There is an article in todays star that outlines pretty well how I feel about the subject. I really think we as Canadians are naive and complacent on the economic front while our importance in the world despite our resource wealth is slipping with each passing year. We (including myself) are converts to the ideology of free markets and globalization while at the same time naive to the fact that other countries talk a good game but only practice what they preach when it is in their best interests such as having clear suppremacy in an economic sector.
Where are the nationalists?
Oct. 29, 2006. 11:01 AM
DAVID OLIVE
Last week, the New York Times discovered a crisis in Canada.
Reporting on the formal closing of deals by foreign companies to buy two leading Canadian firms — Inco Ltd. and ATI Technologies Inc. — the paper headlined its story, "Canada wonders why it's the Bought and not the Buyer."
Actually, Canada wonders no such thing. And that's the crisis, for those who still believe in such a thing as economic nationalism.
In the past two years, more than a dozen of Canada's largest corporations, with total assets of more than $57 billion, have been swallowed by foreign predators. And the response has been ... well, there really hasn't been a response.
At the height of economic nationalism in Canada in the 1970s, there was nothing like the "hollowing out" of Corporate Canada that we've witnessed lately. If there was a flashpoint back then, it was the purchase by a U.S. firm of the venerable Ryerson Press (now McGraw-Hill Ryerson).
The loss of Ryerson's independence, and unease about Arctic sovereignty, Richard Nixon and the war in Vietnam, in no particular order, spurred the creation of the Committee for an Independent Canada (CIC). CIC petitions signed by more than a million Canadians urging restrictions on foreign ownership helped push the Trudeau government to create the Foreign Investment Review Board (FIRA) and two Crown corporations — Petro-Canada and the Canada Development Corp. — to repatriate foreign-owned industry. And federal culturecrat Pierre Juneau laid the foundation for Avril Lavigne's career by imposing minimum Canadian-content rules on broadcasters.
But today, serenity rules as branch-plant status descends on such iconic firms as Inco, Dofasco Inc., Hudson's Bay Co., Falconbridge Ltd., Molson Inc., Fairmont Hotels & Resorts Inc., Sleeman Breweries Ltd., Vincor International Inc. (Inniskillin, Jackson-Triggs) and other firms sold to foreign interests since the beginning of last year, which collectively employ almost 200,000 people.
There have been no calls in Parliament, any legislature, the media, or the halls of academe for a royal commission on the consequences for our economic sovereignty from this unprecedented yard sale of Canadian industrial assets — not even a demand that Investment Canada, successor to FIRA, for once act on its mandate to ensure there is a "net benefit to Canada" from these deals.
Among captains of industry, gold magnate Peter Munk and merchant banker Gerry Schwartz of Onex Corp. have been lonely voices expressing what should be more widely obvious concerns about the closing of locally based head offices; the outsourcing of decision-making to Switzerland and California, the sapping of the Toronto Stock Exchange as listings disappear; the decline in business for ancillary providers such as legal, accounting and underwriting firms (work that tends to drift to the parent's hometown), and the implications for philanthropy (CEOs typically focus their company's charity on the communities in which they live, sparing only morsels for colonial outposts).
This trend toward absentee ownership doesn't trouble Wendy Dobson.
"We shouldn't be concerned about who owns the corporations," says the director of the Institute for International Business at the Rotman School of Management at the University of Toronto, and former CEO of the C.D. Howe Institute. "We should be concerned about creating favourable tax and other conditions for our small and mid-sized companies. We should be asking if government policy is creating an environment that enables promising enterprises to spread their wings."
Bernie Wolf, an economics professor at York University, regards openness to foreign takeovers as fair play.
"If we want Canadian companies to invest abroad, we can't very well say that foreigners will not be allowed to invest here," says Wolf, who is director of the international MBA program at York's Schulich School of Business. "It's important that the world not return to the days of protected fiefdoms, which leads to economic inefficiency and a lower standard of living."
Wolf sees the recent takeovers as part of a trade-off.
"There are some negatives to foreign direct investment (FDI), among which is the likelihood of key decisions being made at an offshore head office," Wolf says. "But FDI can bring major benefits, including an infusion of capital, technology and organizational knowledge, which promotes greater productivity."
Those are not particularly compelling arguments.
Fostering small business is fine and good. But small businesses have a notoriously high failure rate, tend to offer below-average pay and benefits, are behind the curve on R&D and information technology, and simply lack the heft to reshape the business horizon. And their owners tend to sell out rather than marshal the resources and gumption to take the business to the next level.
