meltdown and the
global economy is still gasping
for breath. The world has
learned some important lessons
and a wave of change has been
set into motion—especially in the
United States, where the crisis
struck hardest.
During this past summer,
Barack Obama signed legislation
that promises to protect
consumers and ensure economic
stability in the future. This was the
government’s answer to one of the
biggest economic downturns the
country has seen since the Great
Depression.
Known as the Dodd–Frank Wall
Street Reform and Consumer
Protection Act, the legislation’s
main focus is to improve
transparency and accountability in
all financial dealings. The new laws
allow the government to break
up companies that threaten the
economy, create a new agency to
guard consumers and put more
watchdogs over the shadowy deals
that regulators missed during this
last recession. The act’s purpose
is to create a new set of rules that
will prevent the financial crisis from
happening all over again.
The legislation also aims to
make sure that US taxpayers will
never have to save too-big–to-fail
banks with billions of dollars in
bailouts. «Because of this law, the
American people will never again
be asked to foot the bill for Wall
Street’s mistakes,» Obama said.
However, critics are saying
that the bill ignores the root
causes of the recession. They
claim that the added consumer
protections will burden small
banks and businesses and make
it difficult to create jobs. With the
US congressional elections in
November and unemployment
near 10%, this becomes a major
issue. Critics are also complaining
that the new reforms give too much
power to the government.
Nonetheless, proponents of the
legislation claim that these new
laws will help to wipe out fine print
and hidden fees for people, thereby
further empowering consumers
and investors. It would also help
to control Wall Street and stop
unscrupulous lenders who could
bring down the entire economy
again.
"The act’s purpose is to
create a new set of rules that
will prevent the financial
crisis from happening all
over again."
Another purpose of the new
legislation is to prevent banks
from trading for their own profits.
Previous to the recession, many
banks traded potentially lucrative
over-the-counter derivates,
which were high risk. In fact, it
was a special type of derivative
called the mortgage-backed
security which triggered the
financial meltdown in 2008.
The government is also introducing
new rules to limit executive
compensation and corporate
governance. This is in response to
several executives who received
excessive bonuses during the
recession while profits fell. Voters
were not happy as some of these
December 2010 ArbitrageMagazine.ca
Finance & Economics
By: Sushil Tailor
executives were part of companies
that were bailed out by the public’s
tax dollars.
The law should provide certainty
«to everybody from bankers to
farmers to business owners,” says
Obama. “And unless your business
model depends on cutting corners
or bilking your customers, you have
nothing to fear from this reform.”
Ruth Porat, chief financial officer
of financial giant Morgan Stanley,
is pleased to see the bill signed,
as it put «some clarity around the
issues.” However, not all the banks
were happy.
Jamie Dimon, chief executive of
JPMorgan Chase & Co. (second
largest bank in the U.S), was one of
the few bank executives not invited
to the signing of the bill. Prior to the
passage of this bill, Dimon had a
good relationship with the Obama
administration, but later became a
critic of the reform of the banking
industry.
Even though the bill is now law,
there are certain rules that have not
come into effect. The true impact
of the bill should be discovered in
the next two years as the different
regulatory agencies create new
rules that comply with the various
sections of the Act. Only then is
the true impact and significance of
this bill going to become known
35
Will the Boomers Cause the Capital
Markets to Crash?
By: Victoria Chau
hat is the market
m e l t d o w n
hypothesis?
Simply put, it’s
the fear that
upon retiring, the millions of baby
boomers worldwide will sell off
their risky assets (stocks) for safer
assets, driving the prices of equities
down until the market crashes.
Concern for this is rising, as over
the previous year the large baby
boomer cohort that is scattered
throughout the developed world
began to retire. Should we be afraid?
36 ArbitrageMagazine.ca Summer 2010
To understand the reason for
the fear, or to rationalize it away,
we must look at the foundations
behind this hypothesis and why
it may or may not hold true. Let’s
begin with the birth of all the
baby boomers, as that’s where
we can start to develop a sound
background as to the impact of
baby boomers on the past and our
looming future.
The Snake and the Rabbit
Between 1946 and 1964, the world
saw the birth of the boomers,
a generation characterized by
unusually high number of births.
This generation is also known as
the rabbit that was swallowed
by the snake, as the bulge that is
created by the rabbit in the snake’s
body is likened to the peaks that
the baby boomers created in the
demographic curve.
Some argue that correlations
can be drawn between the financial
markets and the stages in life that
the baby boomers go through.
Let’s begin in the mid-1940s
when the baby boomers were
born. During this time up until the
mid-1960s, the financial markets
were boosted by the parents of
baby boomers investing for their
children’s education. Come 1965
to 1980, baby boomers married
and prepared for their own families
by investing in housing rather than
financial assets, causing housing
prices to rise and stock prices to
drop.
In the 1980s, when the baby
boomers entered their late 30s
and early 40s, investment for their
own retirement and their children’s
education became a priority.
Some believe that this investment
is the cause of the rise in stock
prices during the 80s and 90s in
the developed countries and the
lowering of housing prices.
So the big question is what
happens to the stock market when
the baby boomers begin to retire
in 2010? The major fear is that the
market meltdown hypothesis will
come true. The market meltdown
hypothesis predicts a fall in stock
prices as retired baby boomers
withdraw their money from risky
financial assets to transfer to safer
financial instruments such as
bonds.
If baby boomers retire and
sell off their assets, this will drive
down stock prices causing a fall
in the markets worldwide. The
basis of this argument is that
December 2010 ArbitrageMagazine.ca
the baby boomer generation
represents a large cohort with
their retirement savings tied up
in the financial markets. When
they try to sell all their assets to
prepare for retirement, they will
be selling to a younger and much
smaller cohort who will simply
not have the demand to meet
the supply. Economics 101 tells
us that when supply is greater
than demand, prices must fall.
And thus, a market meltdown
ensues.
37

