4 min read

5 Small things to keep in mind for July 15, 2022

1) Attack on American Free Enterprise System - Part 1

"Attack on American Free Enterprise System", aka The Powell Memo was written in 1971 by the lawyer Lewis Powell. He wrote this memo for the education committee of the American Chamber of Commerce two months before he was nominated to sit on the US Supreme Court.

My plan is to look at our Canadian history, I just took a slight detour for two reasons. First, Canada tends to follow the economic path laid by the US. Second, in the last episode I talked about ecosystems. I said the largest trees can't change the rules to benefit themselves, but businesses can. This memo provides the outline for how the business community worked to change the rules for their benefit over the last 40-50 years. Knowing this history is relevant to the conversation we're going to have about Competition Policy in Canada.

Other people have more scholarly reviews and analysis of this memo. I view this as Powell invoking a moral panic to get the business community to fight back. I break down why I think this is the case.

2) Rogers, Rogers, Rogers

What can be said?

3) 'Just Say No'

Keldon Bester, Co-founder of CAMP, and Ben Klass, a PhD candidate at Carleton University of Journalism and Communication, wrote an op-ed in the Globe and Mail today calling for the Competition Bureau and Tribunal to reject this merger.

4) More dentistry consolidations

A continuation on this theme of dentistry clinics being purchased by Private Equity.

Some key takeaways I have from this article:

• “…123Dentist will be 70 per cent of the size of publicly traded dentalcorp, which has an enterprise value – its equity plus its debt – of $3.2 billion. This implies 123Dentist is valued at approximately $2.2 billion.”

• Dentalcorp was only founded in 2011 and now has 500 clinics. They are expanding at a 32% annual rate.

• Some practices were purchased for almost 30 times earnings.

• Only about 900 of 15,000 dental clinics in Canada are part of a chain (6%)

• Current owners maintain a 20% stake in the business and the consolidation firm takes 80%.

• “private equity funds are investing in health care providers such as 123Dentist based on stable long-term growth trends and increasing acceptance of a corporate model for what used to be owner-operated businesses.”

My thoughts are this will lead to price increases for the rest of us. I mean, paying 30 times earnings for any business is wild – that’s only a 3.33% return before interest, depreciation and taxes.

When you can get a risk free GIC return of almost 5% buying a clinic at 30 times earnings makes no sense – unless you are certain you easily and quickly increase your profit margin. Private Equity isn’t making an investment like this unless they can make serious money on the transaction.

I wish the Competition Bureau had the ability to do market studies. I want to know how consolidated the dental supply and dental equipment markets. Is the need to roll-up independent dentistry practices a reaction to other consolidation? Or is it just another spot to make money?

5)"Thinking like an Economist" by Dr Elizabeth Popp Berman

The American Economics Liberty Project is hosting a conversation with Dr Elizabeth Popp Berman about her book “Thinking like an Economist” as part of their Think Big series.

Here's the description of the event from the AELP website:

Register for the event here.

I started to read Jim Standford's book "Economics for Everyone" over the weekend, and have looked at his Economics for Everyone website previously. Dr Popp Berman's book is on my list to read too.

Over the last 40 years economic thinking has gained a foothold in every policy discussion, while being presented as a 'hard-science' and non-political.

Economics is not like physics, it's not a hard-science with fixed laws and rules, everything in economics is grey and based on assumptions.

And every economic decision we make is a political decision - cutting government spending is a political decision, raising taxes, building a road, allowing a merger to proceed, not enforcing anti-competitive acts are all political. We just act like they're not.