This is Part 5 of a series of articles on the Law of Speculation. This article looks at aspects of a model solution: a new corporate form for global companies, competition instead of regulation, expanding courts and enforcement, education, transparency, rewarding whistleblowing, low taxes, quick registration, and how this could be done legally in any province.
If you missed the previous articles in this series, you can scroll to the bottom of this page and click the "Next" button to read them.
New Corporate Form: The Canada Global Corporation
There's a new type of company emerging: the online business. Crypto enthusiasts have a vision of this called the "decentralized autonomous organization", a company that is code. In a world where people don't access products and services in-person, there's a new opportunity to attract company formation and the workers who make that happen. The best opportunity is to turn this into a badge of honour and disclosure by requiring companies to use the corporate title like "© Reddit.com Canada Global Corporation" at the bottom of websites and apps. Controlling the corporate registry of the Internet economy would be a boon to the future of Canada's digital economy and make it easier to regulate from a market point-of-view. These companies could then easily be listed on stock exchanges.
The world is a rough place. There will always be billions that can flow at a tap on a phone to the country with the best reputation and the best environment for growth. Rethinking the Law of Speculation in terms of global branding is essential for the 21st century because almost all speculation happens outside of Canada. This applies not just to new corporate forms, but also how the government approaches regulation. The result must be a new, strong global brand.
Competitive Markets vs. Formal Rules
There's an assumption by many (in government and not) that the only way to ensure that a market functions properly is to have a huge volume of rules. They assume that the rules are the reason for the good outcomes, rather than seeing competition as the main force. Often rules create angles to exploit or paperwork to slow down those who follow the rules while having no impact on fraudsters or unscrupulous people who don't follow the rules anyway. In fact, the strongest markets are those where there are minimal rules. Think Amazon vs. Walmart or the gold market (which exists almost entirely outside of Canadian regulation.)
People manage to avoid sending money to the scammers who send them spam emails offering cut-rate pharmaceuticals. Would Canadians really not be able to tell the difference with speculative opportunities? It's popular in Canada today for people to borrow 10:1 to buy a house in what many international commentators view as one of the most over-priced housing markets in the world. Navigating risk is a natural activity and one that often doesn't need elaborate market rules.
The Competition Bureau could take on a larger role in speculative markets without any change to legislation. The Competition Bureau is tasked with enforcing federal rules about misleading advertising, cartels, and monopolies. Freed of provincial rules that stop enforcement (i.e. the regulated conduct doctrine) there'd be a useful role to be played. With increased funding, the Competition Bureau could do what its staff wish they could do, which is take on far more cases and help ensure that Canadians (and the global market) have a fair playing field.
Creating a new police force for speculative crimes like investment fraud or rigged gambling would ensure that there's a level of competence with these matters that only comes from familiarity. This police force would likely absorb some stuff from current provincial agencies and unify their work.
There would be increased costs of regulatory enforcement, and likely more staff required, because that's what fully enforcing the law would require. This is not a bad thing and should be viewed as an investment in a growth industry. The cost would be offset by gains in the economy, more jobs, better outcomes, and more money in consumer's pockets.
Courts, Private Prosecution And Civil Remedies
Courts are overburdened with cases and take far too long to bring a matter to trial. Increasing funding for courts, and perhaps creating a special court for speculative matters, would be an essential element of a move to a more orderly market. It would also give more effect to reliance on private prosecutions and civil remedies. Instead of waiting for the government to bring an action, affected parties should be able to rely on the legal system.
High quality judges and rapid resolution at a reasonable price would attract business. London and New York are often set in commercial contracts as the places for dispute resolution but why not Toronto? Today, there's very little reason for that. But if Toronto (or Calgary, or Montreal, or Vancouver) became known as the place for a fair and efficient hearing, parties would switch their agreements over. And over time this would create an inertia of cases as contracts slowly diffuse out in the market that require resolution in Canada. Businesses want a fair and predictable system, which is one reason for the high number of incorporations in Delaware. Canada has a positive international reputation that would make it a reasonable choice for executives who were offered a compelling reason to handle their disputes online via Canada's speculation court(s). The Hague in the Netherlands has a high concentration of lawyers and international organizations because of their reputation and system, and this directly creates high paying local employment. Courts can be helpful for customers, businesses, and the economy, but only if they're done right. The current system is not done right, so this would require significant reform, but the last couple years of Covid has forced some of these changes on courts already in Canada. This should be brought to its logical conclusion.