“If baby boomers retire and
sell off their assets, this will
drive down stock prices,
causing a fall in the markets
worldwide.”
“It is possible that the once
desirable Freedom 55 will
have to become Freedom
75, 85 or even possibly 95
for those who just cannot
afford to retire?
38 ArbitrageMagazine.ca December 2010
Getting the Rabbit Down
As baby boomers go through
their personal life cycles, they
also embark on an investment life
cycle. This is akin to the rabbit
slowly moving through the snake’s
body until it is fully digested. An
investment life cycle characterizes
the type of behaviour a person
engages in depending on where
they are in the cycle.
As any Introduction to Finance
course will tell you, a typical person
begins investing in their 20s and
30s. At this age, the investment
is not in the financial market but
the housing market. It is a time
when people are typically getting
married and building families,
requiring most of their income to
go towards a place to live.
Once an investor ages and
begins to realize that there are
a limited amount of paydays
remaining, investing for retirement
becomes much more important.
This is, of course, among other
investments such as savings for
a child’s education. The closer an
investor comes to retirement, the
higher their level of risk aversion
becomes.
The objective of this investment
life cycle is to create a smooth
road on which to have a consistent
standard of living even when
retirement occurs. Thus, it would
make sense that as a person gets
older they want to ensure the safety
of their standard of living and will
consequently switch to invest in
assets that are less risky.
The disparity between the high
demand and low supply of the
safe asset—we’ll use bonds as
an example here—pushes the
price of a bond higher, leaving the
overall return on the bond lower
than previous years. This process
causes the savings of retiring baby
boomers to settle at a lower level
than their parents’ savings, which
will cause a whole other set of
problems that deal with retirees in
need of financial assistance. impact on the stock market and the
Robin Brooks’ report conducted
in the year 2000 on “What Will
Happen to Financial Markets
When the Baby Boomers Retire?”
finds that the age distribution of a
population has a very real impact
on asset returns. Brooks’ study
discovers that this correlation
between age distribution and
asset returns is inherent in the
investment life cycle. As a large
portion of the population ages,
their demand for safer assets
consequently decreases demand
for equities, subsequently driving
the overall stock market down with
stock prices.
How Much Damage Can A
Rabbit Really Do?
The whole idea behind the market
meltdown hypothesis is that a large
portion of the population born
at the same time can affect the
stock market due to their lifecycle
choices. By examining what has
happened in the past, we can hope
to apply our findings to the future.
The 1980s and 1990s saw an
increase in stock prices and the
stock market in general did quite
well. In 1997, a study conducted
by Robin Brooks concluded that a
“large working-age cohort raises
stock and bond prices.”
More recently, in 2000 and
2001, Andrew Abel examined the
effect of a baby boom generation
on the price of financial assets.
The results were that a generation
with an irregularly high number of
births would “indeed lead to a run-
up in asset prices and that there
will be a corresponding reduction
in prices when an especially large
cohort retires.”
Many scholars agree that the
baby boomer generation does
seem to have an impact on the
financial markets. However,
whether or not this impact will lead
to a sudden meltdown in the stock
markets with the retiring of the
baby boomers is another matter
entirely.
Abel actually concludes that the
asset prices does not necessarily
indicate an asset meltdown. Abel’s
model points towards a decline in
stock prices—as believers in the
meltdown hypothesis fear—but
concludes that the magnitude of
the decline would be much too
minimal to be termed a ‘meltdown.’
William Shambora’s 2006
study on the effects of a quickly
aging population agrees that some
of the momentum of the S&P 500
during the last two decades can
be attributed to the increased
participation of baby boomers
saving for retirement. Shambora
believes that it is possible that the
opposite will happen when the
baby boomer cohort begins to
retire, causing downward pressure
on the stock market by driving
stock prices down.
At the very least, “if a large
number of boomers leave the
workforce …the growth rate of the
stock market will be slowed.”
Digesting the Rabbit
Many academics believe that
the effects of the baby boomer
generation on the stock market
in particular have never been
conclusively determined.
James Poterba’s 2001
examination of “Demographic
Structure and Asset Returns”
challenges the market meltdown
hypothesis by bringing in bequest
motives. Poterba believes that it
doesn’t take into consideration
the future generations that baby
boomers will want to leave a
legacy for. He argues that although
investors accumulate assets
quickly when they are working,
once retired, they will “de-
cumulate” (sell their assets off)
much more slowly.
This contradicts the meltdown
hypothesis, as its foundation is the
assumption that baby boomers
will sell off all their assets quickly
once they hit retirement age.
Nevertheless, he does concur
that the baby boomers played
a role in the rising stock prices
during the 1980s and 1990s.
Economics Professor Fred
Lazar at the Schulich School of
Business is sceptical of the market
meltdown hypothesis. He believes
that for it to have merit there needs
to be concrete evidence that
the baby boomers have already
affected our stock market in the
past. Looking at the 1980s and
1990s, which other academics
have also examined, Professor
Lazar explains that there is no real
connection between the prosperity
of the stock market of this time and
baby boomers investing to save for
their retirement.
The main focus behind
Professor Lazar’s disbelief in the
market meltdown hypothesis is
the personal savings rates of baby
boomers during this time. The
personal savings rate is the portion
of disposable income—income
after taxes—that is put towards
savings. Throughout the 1980s
and 1990s, developed countries
worldwide saw declining savings
rates. Data regarding the personal
savings rates during these periods
from the Organization for Economic
Cooperation and Development
(OECD) support Professor Lazar’s
observation.
It is this declining personal
savings rate that leads Professor
Lazar to conclude that the baby
boomers weren’t significantly
responsible for raising equity
prices. A “personal savings rate
that…throughout this period
tended not to increase, and over
the past 15 years tended to decline”
would not have been responsible
for an upward pressure in the
equity markets during the 1980s
and 1990s period, since this was
the source of their investments.
Their frugality may have been
affected by poor saving strategies
or the mentality that because
“employers are taking care of
me I don’t have to save,” but the
connection between that and
rising equity prices, according
to him, is simply not there.
December 2010 ArbitrageMagazine.ca
Canada and the Rabbit
It is important to realize that,
although Canada has a large baby
boomer generation, their retirement
will affect different areas in varying
ways. We can expect that if baby
boomers are retiring and are
looking to sell off assets—not
necessarily all, and not necessarily
all at one time—there will be some
repercussions in certain markets.
Retirees looking to downsize
by selling their current houses
will be affected differently based
on location. Those selling houses
in urban locations such as the
major Canadian cities of Toronto,
Vancouver, Montreal and Calgary
will be able to reap the benefits of
stable or increasing housing prices,
since large immigrant populations
coming to these cities continue to
place upward pressure on housing
prices in general. Anything outside
of these areas may see a decline
in housing prices to some degree
as the demand won’t be enough to
meet the potential supply.
This type of location impediment
does not apply to the stock market.
Retiring baby boomers looking
to sell off some stocks will be
able to sell to anyone in Canada
and the rest of the world, no
matter the location. They wouldn’t
be encumbered by a specific
demand group, and although the
developing world may not be able
to step up to cover the decreasing
demand 100%, they should be
able to negate the possibility of a
full-blown market meltdown.
The Rabbit and Capital
Mobility
An additional worry that arises from
the market meltdown hypothesis is
that baby boomers are looking to
sell off all their capital, which will
drain the capital markets and in
turn affect a company’s ability to
raise capital for new opportunities
such as research, development
and expansion. What academics
are predicting will happen is a
shift in where equity is raised.
39
 Typically, capital is raised in
the developed nations—North
America, Western Europe,
Australia, etc.—and used to fund
any R&D or expansion endeavours.
What we can expect to occur in the
next decade, if capital markets in
the developed world are affected
by baby boomers retirement
dragging down equity markets, is
for companies to go elsewhere in
the world.
Professor Lazar is quick to
point out that we’re living in a
world where there really are no
real boundaries for cash flow. If a
Canadian company can’t find the
funds it needs to increase profits
in Canada because of a depressed
equity market, the lower prices
will be enticing for investors in the
developing nation, primarily Asia
and South America.
Whether or not this shift is
so fundamental that companies
will begin to relocate their head
offices and operations to these
countries remains to be seen, but
the fact remains: “there’s mobility
in getting capital.” As such, a
depressed equities market does
not necessarily indicate a downturn
in economic growth.
The Rabbit and Our Future
So even if the meltdown hypothesis
doesn’t come to fruition, what do
we need to know about the baby
boomer generation and its effects
on the rest of the population?
The most popular topic is usually
the labour market. People who
are going to school and have
graduated or will be graduating
soon are worried about the job
opportunities available for them.
Of course, we’ve already had
problems in the last couple of
years due to the whole sub-prime
debacle, but it is possible that
we are in for more trouble down
the road. This is another issue
that Professor Lazar expresses
concern over. He is worried that
with the level of saving decreasing
during the last few decades—as
indicated with the personal savings
40 ArbitrageMagazine.ca December 2010
rate—potential retirees simply will
not have saved enough.
Professor Lazar believes that to
encourage savings during this time
the Canadian government had to
practically bribe baby boomers—
and their employers—to save by
providing tax incentives. On top of
that, there is likely a large portion
of the population who not only
did not save for themselves but
also did not work for companies
that provided large pension
contributions, if any at all.
If this is true, this means that
Canada—and likely the rest of
the developed world with large
baby boomer cohorts—will see a
population that is aging while also
falling below the poverty line. One
way potential retirees will avoid
this is by not retiring for a few more
years. It is possible that the once
desirable Freedom 55 will have to
become Freedom 75, 85 or even
possibly 95 for those who just
cannot afford to retire?
“The whole idea behind
the market meltdown
hypothesis is that a large
portion of the population
born at the same time can
affect the stock market due
to their lifecycle choices.”
With a large population that
is older and also still working,
younger Canadians looking for
positions after finishing school
will be hard-pressed to find the
supposedly ample opportunities
that would open up as baby
boomers retired. After all, there is
no longer a mandatory retirement
age. Professor Lazar stresses
that “in terms of workforce, the
retirement age is becoming less
and less of a factor.”
For those about to begin job
hunting during the next few years,
we can only begin to hope that
the baby boomers actually did
save enough for them to retire so
that jobs will open up for the next
cohort of new employees. This
does, however, assuage some
of the fears that with a smaller
workforce the economy will
become stagnant.
Goodbye Rabbit
So should we feel threatened by
the looming retirement of this large
baby boomer cohort? Even with
the disagreements of academics
over whether or not the baby
boomers pushed up equity prices
in the 1980s and 1990s, there is
consistency in the belief that we
shouldn’t be overly concerned.
The general consensus appears
to be that any depression in equity
prices will be too minimal to be
considered a market meltdown, and
furthermore would be staunched
by a shift in capital lending from
the developed to the developing
world to increase the demand for
financial assets being sold.
For the governments out there
seeking policy changes needed
to deal with the retirement of baby
boomers, the main focus at this
point will probably be on healthcare
and social security. Of course,
this also means that a shift in the
country’s allocation of resources
will occur to accommodate such
an increasingly older population—
but to what degree remains to be
seen.
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ENTREPRENEURSHIP
The Arbitrage Magazine is a big believer in entrepreneurship, for the benefits it provides
society and for the individuals who risk everything to pursue this line of work. This edition
of the Arbitrage hopes to support budding entrepreneurs in their quest to take on the
world with their next great venture!

IN THIS SECTION… Click to learn more & join us!

44  BUILDING YOUR BUSINESS 47  INCORPORATING YOUR BUSINESS

Entrepreneurship
By: David Alexander
BUILDING YOUR BUSINESS
The Tips You Need To Succeed
hrough founding the
Arbitrage Magazine
and networking with
a variety of young
entrepreneurs, it’s safe
to say I’ve learned a few good
lessons about how to start and run
a business. In this article, I hope
to share a bit of what I’ve learned
so far.
I will try to avoid suggesting
obvious recommendations, like
how writing a detailed business
plan before you start your business
is probably a good idea. (Note: I
have yet to do so for the Arbitrage
Magazine … ahem).
But I will occasionally rehash
featured tidbits of advise other
“start your own business” articles
mention, like how you should base
your business around a product
or service that is either unique
or needed. (Note: these articles
mention this tip because if your
product or service isn’t needed or
unique, then it will simply cost more
time, money and effort to promote
and protect your company’s market
share. This will immediately put
you at a competitive disadvantage
by saddling upon your company
a kind of “competitive overhead
cost”.)
So without further pause, let’s
begin:
44 ArbitrageMagazine.ca December 2010
Use the government.
Make use of the government
resources available to you. As
much as some in the business
world find it hard to believe,
governments (at least in most
advanced economies) fall over
each other trying to help small
businesses grow. They do this
because small businesses are the
biggest drivers of well paying job
growth, i.e. the more governments
support small business, the more
they help grow the economy. So
take the time to search for those
municipal, province/state and
federal programs and services
available to your particular business
and make the most of them.
One bad hire can lead
to a variety of damaging
consequences for your
company (trust me here)
and will only make your job
harder, not easier.
If you live in Ontario, Canada,
in particular, your business will
enjoy single access channels to a
variety of government services. As
part of the OpenOntario initiative,
these channels include a single
1-888 Business Info Line covering
over 160 existing business support
numbers; a Single Business
Account Number making it easier
for businesses to manage multiple
government interactions; and a
single online web portal—ONe-
Source for Business—that provides
customized access to government
information and services.
ServiceOntario is also saving
businesses time through Bizpal,
a single access channel (covering
77% of Ontario’s population) for
learning about and obtaining
needed permits and licences.
Choose your start-up
funding wisely.
Personally, I recommend saving
up a bit before starting out on your
business. It’s always best to fund
yourself as much as possible, for
as long as possible. The more
you begin to rely on loans from
outside sources, the more you
open yourself to future liabilities
and control issues down the line.
That said, for capital-intensive
businesses, this may not be
possible. And some would say
that it’s always wiser to risk other
people’s money (rather than your
own) when starting a business.
This is quite doable if you fund
yourself through venture capital or
other forms of unofficial funding.

