'There can be no economy where there is no efficiency.'
-Benjamin Disraeli (1804- 1881)

Unfortunately, the elected and appointed officials purporting to draft a new economic plan for Montana are ignoring the profound changes in traditional markets occurring as a result of globalization, technological innovation and American hegemony. Instead, these folks collectively continue to shoot the messengers who try to explain the perils of this calcified thinking. Continuing down this trail will lead our entire region deeper into economic malaise.

As a people, we don't want to hear this. We don't want our livelihoods and aspirations controlled by forces and events far removed from our preconceptions. It is simpler and politically more expedient to scapegoat those individuals and groups closer to home with whom we disagree. Montanans and other residents of the rural West must educate themselves about the macro-economic forces currently driving the world economy, no matter how abstruse or recondite they may appear. Failure to do so will leave us at the mercy of these forces. In this case, ignorance is far removed from bliss.

There is an old saying in the financial markets. 'The trend is your friend.' To be a successful investor, one must leave personal bias and preference behind, objectively viewing the message of the markets. Several long-standing financial and economic trends with a direct, extended effect on Montana and the West are firmly in place. Don't take my word for it. Go to any of the major financial publications and look at the charts. The arithmetic doesn't lie. These trends will have to be fundamentally reversed for Montana's old economy to revive.

The emphasis placed by our leaders on increased extraction of natural resources stands in perfect opposition to several key forces in the marketplace. One critically important ingredient, the continued strength of the US dollar, is a major factor in commodity and basic goods price deflation. Foreign raw material, soft commodities and basic manufactured goods are much cheaper on a currency basis alone, than the same goods produced or grown in the US. This has been a boon to US consumers, but a nasty bloodletting for American producers. The only area of our economy with any pricing power is the service sector.

As one example, the Canadian dollar declined over six percent against the US currency last year. With NAFTA, this means that (before subsidies) a Montana wheat farmer on the High Line needs to be six percent more efficient than her Canadian neighbor, before either plants a seed this spring. Taking into account the collapse of the Argentinean currency, the slump in the Australian dollar, desperate weakness in Japan, Brazil and other nations around the world, this trend shows no sign of reversing. It is true, the current federal budget proposal, if adopted, will recreate the huge budget deficits of the past. This could lead to higher interest rates and therefore a possible resurgence of price inflation. While this may mean a nominal improvement in the pricing of basic goods for Montana's producers, it will have offsetting negative effects as well. (Higher interest rates will slow business expansion, home building and other construction.)

Although we're far removed from Detroit or Silicon Valley, the effect of technology on Montana's economy is profound. As Alan Greenspan continues to point out, productivity gains resulting from the incorporation of technological advances by major manufacturers and producers is a major driver of the nation's economy. According to Mr. G, only fifty percent of the tech upgrades currently in the pipeline have been applied. The effect of all this efficiency is a dramatic reduction in the amount of labor necessary per unit of production. Also, we see a lessening of demand for raw material per unit of production.

How does this effect Montana? A perfect example is Ford and it's tangential relation to the Stillwater Mining Company. Recently, the Wall St. Journal reported that Ford lost over a billion dollars in the palladium market. Ford uses palladium in its catalytic converters. During a contraction in the Russian supply of the metal, palladium prices soared to over $1,000 per ounce. Ford, projecting its need for the metal years in advance, decided to lock in large contracts at that price, envisioning a continued strengthening of demand. Stillwater, a Montana supplier of platinum and palladium, began to expand. The future of the mine appeared bright. What happened? Ford's own engineers refined the catalytic converters to use dramatically less palladium than earlier models. Ford's projected need for the metal dropped off a cliff. This occurred at the same time the Russians increased supply. The Stillwater mine's plan for expansion ran into a brick wall of lessening demand. Currently, the price of palladium is about $340 per ounce.

Technological innovation and a strong dollar, combined with the opening of 'free' trade with China and Eastern Europe results in yet another macro-economic factor adversely effecting Montana's producers. There is a global glut of manufacturing capacity. Tremendous investments in factories and other production facilities in Asia leave less efficient producers in the dust. In order to protect their industries, countries from Chile to Poland subsidize natural resource production and basic manufacturing. These products make their way to the United States, forcing our own producers into slash and burn business practices, which usually fail. (Think collapse of the US steel industry) Some business economists predict that global demand for basic materials will have to climb twenty percent or more, just to catch up with production capacity.

The positive blips in a few commodity prices that are currently in the markets are all the result of supply manipulation, not improved demand. As examples, copper prices recently rose due to the closing of some inefficient overseas producers. Gold and oil move with the war scare, not because industries increasingly need their products.

Into this extremely challenging economic environment, boldly strides Montana's Governor and her corporate sponsors. All the rhetoric from the Statehouse, the attempted intimidation of those with a contrary vision, the 'us versus them' mentality that usually defines narrow self-interest, will not alter the harsh reality of the global marketplace. With such leadership, Montana's workforce will find itself in continued unequal competition with workers from Indonesia, Nigeria and Brazil.

Montana and its people hold many cards of value in this poker game. However, we require leaders with vision, economic acumen and independence who know how to play our hand.

Marc Flora is a goatherd, writer and investor, who also serves on the Board of Directors of Sustainable Obtainable Solutions, a not-for-profit corporation dedicated to the sustainability of public lands and the communities that depend on them.