Private prosecutions for the Law of Speculation is in line with a growing trend towards legal decentralization that comes with globalization. Civil cases are more familiar today but private prosecution holds the promise of permitting faster execution and enabling a wider range of styles that lawyers can deliver if they're permitted to. There's no substitute for carefully crafted solutions, and this would be easier in a system of simple rules and emphasis on private redress.
If a tiny portion of the profits of Canada's speculation industries were redirected towards courts and legal process (in an efficient environment) Canada could easily become a model for the world in terms of fair play. Adding the possibility of recovering costs and rewards for discovering misdeeds would make this a powerful system for quickly stopping problems and getting redress where they occur.
The World's Best Investing And Speculation Resources
Enforcement is good but it's better to prevent problems from occuring in the first place. Just like a company writing a blog for content marketing, the regulator for the Law of Speculation could build an educational resource to explain what people need to know about taking risks. With an even-handed educational resource for gambling, insurance, investing, markets, and building wealth, the public would have a way of building their own skill. Because the best investment environment is one in which there's widespread knowledge of how to take advantage of the opportunities and avoid pitfalls. As it stands, regulators often have very minimal educational materials even though education could prevent many problems from occurring in the first place. It is quite difficult for people to navigate these waters online on their own.
Help Employees Hold Employers Accountable
Whistleblowers can be empowered as part of this system by creating a reward for coming forward. The usual argument about this is that this would cause paranoia within companies, but that's only an issue if they're breaking the law. Few people want to work for crooked companies and if they're offered a financial reward for blowing the whistle we'd see a lot more problems stopped at an early stage. Obviously this only works if the rules are simple enough that the vast majority of companies can be confident that they're on side of the rules (which is not the case right now).
If employees were rewarded for exposing wrongdoing then they'd be more comfortable with a system of increased personal liability for participating in misdeeds. Personal liability for wrongdoing was a key concern in the early days of corporations in Canada (and elsewhere). Bringing back a degree of personal responsibility for executives and other high-level decision makers would help ensure better alignment with laws and a culture of lawfulness.
Public And Transparent
At every turn, the government's default should be public and transparent. Almost nothing should be secret, and what is secret should have a very good reason. How this is implemented in practice is complicated but the rules ought to take into account that people like avoiding accountability (whether private or public sector). Online hearings, online registries, limited discretion, and public correspondence (like the USPTO) would give the public faith in the system and help people to avoid problem companies at an earlier stage.
But public and transparent is more than how the government structures itself. It needs to apply to how services are delivered, such as by having a public/private key pair for each company that's publicly verifiable. This would enable the public to verify who they're dealing with to avoid phishing scams. At every turn, the government should be reinforcing trust and demonstrating security. This can only be done by building up the capabilities of the regulator and carefully studying what's being done elsewhere.
Private transparency should also be a goal of reform. It's very difficult to know who you're dealing with online. You may see a logo but what's the legal entity and where are they located? Which subsidiary is this? A rule requiring disclosure of who customers are dealing with (including registration number) would help ensure accountability without any cost to legitimate companies (who often make this information available anyway). Some companies today rely on a confusing set of corporate entities which can result in companies escaping the legal system (e.g. City of Toronto v. Uber). It should never be a mystery who someone is doing business with, even in the case of decentralized businesses like a DEX. I've never seen a user interface that couldn't show a small text label of which company operates a service, and that ought to be a small price to pay for a company that wants to access the Canadian system of regulating speculation.
Taxes: Low Or None At All
A reformed Law of Speculation should also have tax reform to simplify and unify the system. The emphasis should be on creating a low tax environment, as is currently done for gambling (no tax), insurance and banking (sales tax exempt), securities (capital gains exemption and LTCGE), land speculation (primary residence exemption), etc. This is less important for Canadians (who expect high taxes) than it is for foreign people and businesses, who can access a range of tax rates. The key is to avoid transaction taxes and to focus on the wages of people who work in the industry rather than the industry itself. If this is too little tax for the government's needs they can reevaluate land tax (currently very low).