There are pros and cons to
either choice. In the end, it
depends on the kind of business
you’re starting and the level of risk
you are comfortable taking on.
Surround yourself with
people you trust and give
them the freedom and
tools to do their jobs
well.
It is rare that you can run a
successful business on your own.
Eventually, there will come a time
when you need the support of
others. When this happens, be
sure to choose wisely individuals
who are willing to work with you
and not against you.
One bad hire can lead to a
variety of damaging consequences
for your company (trust me here)
and will only make your job harder,
not easier. Once you start finding
that you continually need to make
excuses or exceptions for an
individual’s poor performance,
that’s usually a sign this individual
needs to go.
On the flip side, once you have
a solid team working with you,
you must learn to trust them.
Micromanaging or keeping all the
important jobs to yourself does
nothing for moral and ensures that
your staff will not go the extra mile
to make the business a success.
Have a website.
Nowadays, if you’re serious about
growing your business, having a
website is essential.
It also need not cost very much.
You can purchase a domain name
(e.g. www.ArbitrageMagazine.
com) for less than $100 per year
(I recommend Go Daddy for this
service). If you wish to host your
own website, you can also do this
for less than $100 per year as well,
depending on the amount of traffic
you expect to get on your website
(for this, I recommend HostGator).
With a smartphone, you
can reply to emails while
walking to work, eating
dinner on a first date,
watching a horror movie,
etc.
As for the website itself, you
can hire a web designer to build
a website for your company. But
such custom websites will be
difficult and costly to maintain if
you don’t have dedicated staff
to man it. That said, nowadays
with CMS (Content Management
System) freely available on the
web, with a minimal amount of web
skills, you can create a custom,
appealing and easily updateable
December 2010 ArbitrageMagazine.ca
Entrepreneurship
By: Sushil Tailor
Flickr: Alex Campos
website on your own. Companies
like Wordpress, Joomla, Mambo,
Drupal and others offer ready-
made websites that you are free
to download and set up with your
own custom content.
In the end, a website does
cost some time and money;
but remember, it can also save
you money in the long run. One
example is the reduction in
customer service costs whenever
a customer finds the location,
price, or answer to a complaint, on
your website instead of having to
call and take up your staff’s time.
Social Media is your friend.
When trying to get the word out
about your business, you would be
a fool if you didn’t take advantage
of social media. Granted, if you’re
marketing directly to senior citizens,
online social media probably isn’t
the place where you will want to
spend most of your time. But for
most everyone else, marketing
through social media is now a
fundamental aspect of business in
today’s world.
Social media is a pervasive
force in the lives of youth (and
increasingly boomers). It is free.
And if you exploit its potential
in the right way, social media
can spread the word about your
company in a viral way, leading to
45
Entrepreneurship
By: David Alexander
business opportunities you would
have never imagined possible.
But which to choose? With so
many social media players out
there right now, the ones to focus
on are Facebook, Twitter and
Linkedin. These three have the
biggest footprint these days and
are all useful in their own unique
ways (FYI: the Arbitrage gets
between 40-50% of its web traffic
from these three social media
services alone).
Three tools that can simplify
the online management of your
business’ social media are
TweetAdder (which will effectively
automate the growth of your
twitter account), Onlywire (which
can allow you to update up to 40
social media outlets with one click)
and Hootsuite (which can help you
monitor and manage the various
social media accounts your
company is connected to).
Simplify, simplify, simplify.
Managing is hard. Don’t make it
harder by making your management
process mired in bureaucracy.
Learn to delegate tasks
effectively. Let go of those tasks
that others can do perfectly well on
your behalf. Give people ownership
over their tasks so that they take it
more seriously, e.g. you will work
harder on a job that only you are
responsible for rather than one
where you and ten other people
are responsible for. And be sure to
provide your staff with S.M.A.R.T.
goals to work toward, i.e. specific,
measurable, attainable, realistic
and timely goals.
Time is precious; don’t waste it.
As your business starts rolling,
you will slowly find that your life
seems to move faster than you’re
comfortable with. When this
happens, you’ll start to realize that
every second counts.
For example, when you start
drowning in emails, that’s the
46 ArbitrageMagazine.ca December 2010
time to invest in a smart phone
(I prefer my Blackberry). With
a smartphone, you can reply to
emails while walking to work, eating
dinner on a first date, watching a
horror movie, etc.
Face-to-face meetings are
usually a waste of time; with
phones, conference calls,
instant messaging, emails, text,
holograms, etc, there are plenty
of different ways to keep in touch
and keep things moving. Keep the
in-person meetings to sensitive
matters; otherwise, lavish your
face-to-face time to with those
people who really count: your
customers.
Managing is hard. Don’t
make it harder by making
your management process
mired in bureaucracy.
Be innovative in how you make
your product or service.
For those archetypal, DIY garage
inventors, you can now download
free design tools like Blender or
Google’s SketchUp to create 3D
renderings of their product, then
purchase online the manufacturing
equipment (which have fallen in
price from the hundred thousands
to a few thousand, e.g. MakerBot)
you would need to build your
products at home or in their rented
space.
Be innovative in how you deliver
your product or service.
Why invest millions of dollars
in owning manufacturing plants,
warehouses, shipping fleets, etc,
when one can organize online
the outsourcing of a product’s
complete production to foreign
countries like China (e.g. Alibaba.
com: business-to-business
marketplace), have it stored in a
nearby warehousing company,
accept payments for products
online (e.g. paypal.com), then
Flickr: gingerpig2000
deliver one’s products anywhere
in the world (e.g. government or
premium mail carriers)?
Network amongst your
target market.
Being an entrepreneur may seem
like a lonely profession. But it
doesn’t have to be. The more you
put yourself out there, the more
you will find like-minded individuals
willing to support you.
Also, as your company grows,
you will find it necessary to meet
with your target market directly.
If you are marketing your product
to students, visit universities and
be active with student clubs and
organizations. If you’re marketing
your service to fitness freaks, then
partner with fitness clubs, table at
fitness related conventions, etc.
Be a part of the ecosystem of your
target market and they may look at
you as a natural part of their daily
routine, enough to possibly buy
your product or service.
That concludes my humble rant
about how to make it in the world of
business. Note that these are but
a few considerations one needs
to note when starting a business.
There are many more. Whatever
your plans to take over the world,
just be sure to do your research
and keep my following quote in
the back of your head: if you work
hard, go after what you want and
are kind to others, good things will
happen

Incorporating Your
Business
Protesting the G20 Summit
Source: Iife123.com
he decision to open up a
business and become an
entrepreneur can be both
exciting and frightening.
On one side of the scale is the
possibility of great wealth, social
status and long term financial
security. The counter balance
is the possibility of financial
failure, indebtedness and even
bankruptcy.
For some people, the
experience of being an employee
is not the manner in which they
see themselves pursuing a career.
In the admirable choice to become
a business owner, a little pre-
business knowledge on how to
proceed legally could save you
from financial and legal problems
should that sought after success
be elusive.
The first step to be taken in
opening a business should be to
incorporate yourself. Establishing
a corporation is like creating an
alter ego or an avatar for your
benefit in the money world. This
separate legal person assumes all
the responsibilities of your financial
obligations to people with whom
you conduct business.
As director of the corporation,
you always control the joystick of
the decision to be taken in the day-
to-day operations of your business.
The advantage to incorporating is
that the company has a separate
patrimony from your own. It is able
to have a separate bank account,
and is required to file separate
tax returns. A corporation allows
you to conduct business without
exposing your own assets to
liability and potential loss.
When establishing your
corporation, if you are the sole
proprietor, then the corporate
structure is easily established.
You are the only shareholder and
sole director of the company. In
the event that you wish to have
partners in your business, they
would be issued shares that reflect
the value of their investment and/or
interest in the corporation.
It is always advisable to
establish a shareholder’s
agreement, which is a contract that
sets out the ground rules for how
the company is to operate. Such
issues as the responsibilities of
each shareholder in the business,
the manner in which profits are
distributed, and the method and
manner of ending the relationship
between the shareholders should
be addressed in the shareholder’s
agreement.
Establishing a corporation
is like creating an alter ego
or an avatar for your benefit
in the money world.
The shareholder’s agreement,
if thoroughly drafted, will avoid
disputes and potentially costly
litigation in the future. It is always
advisable to have a professional
assist you with the set-up of your
corporation.
The creation of a corporation
is different from registering a
business name. In the latter case,
you are personally conducting
business under a business name
and there is no protection against
personal liability. A business
name may be registered by the
corporation just as easily as you
December 2010 ArbitrageMagazine.ca
Entrepreneurship
By: Roger Vokey
Originally Published by Career Insider Finance
personally may register a business
name. The corporation may also
register trademarks, which are
a form of license to exclusively
use a series of words, images, or
designs.
A corporation will allow you to
operate in the business world more
easily than conducting business
in your personal name. The
application for a small business
loan is facilitated by the creation of
your corporation; the government
guarantees the loan and you
personally will only be liable for
25% of the loan in the event that
you default. This method of
operating allows for more risk and
experiment in the business world.
A corporation does not create an
avatar which then indiscriminately
allows you to act illegally and
immorally behind the screen of that
legal entity. All Canadian provinces
have provisions of law that allow
for the lifting of the corporate
veil, in the event that the actions
of the corporation reveal fraud,
misrepresentations, and bad faith.
The corporate veil is lifted
for such liability as deductions
at source, GST, PST or HST
remittance, and several months
of employees’ salary. Therefore,
a director may be held personally
responsible for the actions of the
corporation if these actions prove
to be illegal and/or immoral.
In conclusion, the adventure
of becoming a business owner
can change your life and give you
control of your career. However,
operating through a corporation is
highly recommended, and could
make the difference between
business success and failure
47
wholeworldis
the
A Social and Economic Analysis of the World’s Major Economies: Ja
g
he issues of life and death
are usually reported in the
media only when something JAPAN
extraordinary or bizarre PER 1000 PEOPLE
occurs. However, death and Japan birth rate: 7.54
birth, far from being just interest
Japan death rate: 9.5469
stories, represent the continuous
renewal and loss of life that subtly Fertility rate: 1.32 children
  per woman
shapes the face of our society. As
the collective human organism of a Population growth rate: –.191%
nation ages, the demographics of Population change by 2040: –15%
the country changes, potentially
Median age in 2010: 44.7
bringing about a new set of issues
to contend with. Median age in 2040: 54.7
These changes will be examined Birth rate: 222 out of 223
in the three largest economies Source: http://www.businessinsider.com/
in the world: Japan, China and
the United States. The potential
effect of a little salt and pepper
in their population mix will be
discussed as it relates to each
country’s international competitive
advantage.

