Politically Correct

“The role of new firms in innovation is important not only for its direct contribution but for its implicit threat to older firms, which might not otherwise feel impelled to take the risks of innovation. Yet freedom to organize new firms is narrowly restricted in socialist countries and severely hampered in some less developed countries, where permission from scores of government agencies may be required to launch a business enterprise.” The foregoing was taken from an article in Scientific American (November, 1990) entitled “Science, Technology and the Western Miracle” by Nathan Rosenberg and L.E. Birdzell, Jr. In it, the authors set out the several factors that have produced the economic dominance of Western civilization. Independent scientific inquiry linked to technological development are vital components. But, as the quote above states, having entrepreneurs hamstrung by government is self-defeating.

The feisty junior exploration outfit — mining’s equivalent to upstart firms in other fields — plays a critical role in Canadian mining. Placer Dome chief Tony Petrina in this issue (see “The View from the Top”) acknowledges the fundamental role of juniors. Petrina says that “the junior company is very much the foundation of the process of mineral wealth development.” A case in point is also offered in this issue by way of the story on the finding of Mt. Milligan. It follows the familiar storyline of the big fish (Petrina’s global gold company) swallowing the small fry (the little junior), only after the combative junior’s struggle to survive long enough financially to confirm a geologist’s dream and, along the way, pay off its patient investors.

But as key as the junior sector is , it is suffering deeply. I don’t know that we can blame government for all its ills, however. To be sure, it hasn’t helped. The politicians have failed to settle native land claim issues, which plague the very lands to which mining looks for future discoveries. They also brought us Meech Lake (and, ultimately, its failure), more anxiety than answers over environmental questions, and securities regulations that can test the wisdom of Solomon in deciphering and all his gold in funding the legal bills.

But we can’t blame government. The fundamental problem for juniors is that speculative investors have disappeared. Sure, rising taxes have probably robbed small, speculative investors of some spare change. And maybe they’re getting their speculative fix through lottery tickets, in spite of the lousy odds and lack of regulatory protection. (I have yet to see on lottery tickets the kind of warnings that appear on prospectuses.) Or maybe inestors are buying government bonds, with their relatively low risk and deficit-driven interest rates.

But is government at fault for this? Hardly. Would it harm the very companies that oil the engine of the West’s success? No. For all their faults, politicians are a whole lot smarter than that. A whole lot smarter. Really.