Eliminating taxes entirely could create an enormous shift in global markets toward Canada that would offset the "losses". This isn't trickle down economics though, this is about global competition. The gains to Canada from eliminating all taxes on speculation would be enormous because of the gains in other areas that are subject to tax such as professional services, jobs in Canada, spin-off industries and supporting vendors, registration fees, etc. Globally, online gambling alone is somewhere in the realm of half a trillion dollars or more. Sports betting exceeds one trillion dollars a year. Moving even a quarter trillion dollars of financial flows to Canada would be a big win.
Quick Registration Or None At All
We live in an instant gratification world. If something isn't quick and easy, few people are interested. Some in government view throwing up obstacles and having elaborate forms as a way of weeding out people who aren't serious. But there's a lot of people who might be serious if they were given the chance. The Ethereum team likely would not have succeeded in making Ethereum the second largest cryptocurrency in the world back in 2013/2014 if they needed to complete a two year application process. And why shouldn't small projects be able to start small?
Government processes are generally one-size-fits-all and highly discretionary. A key goal of reforming the Law of Speculation would be to strip away as much discretion and as much process for companies getting started. Later, once they achieve a certain size (and thus pose a bigger risk potentially) they'll have the resources to handle more complex government interactions and build better systems. But if regulations stop these new businesses before they get started people will miss out on new products, or more likely, Canadians will miss out on the benefits of these companies who will locate elsewhere.
Simple, fast, and appropriate to the size of the organization is the guiding principle. And the best way to achieve this is often to have no registration at all. That may not be achievable for all business types (like insurance companies?) but it should be the guiding light.
Amazon does not have a "retail license" yet they offer a competitive marketplace that serves hundreds of millions of customers. Licenses are not required in most industries, and the results are fine.
Don't Ignore Problems
The current regulation of the Law of Speculation, as experienced by everyday Canadians, is rife with problems. Any replacement system will of course have downsides but it's the overall cost vs. benefit that needs to be looked at. Many problems experienced today are simply outside of the scope of regulators, such as a lack of competition (caused in part by restrictive rules and licensing). The answer to a lack of competition may not be more rules about pricing or more restrictions on who can undertake a certain business. No one has yet discovered a better method of consistently getting good quality products and services at low prices than competition. Problems in markets that people attribute to capitalism are often really crony capitalism, cartels, or some other reduction in competition.
But the flip side of this is not throwing out the good elements of the current system. There'll be some that'll be lost, but as much of the benefit of the current system should be carried over to the new one, where those benefits outweigh the problems that come with them. If this was ever implemented the true challenge would likely be how to make a clean break with the past, rather than this becoming a relabelled exercise, so in practice this issue probably wouldn't be too significant.
This system could be implemented by any province but would be most effective if implemented by all of them in concert with the federal government. But it's not required. Even one province could take the leap, as almost all of the changes are within their jurisdiction. Taxes and anti-money laundering would require federal cooperation.
Reorganizing the Law of Speculation must be done at both the rule level and the regulator level. Today's provincial regulators could be merged into one, with some staff being moved to the new police force for speculation crimes. Other staff might be transferred to the Competition Bureau, which would likely be supported by provincial transfers directly to the Competition Bureau in exchange for them taking a more active view of the area.
The reality is that government organizations require funding. There would be a large upfront cost to reorganize the public sector that currently oversees the Law of Speculation but the benefits would be large, and it is necessary to create growth and set Canada up for the 21st century global economy.
The world is not becoming more local. It's becoming more global every day. Regulators must adapt too, and a radical reform of their operating structure and principles could be the morale boost that staff would appreciate. And a top global regulator would need to pay top salaries too. The cost would be lessened by a switch to a greater role for the private sector in investigation, prosecution, and enforcement.
If what's proposed in this series seems too radical, there's an easy solution: create a system that only applies to the market outside of Canada. This approach has been taken by some offshore financial centres to create a new market without affecting the internal one. It would be far better if Canadian customers could gain the benefit of the system, but even as a growth industry this could be successful. Another approach would be to run the systems in parallel and require clear disclosure that the company is operating outside of the traditional structures.
The Law of Speculation
The Law of Speculation is a disparate system today. The next article in this series will discuss why unifying regulation of speculation is important.