48 ArbitrageMagazine.ca December 2010

graying
apan, China and the United States
The Good Life Redux
A blend of economic and social
effects has set Japan on a course
for population decline.Japan has
been suffering ever since the burst
of its economic bubble (from 1985
to 1990). The resultant downsizing
and necessary cost cutting
destroyed the warm notion of
lifelong employment and company
loyalty that used to exist.
With opportunities for
employment diminished and with
sustained employment a dashed
dream, today young people who
finally finish their long years of
education are presented with a
very bleak reality. Expectations
people might have had about
moving out of the ancestral home,
owning a home of their own,
finding a spouse and having a
successful career are adjusted to
By: Alfred Yim
accommodate the harshness of
reality.
The stagnant environment has
resulted in people giving up on
achieving the three pillars of a
‘good’ life: education, a career and
a family. Evidence of the first pillar
being disregarded is the large
number of youth who put little
importance on excellent academic
performance, which leads to non-
participation in post-graduate
studies.
The second pillar of a career is
forsaken in favor of taking up non-
stressful/dead-end part time jobs.
Current estimates of the voluntarily
under-employed number over
4 million.
Lastly, the third pillar of having
a family is given up in light of the
financial infeasibility of having
one and the fact that workplace
December 2010 ArbitrageMagazine.ca
Source: Flicker.com/Mio Cade
policies, in regards to prospective
mothers, are discouraging. In
short, depressed economic
conditions have in part dissuaded
couples from having children – the
Japanese government is actually
paying for people to have children.
Impact
What does population decline
mean for Japan’s economy and
competitiveness? Firstly we
must ask what IS Japan’s special
quality? The North American
automaker would say that it’s their
automobile industry. The Japanese
‘culture’ enthusiast might exclaim
that it’s obviously the Tamagachis
(yes, they are still being made) and
animated cartoons. The automaker
and the enthusiast are somewhat
on target, but they miss the
underlying cause.
49
 Japan’s advantage in the
international arena is due to its large
population and domestic market
as well as the high concentration
of companies in its industries. The
sizable domestic market allows
companies to test their products
before going international, thereby
saving costs. It also lowers unit
costs as companies can adhere
to the ‘bigger is better’ mantra
and have economies of scale.
Finally, the high concentration
in industries also encourages
competition through research and
development, which drives up
innovation.
Industries that have traditionally
crutched on the domestic market,
such as home electronics, will
face hardship as the population
dwindles. Though it is difficult
to predict the implications for
consumers, Japan’s place as an
innovator in the realm of electronics
could slip.
If a solution to Japan’s
population decline isn’t found, it is
expected that the labour force will
drop one third from 67 million to
42 million by 2050. In turn, Japan’s
large population, which is the
source of the country’s competitive
advantage, will be jeopardized.
Another problem of the
demographic shift is that there will
be more older individuals about
than younger ones. This lopsided
ratio would cause difficulties in
funding medical insurance and
pension systems.
So what’s the bright side of
population decline? Japan has the
smallest per capita land mass of
all G-7 nations and it is bestowed
with very few natural resources.
Therefore, a population decline
in light of these two facts would
prove beneficial with fewer people
fighting over the same resources
and assets. Energy consumption,
for instance, would decline.
The reduced demand due to
a population decline would also
lower costs of such resources and
would even lead to lower property
prices, which would be particularly
welcome in places like Tokyo.
Also, with the birth and death rates
as they are, there will be fewer
younger people, meaning there
would be less spending needed
on schools, public buildings and
infrastructure. This could all mean
lower taxes.
However, the current-day
situation is not looking so good.
Japan’s GDP per capita has
decreased in conjunction with
the shrinkage of the working age
population. Paul Krugman cites
that Japanese GDP per capita fell
from 88% of US GDP per capita
to 76%. Working-age adults as
a percentage of population have
decreased from 69.7% to 64%
from 1992 to 2007.
China began in its single
child policy in 1979, as a result
of the government’s desire
to curb problems related to
overpopulation. Because of this
policy, China’s population is
estimated to be about 400 million
less than what it would have been
otherwise.
That single child policy may
come back to bite China’s
politicians. Single children are
now faced with the prospect of
supporting two parents and up
to four grandparents. As soon as
2020, the working age population
will peak, and in 2050 the over-
60 population of China will be
larger than the entire population of
America.

CHINA
PER 1000 PEOPLE
Birth rate: 14
Death rate: 7.06
Fertility rate: 1.54 children per woman
Population growth rate: .655%
Population change by 2040: +7.5%
Median age in 2010: 34.2
Median age in 2040: 44.1
Birth rate: 151 out of 223
Source: http://www.businessinsider.com/

50 ArbitrageMagazine.ca December 2010


Deeper than Cheap
China’s competitive advantage
has always been its ample supply
of relatively cheap labour, which
has fueled its explosive economic
growth. However, that advantage
is fleeting because of two reasons.
First, China’s working-age
population is quickly approaching
its peak. Second, the government
is implementing policy to rebalance
the economy through increasing
wages and the consumption factor
of its GDP.
With recent events like the
Foxconn suicides (at Apple Inc.’s
Chinese manufacturing plant)
undergoing media scrutiny, wages
as well as working conditions are
being given a necessary facelift.
Governments and companies are
also under more pressure from
Chinese workers (particularly the
exploited migratory workers) who
are taking part in very large and
frequent protests (upwards of
300,000 protests in 2005 alone).
Places like Guangdong, for
instance, have seen pay increases
of 24 to 32% since a massive
Honda strike was held.
UNITED STATES OF AMERICA
PER 1000 PEOPLE
Population change by 2040: +22%
Median age in 2010: 36.6
Median age in 2040: 40.8
Birth rate: 154 out of 223
13.83 births/1,000 population (2010 est.)
8.38 deaths/1,000 population (July 2010 est.)
2.06 children born/woman (2010 est.)
.977% population growth
Source: http://www.businessinsider.com/
Professor Li says the separating
…China cannot sustain factor is that China has a
its competitive advantage combination of skillful labour,
of cheap labour for much infrastructure, communication
systems and banking systems.
longer.
Therefore, larger and more
sophisticated companies (e.g.
In short, China cannot sustain
technology companies) that
its competitive advantage of
rely on these systems and need
cheap labour for much longer.
skilled workers will likely continue
Furthermore, this does not even
their operations in China. Smaller
consider the population decline
companies and those in less
that will begin in 2035, resulting
sophisticated industries such as
in massive changes to the labour
textiles will find it easier and more
market.
cost-effective to move away.
Despite the negative connotation
China’s other advantage over
of rising wages to businesses, Lee
countries like Bangladesh is in
Li, associate professor of marketing
“cluster-related” factors. Cluster-
at York University, argues that
related samples, Li says, are
China will continue to maintain a
simply the surrounding businesses
competitive advantage. Simply
and members of a geographical
speaking, “It’s not just about
cluster which accrue benefits to a
cost,” and that China’s advantage
business. For example, a nearby
is deeper than most people think.
adhesive-making factory would be
The notion that Chinese firms are
very beneficial to a business that
content with worker exploitation as
uses the adhesive to create end
their bread and butter strategy is a
products.
gross simplification.
On the issue of pensions,
Why is it that low-cost locations
China’s health insurance coverage
like Vietnam and Bangladesh have
for all but the affluent is particularly
not achieved a similar industrial
worrying. We as Canadians take
cost advantage as China?
for granted the fallback that the
government provides us when we
are ill.
December 2010 ArbitrageMagazine.ca 51
 In China, millions of retired
persons have only their single
offspring as their source of post-
retirement income. In the rural
areas where over 60% of China’s
population resides, more than half
of the elderly do not enjoy medical
insurance and only 4.8% receive
pensions.
The phenomenon of aging in
America requires a mention of
the post-war “baby boom”. After
WWII, males coming back from the
war started families in earnest. In
particular, the United States had
approximately 79 million babies
born between 1946-1964. Now,
because of this wave of post-war
births, the number of grizzled
people (age 65 and over) will
double over the next 30 years,
from 40 million to 80 million. The Source: Meara, White, and Cutler, 2004, Exhibit 4. http://www.rand.org/
percentage of older people in the
population will increase from 13%
to 20%. In fact, by 2011, all 79 their healthcare needs and food/ says Kimakova. “Even in unionized
million baby boomers will be over utilities. environments, employers’ liabilities
65 years of age. Social security is also in a fragile towards pension funds often get
state. With 35% of Americans less consideration in negotiations
A Booming Headache over 65 relying on social security than maintaining employment
The three major effects of aging as nearly 100% of their income, levels or avoiding shutdowns and
in the United States would be the and the fact that the system pays moving operations overseas.”
issue of paying the 79 million or so out more benefits than it receives Therefore, Professor Kimakova
baby boomers their pensions, the in taxes, the political and social states, entitlements for younger
effect of the older population on landscape is set to explode. contributors to the system will
the savings rate (and subsequently How to deal with social likely drop and/or change, which
the economy) and the strain on the security is certainly a headache would be the most viable political
government because of healthcare for politicians. For instance, if alternative as it allows for the
issues of the elderly. the government just decides to “time-distancing” of the unpopular
print the money they need to deal measure. Things just seem more
with the shortfall of cash inflows, acceptable if the pain is deferred.
Simply put, the unprepared it would likely be too politically She goes on to say that a gradual
will find themselves making dangerous to consider as a viable increase in the full retirement age
the grim choice between solution. has already been implemented.
their healthcare needs and Also, with US unemployment “Those who were born in 1960
food/utilities. still high and around 46% of or later face a full retirement age
Americans disapproving of of 67, compared to those born
For instance, a study has the Democrats’ efforts, Alena between 1943 and 1945 having
found that America’s 100 largest Kimakova, Associate Professor of 66 years as the normal retirement
corporate pension plans were Economics and Public Policy at age, for example.”
underfunded by $217 billion at the York University, comments that the Furthermore, Kimakova
end of 2008. This is a huge problem US pension system has problems suggests that the US social
when about half of US workers both on the public and private side. security system could stand to
have less than $2000 saved up “Private pension funds suffer be more progressive, because
for retirement. Simply put, the from risks associated with market as of now, even the well-off are
unprepared will find themselves downturns, employers going out entitled to payouts due to the fact
making the grim choice between of business or reneging on their that the system only uses age as a
pension contribution obligations,” benchmark.

