Saskatchewan premier Brad Wall was in London in late February, this to reassure investors that his province is not anti-investment and mistakenly nationalist on matters that don’t matter—e.g., what consenting adults do in the privacy of their own boardrooms.
Except that Wall’s government was precisely that last autumn in its economic jihad against a “foreign” takeover of Potash Corporation of Saskatchewan. The Wall government disliked the prospect of a company with majority American ownership turning into a company with majority Australian ownership; it then claimed potash was a strategic asset—even though the resource wasn’t at issue—and the federal Conservative government nixed the potential sale.
Wall’s London trip was likely necessary because both Wall and Prime Minister Stephen Harper have some serious policy and rhetorical backtracking to do if their formerly free trade governments care to be seen as economically sensible instead of sensational.
The Harper government in particular has another test on such matters: the TMX Group, owners of stock markets in Calgary, Montreal, Vancouver and Toronto, want to merge with the London Stock Exchange (LSE), and vice-versa. Before Potash, and under the Liberal governments of Jean Chretien or Paul Martin, such mutually beneficial arrangements (according to those in the best position to determine that—the owners of the companies) would likely have gone ahead.
After Potash, the notion shareholders should control their companies’ future is quaint. It’s apparently up for continual political review in addition to what was once a more perfunctory regulatory and legal process.
Thus, some again demand Ottawa interference. The Toronto-Dominion, CIBC and National banks oppose the merger; the Royal Bank and Bank of Montreal favour the deal. In the mix is former federal Conservative cabinet minister Jim Prentice, now a CIBC vice-president. Prentice recently used rhetoric from the Potash debate when he asserted the TMX was “far more than a strategic asset.”
Waving the “strategic”/nationalist flag is a weak justification for government interference. Real nationalists don’t tell other Canadians they can’t sell their investments to peaceful allies. So before the fake nationalism runs amok even more, let’s analyze the contrived rhetoric.
“Strategic asset” more properly belongs in the realm of military affairs. A high hill, control of a seaport or ownership and protection of militarily sensitive technology are accurately described as strategic. So too is nuclear technology or a Canadian weapons manufacturer. It wouldn’t be in Canada’s interest to sell the former to the Iranian regime or the latter to Muammar Gaddafi. But Australians after a mining company or Brits willing to merge their exchange with a Canadian counterpart are not exactly Middle East theocrats or deranged dictators.
Great Britain is one of Canada’s two colonial mothers and the Australians are Commonwealth cousins. If the politicians and faux-nationalists cannot stomach a deal with those “foreigners,” it begs the obvious question of whom they would approve. Apparently no one.
Rank provincialism aside, the overblown rhetoric is much ado about nothing. In a nice coincidence this month, Statistics Canada just released an analysis of foreign control in the Canadian economy. The agency noted that when compared with foreign firms, corporate assets, revenues and profits at Canadian-controlled companies increased at a relatively faster pace in 2008 (the last year for which statistics are available).
“Corporate assets under foreign control increased 5.0% from 2007, less than half the growth of 13.7% posted by Canadian-controlled firms,” wrote StatsCan. That meant foreign-controlled firms accounted for 20.3 per cent of corporate assets in 2008, down from 21.6 per cent in 2007. So if foreign control of corporate assets keeps some people up at night, they can relax given that roughly four-fifths of such assets are Canadian-controlled.
That noted, it’s actually a mistake to assume Canadian-controlled firms are always superior merely because the maple leaf is affixed to an annual report. In another Statistics Canada analysis (from 2006), it turns out that between 1999 and 2005, whenever foreign firms took over a domestic company, they created as many new head offices in Canada as they closed. Also, foreign corporations have an overall better record on job creation: Foreign-held companies added 21.2 per cent more head office jobs in the years analyzed, compared to only a 5.8 per cent increase for domestically-controlled firms.
Another StatsCan study published in 2005 but which analyzed a longer time-frame (1973 to 1999) revealed a similar trend: foreign-owned head offices “had about 25% more head office workers than domestic firms.”
The anti-foreigner rhetoric is objectionable on principle; it is also overblown given the facts.