52 ArbitrageMagazine.ca December 2010

 On the issue of the savings rate
and its effect, Kimakova says,
“Traditionally speaking, American
households have had very low
savings rates and this is in part due
to the developed financial markets
in the US, which gives better
access to loans for individuals,
who then use these loans for
consumption purposes.”
There are economic benefits
to accessible loans, one of which
includes the countering of wealth
inequality and boosting economic
activity and the GDP. However,
the low interest rate environment
(due to high productivity, well-
developed financial markets, stable
institutional environment, etc.)
might be changing in light of the
large public deficit and prolonged
downturn of the economy.
Consequently, the effect of
economic growth in the short to
medium term is likely to be negative
because domestic consumer
spending has been the main driver
of the US economy. However, the
long term effect will be a beneficial
one, as people will be saving more
and living within their means.
As for the healthcare strain due
to aging, the federal government
will certainly feel the impact as
Medicare pays for 56% of the
elderly’s healthcare bills. In fact,
public coverage of the elderly
(Medicaid and Medicare) is 60%
of healthcare spending for the 65+,
while private insurance accounts
are only 14%.
A silver lining, if any, would be
the fact that the elderly spend
upwards of four times the amount
on healthcare as those under 65.
This involuntary preference of
the elderly to “consume” health
services would likely facilitate a
boom in the health industry—and
there is evidence of companies
already positioning themselves for
the windfall.
Conclusion
In the case of Japan and
US, they stand to lose their
competitive advantages of a large
domestic market and consumption
respectively due to population
aging. In the case of Japan,
its strong cultural stance has
resulted in an extremely closed
immigration policy. This simply
piles onto the negative growth, as
its own citizens, for many reasons
such as pessimistic economic
expectations, either do not want to
have children or cannot.
In regards to the US, low interest
rates due to various advantages
such as having the reserve
currency of the world set as US
dollars, have made it easy to take
on more loans and thus marginale
the idea of saving.
With lending at an all-time low
and the fact that people over 65
tend to spend less, economic
growth, as said before by Professor
Kimakova, is definitely going
to suffer in the next ten years.
Meanwhile, China’s competitive
advantage will likely remain due to
…as the world quietly
infrastructure and institutions, but grows older, these trends
its main problem of pensions will will become apparent
likely become a major issue. pretty quickly as they will
Despite these major issues have a lasting impact on
and trends, it is surprising how every corner of the globe.
demographic changes are rarely
ever noticed. However, as the
world quietly grows older, these
trends will become apparent pretty
quickly as they will have a lasting
impact on every corner of the
globe.
Source: Flicker.com/Mio Cade
December 2010 ArbitrageMagazine.ca 53
Source: www.harvestdavenport.org
PERSPECTIVES
Ideas are meant to change the world. Opinions, and sharing them, are how ideas spread
to achieve that destiny.

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

IN THIS SECTION… Click to learn more & join us!

56  CANADA’S FISCAL SPENDING OUT 57  PLAYING A RIGGED GAME

OF CONTROL
Perspectives
By: Pawan Shamdasani
Canada’s Fiscal Spending
Out of Control
Conservatives’ Fiscal Reputation Under Siege
he Conservative
government announced
plans in July 2010 to
purchase 65 new F-35
Lighting II jet fighters for
$9 billion from Lockheed-Martin, a
US-based manufacturer, to replace
its stock of 80 CF-18 Hornet
planes.
The deal, including maintenance
of the planes, will cost taxpayers
over $16 billion until 2016. However,
the acquisition of these jets is
under huge debate as Canada is
currently suffering from one of its
largest federal deficits in history.
The Liberal party has been
unsupportive towards the deal
from the start and questions its
lack of transparency. Yet the
biggest argument is that one
of Canada’s largest military
deals will be executed without a
single competing bid. This has
resulted in furious protests by
rival manufacturers. Meanwhile,
the Conservatives insist that the
F-35 satisfies the operational
requirements of the Canadian
Forces and continue to support
their case that the planes will
protect Canada's arctic sovereignty
in the near future.
So is this purchase of F-35’s
justifiable?
According to Liberal leader,
Michael Ignatieff, the Harper
government has dampened their
own fiscal credibility due to fiscal
incompetence and money wasted
on “unnecessary” expenditures.
This includes plans to spend
$16 billion for “fifth-generation”
stealth fighter jets and another $9
billion for new jails. In other words,
Ignatieff believes that Prime
56 ArbitrageMagazine.ca December 2010
Minister Stephen Harper has all his
economic priorities mixed up. In
my view, this is a completely valid
statement, considering we are in
a lengthy recovery path from the
2008 financial crisis.
“We are not convinced we
need this number of planes, and
we are not convinced that, at the
moment of a $54-billion deficit,
this is the priority for the Canadian
economy,” said Ignatieff at a news
conference in Cape Breton. He
suggested that we should focus
on issues of economic security
such as pensions, the public
health system, child care and post-
secondary education, because
this is what Canadians value most
and want from their government.
At a critical time like this, what is
more important is that Canadians
have a sense of economic security
and financial well-being.
“We are not convinced we
need this number of planes,
and we are not convinced
that, at the moment of a
$54-billion deficit, this is the
priority for the Canadian
economy.”
By the next decade, Harper
insinuates that the military will
need these planes and that they
will be of huge benefit to the
Canadian aerospace sector. But
the government has not been clear
regarding what purpose these new
jets might serve to the country.
They did imply that the main
rationale for acquiring these planes
would be to defend Canadian and
Source: chicagonow.com
North American airspace. But
what does this mean? This has
left critics to argue that the use of
these aircrafts would have been
more plausible during the Cold
War against the Soviets.
Terminating the deal will also be
detrimental towards the Canadian
economy and affect the country’s
relationship with their allies –
the US, Britain and Australia.
Blowing up the plan would only
lead to drastic implications for
Canadian defense contractors
who have earned $375 million
worth of contracts on the jets. It
will especially anger allied nations
such as the United States who
have signed existing agreements
since 1997.
It was in 2002 that the previous
Liberal government signed a
memorandum of understanding,
committing Canada to developing
F-35 aircrafts but not to buying
them. In my opinion, the Harper
government should not purchase
F-35 jets when they are at a $54
billion deficit. The health of our
economy must be given top
priority, and this deal will only
further burden the deficit. Perhaps,
once the economy has reached
recovery and the government has
reduced their debts, these jets
could be considered.
The deal will be examined in the
following months by the House
of Commons defense committee
and by the Liberal party, who
have described the contract as
secretive and unaccountable.
Hopefully, the decisions made
by the conservative government
will serve to our advantage in the
following years

Illustration by: Laura Gonsalves
ho makes
more money at
the casino: the
gamblers or
the house?
Any competent casino will
only allow games where it has
a mathematical advantage. The
same could be said for the major
players in financial markets, also
known as the “market makers.”
After all, if you’re pushing around
billions of dollars, how can you not
have a say in which way the market
goes?
The idea that regular investors
have a significantly lower
success rate in trading than their
institutional counterparts shouldn’t
be outlandish, but just how wide is
this fairness gap? In the case of
four American banks, JP Morgan
Chase, Morgan Stanley, Goldman
Sachs and Bank of America,
each have beat the market 63
consecutive days in the first
quarter of 2010. In fact, on 35 of
those days the banks had winnings
in excess of 100 million.
On the flipside, some regular
investors pretend that they have a
50 percent chance of seeing their
stocks rise or decrease in value.
By this definition, the probability
of achieving the same results as
the banks is about the same as
the probability of getting away with
murder in the American justice
system 63 times—it’s just not likely
to happen.
If we take this a step further,
and assume that these traders at
the big banks have a 90% success
rate, the chance of doing so for 63
days in a row is only 0.13%. The
Playing A Rigged game
Who Really Wins in the Financial Markets?
fact that the banks have made so
much money that alternative cigar
rolling methods can be explored
makes explaining everything away
with dumb luck improbable.
One explanation of how the
banks are able to do this is that
they were allowed to borrow at
nearly 0% interest and lend that
same money out at 3% back to the
government. This highly exploitable
situation is allowed for policy
reasons, in that this easy money
is an earnest effort by the Federal
Reserve to prevent deflation and a
depression, and bring confidence
back in markets. This free flowing
money is also used by banks to
trade in futures and other markets.
Low interest rates for banks
aside, traders at these banks have
the ability to buy large enough
volumes of stock and assets to
affect prices. They can literally
materialize their own prosperity
and chuckle eerily to themselves
on the weekend with a Diamond
martini in hand. That is what
happened with the bailout money
that came to the hands of banks
like Goldman Sachs.
"They can literally
materialize their own
prosperity and chuckle
eerily to themselves on the
weekend with a Diamond
martini in hand."
For instance, the Troubled
Asset Relief Program money was
used by banks to buy up worthless
intangible financial assets,
particularly those that depended
December 2010 ArbitrageMagazine.ca
Perspectives
Trends
By: Alfred Yim
on the ability of people without
income to repay loans.
Because of their ability to buy
enough of any asset, worthless
or not, prices of these worthless
assets rose. This allowed profits to
be made on things that should be
avoided entirely on fundamental
reasons.
You, the everyday investor,
even after watching many hours
of videos describing the financial
crisis, would be compelled to join
in on the rising price action despite
your subconscious screaming
epithets at you not to.
In addition, traders at big banks
also have the ability to make use of
information that regular investors
don’t have at their disposal. This is
through a practice known as front-
running. For example, front-running
is essentially what happens when a
trader hears about a big purchase
about to be placed by a customer.
He then uses this information to
trade on behalf of the bank before
the unfortunate customer, thus
enjoying an easy ride up as the
customer’s order drives up prices.
Although this is unethical and
illegal, it can still happen.
When the market makers rig the
game and dictate price changes,
the free market becomes not so
free anymore. If you’re considering
investing money on your own,
perhaps it’s time you reconsider it
57
 o the dismay of some and the
joy of others, we all inevitably
age as we move through
the many phases of life: we
graduate, we find our first
job, then our second and third, and
eventually we retire.
But this year marks a significant
phase that has the potential to af-
fect us all as the baby boomers of
Canada and the rest of the devel-
oped world begin to retire. Indeed,
projections by Statistics Canada
predict an increasingly older popu-
lation, with a median age just less
than 40 years old for 2010. So what
will an aging population for Cana-
da entail for everybody else?
With a large portion of
Canada’s population on the cusp
of retirement, our labour market is
about to drastically change. One
of the popular solutions to mitigate
58 ArbitrageMagazine.ca December 2010
the problems that come with an
aging population is to bring in
newcomers from other countries.
Immigrants are expected to help
alleviate not only the worker
shortage but help boost the
fertility rate and contribute to the
tax revenues needed to support a
large aging baby boomer cohort.
More than Just Over
the Hill
The saying goes that once you hit
40 you’ve gone over the hill; so
what do we call our baby boomer
cohort as they approach the
bottom of the hill and move into
retirement? The effects that a huge
number of baby boomers about to
retire in Canada will have on the
economy are worrying everyone.
Statistics Canada projects that
just 16 years down the road, by
2026, the number of seniors will
nearly double from 4.3 million to 8
million, bringing their share of the
population up 8% to 21.2%.
Once (the boomers) begin
to retire, Canada’s tax
revenue base is going to
shrink rapidly.
It’s not just that Canada has a
huge body of workers at the age
of retirement, it’s also that once
they have retired, the baby boomer
generation is expected to live lon-
ger than their parents before them,
due to an increased life expec-
tancy. Instead of retiring at 65 and
then living another good 10 or 15
years, baby boomers can expect
to see past their 85th birthdays,
causing a strain on the government
What to Do Now that Canada’s Getting Older
that has to support them despite a
shrinking tax base.
When the baby boomers en-
tered the workforce between the
1960s and the 1980s, this era was
characterized by economic growth
and prosperity. The sheer size of
the numbers entering the work-
force during this period boosted
the Canadian economy through
their wages and tax contributions.
The governments during this time
were able to use these funds to
establish social securities such as
health care, public pensions and
lower post-secondary education
costs.
However, once they begin to re-
tire, Canada’s tax revenue base is
going to shrink rapidly. Boomers
who were once responsible for the
main core of tax contributions will
not be earning much money and as
such will contribute less in the form
of taxes. This shift in tax revenues
will result in a cash-strapped gov-
ernment that is already losing an
estimated $20 billion in taxes.
To combat this reduction in
tax revenues, the simple and
logical solution is for the Canadian
government to come up with a way
to collect more taxes. Collecting
more taxes doesn’t necessarily
mean increasing the tax rates—
the government can offset the
projected decrease in taxes if there
is a stable or increasing amount of
earnings from the workforce. One
suggested solution to this debacle
is to make up the difference by
increasing the number of immigrant
workers as well as their earnings
and in that way boost taxes.
December 2010 ArbitrageMagazine.ca
By: Victoria Chau
Immigration and a
Shrinking Workforce
Media everywhere are hailing
immigration as the solution to our
aging population. Immigrants will
not only fill the worker shortage,
but they pay taxes and help the
fertility rate by having children.
Canada’s population saw a growth
by 324,000 persons to some
32.6 million from July of 2005 to
July of 2006. Of this increase,
approximately two thirds of it can
be contributed to immigration into
Canada, for the most part in the
form of skilled workers.
The general opinion of Canadi-
ans towards immigration tends to
be positive, with as many as four
out of five Canadians support-
ing immigration and believing it to
be beneficial for the country. Yet,
there are also criticisms of the
59
 current system, as it is said to allow
immigrants with qualifications that
do not match Canadian standards
into the country as well. Others
cite the backlogging of the system
of over 800,000 applications and
the resulting shortage of work for
immigrants as the main flaws.
However, the same survey also
mentions that while Canadians
support immigration, there is little
enthusiasm for increasing the num-
ber of immigrants into the country.
It is not necessarily that Canadi-
ans want only a set number of im-
migrants coming into the country,
but more of a desire to balance the
influx of newcomers with the jobs
available.
And therein lays the problem:
The reasons behind the to be able to match the amount
of skilled immigrant workers com-
preoccupation with an
ing into the country with the job
aging population come vacancies available is impossible.
from the fear that we simply Not only is the labour market con-
won’t be able to support stantly changing, but the process
them. of applying and actually being able
to immigrate to Canada takes any-
where from an estimated three to
four years at times.
Overall, immigration has been
a very strong force propelling
Canada’s somewhat stagnant
population growth. It has only
been recently that Statistics Can-
ada has identified a stabilization
of Canada’s natural rate of popu-
lation growth—excess births over
deaths—at 3.3 per 1000, which
has been attributed strongly to
new immigrants. The data also
gives credit to immigration for 60%
of the population growth in Cana-
da over the last decade, which has
increased from 46.2% a decade
earlier.
This seems to be strong evidence
that although the points-based
aspect of Canada’s immigration
system should be maintained,
and perhaps even improved, it is
imperative to develop a much more
efficient application-approving
process.
http://www.californiadivorcelawyerblog.com
60 ArbitrageMagazine.ca December 2010
Canada and the World
Compared to the rest of the
developed world, Canada is neither
doing very well nor very poorly. We
seem to be hovering somewhere
in the middle in terms of our
demographic problem. The bulge
in our demographic curve due
to the large baby boomer cohort
has been rising to the top of our
population pyramid.
If you recall years back when
you first began to learn how to
draw population pyramids, you’ll
remember that the males are
placed on the left side and females
are on the right side, correspond-
ing to a specific age group from
youngest to oldest.
As a result of the baby boom-
ers, most countries in the de-
veloped world are ‘top heavy’ in
terms of their population pyramids.
Since the younger generations are
graphed at the bottom of popula-
tion pyramids, the shrinking birth
rate in many countries has made
this area much thinner than the
middle and top areas that is repre-
sentative of the currently working
and older populations.
Canada’s population pyramid is
not as top heavy as say Japan or
Italy, who have very large portions
of their population already retired.
Yet, compared to countries such
as the United States and Austra-
lia, we are not doing as well, since
their populations are predominant-
ly younger than ours.
The different shapes of the
population pyramids of these de-
veloped countries are further evi-
denced by examining the fertility
rates in each of these countries.
The fertility rate is defined as the
average number of children a
woman is expected to have dur-
ing her lifetime. Canada’s fertility
rate is quite low at 1.6 children per
woman, compared to the United
States’ 2.1, Australia’s 1.8, and the
United Kingdom’s 1.9 rates.
Back when the baby boomers
were being born, Canada’s birth
rate was on average 28 births per
1000 person. But the problem is

that although so many boomers
were born, they in turn did not have
as many kids or grandchildren. By
1970, the birth rate had dropped to
17 births per 1000 people, and by
2000, Canada hovered around 11
births per 1000 persons.
There is not much to do to in-
crease the fertility rate of a coun-
try, aside from providing incen-
tives such as baby bonuses and
tax reductions. Since it is difficult
to change the lifestyle choice of
an entire generation, Canada has
been using immigrants to even out
the shrinking population and work-
force instead.
Although there are problems in
Canada’s immigration system—
mainly due to inefficiencies—new-
comers are one of the main rea-
sons why Canada’s median age
isn’t higher than it currently is. If
we look south at the United States,
we can see that their median age is
younger, characterized by a popu-
lation pyramid that strongly resem-
bles a square.
This is in large due to their
influxes of immigrants every year
from more relaxed immigration
policies. Countries in the European
Union have stricter immigration
laws, and it shows in their much
older age profile.
What Is There To Fear?
The reasons behind the
preoccupation with an aging
population come from the fear
that we simply won’t be able
to support them. As the baby
boomers retire, pension funds—
public and private—are going to
be depleted at a time when the tax
base for Canada will be shrinking.
A reduction in the workforce means
a reduction in taxes to fund the
many social maladies that will be
popping up: health care and old
December 2010 ArbitrageMagazine.ca
http://www.flicker.com
age security for the most part.
To be blunt, senior citizens cost
more. An older person costs five
times as much in health care as a
young adult. Does Canada have
the funds to support a predomi-
nantly old population, especially in
light of decreasing tax revenues?
Probably not, but the degree to
which immigration can fill this void
remains to be seen.
Despite the optimism towards
the effects of immigration on the
aging population, there have been
warnings that substantially higher
influxes of immigrants each year
into Canada will not be able to
stop the statistical aging. But there
remains widespread hope that
immigration will help negate and
even begin to reverse some of the
effects of an older population on
the economy and labour market.
61
Source: www.ise.uk.com
STUDENT CO.
We all want success, to graduate from school with our options unhindered by obstacles, big
or small. And for those interested in pursuing a career in business, the potential for success
can be mind-boggling. We’ve all read stories of those big names, those market tycoons we all
hope to follow, with their seven-figure plus salaries, generous stock options, private jets and
exclusive parties.

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

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

TORONTO’S ESTIMATED POPUL

by Five-Year Age Groups, 19

2,500,000
2,000,000
IN THIS SECTION… 1,500,000 Click to learn more & join us!

1,000,000
500,000
Internship
Degree
64  CAREER SPOTLIGHT 68 BREAKING IN TO 70 TORONTO'S ESTIMATED
BAY STREET 100,000POPULATION
50,000 Source: Statistics Canada estimates
0-4

AGES
5

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Student Co.
By: Kevin Kang
career spotlight
Financial Consultant: Where Can Your Career Take You?
uccess, prestige,
wealth—whatever
your career ambitions
may be, your journey
there is sure to be full
of forks, meanders, and confusing
road signs.
For students, finance is a broad
and sometimes confusing field of
work, encompassing a multitude
of career options available. Thus,
making career choices is a difficult
task when you don’t have enough
information. The yellow brick road
of a career in finance is full of both
hope and uncertainty.
If you make all the right moves,
you have a shot of living out your
dreams with the money and fame
of a successful trader. If you don’t,
you might be led away from your
ultimate goals. In the end, we all
seek to arrive at our destinations
having walked a road paved with
victories. However, without a road
map, finding your way may prove
difficult. Let the Career Spotlight
help you navigate your way!
Each issue, the Career Spotlight
will shine on a particular position
within finance, and show you
what it’s like to work in the role.
We will also present distinguished
professionals in the field who can
share their experience with you
and help you see your path more
clearly.
This issue of Career Spotlight
will focus on financial consulting.
This position encompasses
a wide variety of duties and
offers a challenging and exciting
experience. Working on a degree called the CFA, the
project-by-project basis, financial
consultants are required to be
excellent problem-solvers and
strategic thinkers. If you enjoy the
thrill of working on something new
64 ArbitrageMagazine.ca December 2010
every day, then perhaps consulting
is for you.
To help paint a better picture
of the position, George Klar,
president of Alternativ Solution Inc.
and professor at York University’s
Schulich School of Business, has
taken the time to share his career
experiences. Professor Klar has
over 25 years of experience in
asset management, banking,
insurance and consulting. His
consultancy provides advice to
the global financial industry on
risk management, investment and
governance matters.
Q: Mr. Klar, tell us about
your educational
background.
A: I started off at the University of
Toronto in the life science program,
and I majored in genetics and
biochemistry. After graduation,
I worked in the pharmaceutical
industry for a brief time as an
executive.
After working in the field for a
little while, I began to realize that
I needed more managerial and
business skills, rather than just
strictly the technical and science
skills. I went back to school and
was accepted into the MBA
program at York, now known as
the Schulich MBA program. I fell
in love with investment finance so
when I returned to the workforce,
I went into the investment stream.
When I got into the field, I was
asked to be a portfolio manager.
So to facilitate that, I got another
Chartered Financial Analyst
designation. At that point I had
finished my formal training.
Also, I did complete the Canadian
Securities Course (CSC). I got my
George M. Klar, president of Alternativ
Solution Inc.
CSC in the 80s, so I don’t know
how different the CSC is today. The
CSC is really about understanding
Canadian laws and securities, and
is a great starting point. It can get
your foot into many different doors
and I think that’s very valuable for
anybody who is interested in the
investment-related field.
Whether it be selling, buying
or recommending assets, it’s
a very good primer. However it
is not recognized as the official
designation for managing money.
If you enjoyed the CSC, you should
think about going on to other
designations, such as a CFA. If
you’re not interested in managing
money, but in giving wealth
information as in asset allocation
and financial planning, there are
other designations in that direction.
The CSC is great because it gives
a good overview of the financial
investment industry.
Q: What was your career
path like?
A: Well, I’ve been very different
than most people in terms of my
career path. I always wanted to be
a consultant. For every organization
that I worked for, I always treated
myself as an internal consultant to
the organization.
I had many roles in many
companies. I started off working as
a banker and financier for Ontario
Hydro management for 7 years.

After that, I spent about a year
with an investment banking firm
in Toronto. Then, I got hired as an
internal consultant for the Bank of
Nova Scotia; that lasted five years.
I then became a full-time
consultant dealing with pension
plans, government finance and
endowments, trying to figure out
how to finance them properly—I
spent 3 years in that role. Then
I joined the direct investment
management business, working
for money management firms who
created products as an internal
consultant and a relationship
manager liaising with clients. In
this role, I brought information
from the outside world back into
the organization.
I’ve worked with Barclays
Global Investors, Beutel, Goodman
and Company Ltd., Manulife’s
investment division, known as MFC
Global, and Legg Mason Canada.
That rounded out 25 years of work
experience.
Q: What was your favourite
role and what kind of
work did it require?
A: Well, normally you would answer
the question with a job title or a
company. But, in my case, my
favourite “role” was always, at
any company, the problem solver.
I love to problem solve, analyze,
strategize, and create solutions.
I’m also pretty good with dealing
with people, so I have both an
analytical mind and a human
approach, which is often not well-
taught in universities. Linking the
two together, I developed many
strong personal and professional
relationships with individuals,
corporations and governments.
I didn’t have one job that I
liked the most, but I think when
I look back at my career, I liked
the consulting aspect, which is
identifying a problem, figuring out
a solution and then trying to sell
the solution to both parties and see
if it actually can be implemented
intelligently, quickly and at good
cost.
Q: How did your education
and training help you in
your career?
A: Well, I have a bachelor degree
in genetics and biochemistry. In
science, you’re taught how to
think sequentially, logically and
very rapidly; it’s very math-based.
When I went into the investment
finance business, the vast majority
of the people in finance were from
a commerce or an economics
background, not a science
background. That gave me a huge
advantage, because I didn’t find
the math complex, while many of
my colleagues did.
"Well normally you would
answer the question with a
job title or a company. But
in my case, my favourite
"role" was always, at any
company, the problem
solver."
The MBA program taught me
how to deal with organizations and
people. It certainly gave me the
skill sets in the traditional finance,
accounting, economics field that
I did not have after doing my
undergraduate degree.
When I started managing money
for Ontario Hydro management as
a portfolio manager, I was asked to
December 2010 ArbitrageMagazine.ca
Student Co.
By: Kevin Kang
do my CFA designation. The CFA
focuses on portfolio management
at a holistic and high level. You learn
about accounting, economics,
derivatives, and traditional
instruments. The education I’ve
had really covered what I wanted
to do.
Q: How would you describe,
in a very broad sense,
the level of job security
in the finance?
A: That’s really the big problem in
the workforce overall, not just in
the finance sector. Job security just
doesn’t seem to be there anymore.
You’re as good as your last deal, as
good as your last project.
Job security is not so much
about, are you smart or if you
can handle the spreadsheets. It’s
about how you interact with your
peer group, how you behave with
them, how you interact when you
disagree or agree with them and
what actions you take. Similarly, are
you an asset or an embarrassment
to the organization?
You have to put yourself into the
shoes of your boss and ask yourself,
“Can I help solve a problem?” If you
are not contributing to that role, the
company is no longer going to give
you loyalty. Ultimately in this day
and age, you are a free agent, and
that’s a good news and bad news.
I’ve seen people who are
technically smarter than me,
more confident than me, get fired,
because they had no interpersonal
skills. I have also found people
in organizations who were
loved because they were funny,
charming, outgoing, retain jobs
when they didn’t deserve it. So
that does happen out there; it’s not
a fair world.
65
Student Co.
Q: What advice would you
give to students and
recent graduates who
are looking for finance
jobs?
A: The first thing I would say is to
not get discouraged. The economic
crisis that we’re undergoing and
have undergone is going to end.
I started working in 1982, which
was the height of a terrible crisis
back then that started in 1981. A
collapse of the economy, interest
rates were 16, 17 percent, inflation
was running rampant, and the
chairman of the Federal Reserve
put the brakes on the economy.
There was massive unemployment,
very similar to today.
There were a lot of problems.
And despite that, there were still
jobs available out there. It was just
harder to find them. My advice is
that you may have to spend more
time looking for jobs and finding
the one that’s right for you, but
they’re out there.
"Now, today's generation
very much treats the
workforce as a free agency"
My other piece of advice
would be to show loyalty to your
employer. I was sort of a trailblazer
in my career: Even though I worked
for organizations, I treated myself
as a consulting free agent and I still
am to this day. But, that wasn’t the
norm back in the 70’s and 80’s—it
was very unusual.
Now, today’s generation very
much treats the workforce as
a free agency. They work for
an organization until they get
bored and move on. My counsel
here, which is something I had
to learn from experience, is that
people should show loyalty to
an organization. Even though
66 ArbitrageMagazine.ca December 2010
organizations generally no longer
reciprocate that loyalty, if you stay
with an organization for a long
time, you do get rewarded for the
length of your stay.
Pick an organization that allows
you to move laterally and up and
down, so that you have a lot of
different experiences within that
organization. I’ve worked for both
mammoth organizations with
50 or 60 thousand people, and
I’ve worked for partnerships and
became a partner in a company
that had 20 to 30 people. They
are very much the same but have
subtle differences.
In a small company, you’re
everything: the chef, dish washer
and CEO. In a big company, you
have a small title but you do a very
specific job for a period of time, and
in a few years they will put you in
other roles, departments, or even
countries. People should pick an
organization depending on where
they want to work geographically
and the type of experience they
want to get, and stay for an
extended period of time.
BASIC PROFILE
Financial Consulting
Description
This position covers a variety
of fields and industries, and
may relate to financial analysis,
accounting improvement, or
financial risk management.
Primary responsibilities may
include managing change,
or conducting research on
financial markets.
C o m p e n s at i o n
$72, 030 - $135, 070 (middle
50%), $99,330 median,
excluding bonuses and stock
options*
R e l e va n t E d u c at i o n
Bachelors in finance,
accounting, or economics
MBA
Chartered Financial Analyst
E m p loy e r s
Financial consultants can
be employed by a number
of major consulting firms (ie.
Boston Consulting Group,
Deloitte), or by financial
institutions as internal
consultants.
* US Bureau of Labor Statistics

EMPLOYMENT:
At present, we are ACTIVELY searching
for new writers, graphic designers,
marketers, communications and sales staff
to work for the ARBITRAGE, Canada’s first,
national, student-run business magazine.
If interested, please send a cover letter,
résumé (and sample of your work if you’re
a writer or designer) to: hr@arbitragemaga-
zine.com
SUBMISSIONS:
ARBITRAGE editors welcome submissions
from writers and photographers.
Ask for details:
submissions@arbitragemagazine.com
LETTERS TO THE EDITOR:
Suggestions? Kudos? Criticisms? The
ARBITRAGE welcomes Letters To The
Editor. They must be signed and include
city of origin. Email: letters@arbitragemag-
azine.com
LEARN MORE!
CLICK HERE!
INTERVIEW:
If you are a business student of merit, a
professor or industry professional, and
you are willing to graciously lend your
time to be interviewed for one of the
ARBITRAGE’s future columns, please
contact: query@arbitragemagazine.com
OTHER QUERIES:
query@arbitragemagazine.com
LEGAL NOTE:
All letters or pictures submitted may
be published by the ARBITRAGE, unless
expressly forbidden by the sender.
Names will be withheld on request. The
ARBITRAGE cannot be held responsible
for the return of unsolicited material. All
submissions may be edited for punctuation,
grammar, style and length. Not all material
may be published.
 Student Co.
By: Joan Page McKenna
Breaking In to
Bay Street
Fellow Students Share their Stories About Making It Big
Originally Published by Career Insider Finance
he hard work you’ve put
into your studies is starting
to pay off. You’ve aced your
interviews and have been
offered a coveted summer
internship in the world of finance.
But now is not the time to rest
on your current successes or
get too comfortable. Aside from
offering you a chance to gain some
practical work experience and
helping to guide you on your career
path, these valuable internships
can also put you on the fast track
to obtaining a fulltime job when
you graduate. Internships should
be thought of as a four-month job
interview where everything you
do will be evaluated, so you have
to know how to make the most of
them.
ALWAYS BE PREPARED
Be ready to hit the ground running.
While you should have done some
research about your new employer
before your job interview, you will
also want to learn everything about
the job you will be doing before
your first day at work.
You should also familiarize
yourself with any dress codes your
employer may have in order to look
professional; this can mean either
a business suit or business casual,
depending on where you work.
Staying on top of market news
and current affairs is also crucial,
so monitor trade publications,
websites and business-related
television shows regularly.
“Find out as much as you
possibly can about the company,
including the role of the division to
which you are applying. It is also
very important to be up to date
on all current events and market
news,” says Graham Starko, who
68 ArbitrageMagazine.ca
attends the University of Alberta
and was a summer investment
banking analyst at Scotia Waterous
in Calgary.
“When it comes to investment
banking, know about some of
the deals that your prospective
employer has worked on and the
current shape of the market. If you
are working in trading, be prepared
to discuss economics and current
markets. Currency, energy, interest
rates and equity, to name a few,
are all fair game. Spend lots of
time studying and be driven. The
upside potential — a great career
— is huge compared to the couple
of weeks it takes you to prepare.”
The business clubs at your
school can help you prepare for
the real-world challenges you will
face. They typically offer lectures,
networking opportunities with
various employers and recruiters,
and case competitions that will let
you compare your skills to other
students, earn bursaries and get
noticed.
Even the smallest of
tasks will give you a
better understanding of
the industry, so it make it
known that you are eager
to take on any challenges.
GET HANDS-ON EXPERIENCE
The classroom is where you begin
building your knowledge base,
but nothing beats the practical
education an internship offers. Use
your time to get familiar with the ins
and outs of your branch of finance.
Take advantage of every
opportunity for hands-on work,
whether it’s database maintenance,
research and analysis, preparing
December 2010
Degree
Internship
Source: GTD Aquitaine at en.wikipedia
company overviews or helping
to develop client pitches. Even
the smallest of tasks will give
you a better understanding of
the industry, so make it known
that you are eager to take on any
challenges.
“The biggest thing that I learned
was probably how the investment
banking division of a major bank
operates. Such an experience
is very rare for a university
student, and it opened my eyes
to how this field functions. I was
also introduced to the various
elements that go into making an
industry deal happen, whether it
is a merger, an IPO or financing,”
says Shishir Nigam, a University
of Toronto student who worked
as an investment banking analyst
for TD Securities last summer,
and will be working with TD Asset
Management upon graduation.
“I got my experience at a time
when the world markets were jittery
because of the US mortgage crisis.
I also got a firsthand view of how
the markets can affect businesses
in industries completely removed
from the financial world, such as
the power industry.”
DON’T BE AFRAID TO ASK
QUESTIONS
Employers expect you to be
prepared for work, but they don’t
expect you to know everything.
Don’t be shy about asking questions
or requesting clarifications when
necessary — it shows prospective
employers that you’re interested
and take your job seriously. But be
careful. Asking the same questions
repeatedly may have the opposite
effect, so avoid this by listening
carefully to the answers you receive
and take a lot of notes.

Employers expect you to be
prepared for work, but they
don;t expect you to know
everything.
Also, try to complete as much
of your work as you can on your
own, but turn to the experts in your
office when you’re unsure about
how to do something. It’s far better
to spend a little time asking for
help than making a costly mistake.
“Never be embarrassed to ask
questions, because if you don’t ask
questions, you might do it wrong,”
says Ivayla Dingilova, a student
at Queen’s University’s School of
Business who has interned twice
at Deloitte as a valuations analyst,
and has been offered a full-time
job upon graduation. “Don’t be
shy to talk to anyone more senior
than you. I know some interns
feel anyone higher up may not
want to interact with them, but
that’s not true. Once you develop
a rapport with a manager, senior
manager or partner, you’re likely to
be their go-to person on anything
else they need. Not developing
these interpersonal relationships
is probably the biggest mistake
interns make.”
BUILD STRONG WORKING
RELATIONSHIPS
Employers look for the solid
theoretical knowledge that
education provides. Mastering
the soft skills, however, such as
interpersonal communication and
demonstrating a true passion for
finance, can also help secure your
future with top firms.
The importance of these skills
cannot be overemphasized. Solid
communication and a commitment
to teamwork are essential to
succeeding in business. If you’re
unsure about how to act in
your new environment, observe
successful colleagues to see how
they interact with each other. But
also remember to be yourself,
and always be polite and friendly
to everyone — never assume that
someone in a more junior position
doesn’t have influence within your
organization.
Go out for coffee with co-
workers or attend work-related
social functions after hours, even
if you are shy. Being personable is
key when it comes to networking,
which is one of the most important
tools for landing a permanent
position, especially when you’re
just starting out.
“I got to know everyone in the
office, and always made an effort
to speak to the administrative
assistants and the directors in
other groups. For example, a
big part of our office was project
financing for metal and mining
companies. I found this sector
very interesting, so I’d speak to my
coworkers about these markets
during coffee breaks to learn about
their views,” says Derrick Fung,
a University of Toronto student
who interned in equity derivatives
sales at BNP Paribas. “I tried to
network as much as I could. It’s
really important to get to meet and
get to know people because they
may be able to connect you with
other people and jobs after your
graduate.”
EXPLORE YOUR CAREER
OPTIONS
Internships are also invaluable in
helping you choose your career
December 2010 ArbitrageMagazine.ca
Student Co.
By: Joan Page McKenna
Don't be afraid to try
something different.
path, as the real-world experiences
garnered on the job will show you
which aspects of finance you most
enjoy.
“Don’t be afraid to try something
different. Each working experience
enables you to learn something
new, either in the work you do or
about yourself. Keep yourself open
to learning, as lessons sometimes
come from places other than the
classroom,” says Alexandra Wong,
who attends McGill University’s
Desautels Faculty of Management
and interned as a financial advisor’s
assistant and office manager at
Investpro Securities.
“Observing the work my
superiors did during my internship
gave me a glimpse of the many
careers paths available in finance.
The various projects I worked on
required different skill sets, and this
allowed me to better understand
my own strengths and weaknesses
and gave me a chance to improve
myself.”
69
Student Co.

TORONTO’S ESTIMATED POPULATION

by Five-Year Age Groups, 1986 - 2008

2,500,000
2,000,000 70+

65-69

1,500,000
60-64

55-59

1,000,000
50-54

45-49

40-44

500,000
35-39

30-34

100,000
25-29

20-24

15-19

50,000
10-14

5-9

0-4
Source: Statistics Canada estimates
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 AGES

70 ArbitrageMagazine.ca December 2010

EMPLOYMENT:
At present, we are ACTIVELY searching for new
writers, graphic designers, marketers, communica-
tions and sales staff to work for the ARBITRAGE,
Canada’s first, national, student-run business
magazine. If interested, please send a cover letter,
résumé (and sample of your work if you’re a writer
or designer) to: hr@arbitragemagazine.com
INTERVIEW:
If you are a business student of merit, a
professor or industry professional, and you are
willing to graciously lend your time to be inter-
viewed for one of the ARBITRAGE’s future columns,
please contact: query@arbitragemagazine.com

SUBMISSIONS: OTHER QUERIES:

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

LETTERS TO THE LEGAL NOTE:

EDITOR:
Suggestions? Kudos? Criticisms? The ARBITRAGE
welcomes Letters To The Editor. They must be
signed and include city of origin.
Email: letters@arbitragemagazine.com
All letters or pictures submitted may be published
by the ARBITRAGE, unless expressly forbidden by
the sender. Names will be withheld on request.
The ARBITRAGE cannot be held responsible for
the return of unsolicited material. All submissions
may be edited for punctuation, grammar, style and
length. Not all material may be published.