The panacea of lower tax rates for business — which already pays only a small and declining portion of total government receipts, with citizens picking up an ever-growing share — has zero relevance in a board's decision to enrich its shareholders and senior management by accepting a sudden windfall from a lucrative takeover offer.
As for productivity, branch plants tend to be a backwater in most multinational empires. Starved of capital for R&D and efficiency enhancements, the Canadian operations of too many absentee owners are glorified shipping depots. Being a branch-plant economy — our status since Confederation — has not been a sufficient boost to productivity growth, which continues to lag that of the United States and other high-performance nations.
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`When these leading companies disappear, we lose our membership card in the global economy. We're becoming a kind of Manchuria, supplying raw materials to the more mature world'
Peter C. Newman, author
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And no wonder: there are precious few jobs at the average branch plant in corporate finance, new-product development, mergers and acquisitions, marketing or manufacturing process improvements.
And it simply doesn't matter that the Oshawa assembly plants of General Motors of Canada Ltd. are among the most efficient in the world. So long as Detroit headquarters persists in assigning slow-selling models to Oshawa, the city's economic mainstay is in doubt.
The real powerhouses of today's global economy are centres of excellence: Silicon Valley, the concentration of pharmaceutical companies in New Jersey and Switzerland; the giant "money centre" banks in London and New York; the head offices of Big Oil in London and Houston, of the Big Three mining conglomerates in London, and of office furniture makers in Michigan.
Almost 140 years after Confederation, Canada has yet to develop a critical mass in any industry apart from oil and gas extraction in Alberta and financial services, media and small-scale entertainment producers in Toronto. Every time a budding Canadian juggernaut is folded into a larger foreign enterprise, the opportunity is lost to create the equivalent of a Silicon Valley as Hewlett-Packard Co.'s spinoffs did in Palo Alto, Calif.
A ready example is Newbridge Networks, a telecom equipment maker that spawned about a dozen promising start-ups in its Ottawa home base in the 1990s, having itself been drawn to the city, as was fibre-optics giant JDS Uniphase Corp., by Nortel Networks Corp.'s location of one of its largest R&D facilities in that city. In 2000, however, Newbridge was acquired by France's Alcatel SA, and there were no more concentric waves of spinoffs and spinoffs of spinoffs. And no one talks about Silicon Valley North anymore.
Canada long had a critical mass in beverage alcohol, before offshore interests acquired Seagram Co. Ltd., Hiram Walker Ltd. (Canadian Club), Molson, John Labatt Ltd. and Sleeman. Toronto was the place to launch one's career as a luxury hotelier: It was a simple matter of applying for a front-desk clerk job at Fairmont's Royal York or venturing to Four Seasons' head office in Don Mills — and then climbing the corporate ladder with stopovers at the Fairmont San Francisco and the Four Seasons Resort Bali.
That status is diminished with the loss of Fairmont, and Toronto's already waning influence as a global capital of mining finance and exploration and development expertise has been hastened by the departure of Falconbridge, Canada's largest mining firm, and Inco, the top nickel producer.
While the realities of globalization can't be denied, and turning the clock back to the era of protectionism would be calamitous, the champions of unfettered globalization who chide doubters as enemies of progress have to stop denying that the world does not play fair.
It isn't just China and India, with their demands for technology transfers and that foreign ventures be co-owned by local interests. Or Russia, which routinely reneges on commercial agreements with multinationals. Or South American oil producers that expropriate foreigners' assets.
It's our G-7 partners France, Germany and Italy that chronically thwart attempted outside takeovers of local enterprises deemed to be of strategic national importance. It's the United States, which recently has blocked the planned acquisition of a respected Dubai firm of U.S. port operations, and the proposed takeover by a Chinese state firm of oil producer Unocal Corp., whose assets are almost entirely outside U.S. territory and does not sell its products in America.
Enterprises in these same countries are free to acquire Canadian corporate assets — in the case of ATI, now a division of Silicon Valley's Advanced Micro Devices Inc., with no meaningful assessment of "net benefit" to Canada; or Dofasco, one of the world's best-run steelmakers, acquired by Arcelor SA of France, a country that balks at every reasonable effort by Bombardier Inc. to rationalize the inefficient European railcar maker it acquired a few years ago.
It should also be understood that our own small number of global players — Bombardier, Barrick, flight simulator maker CAE Inc. and Research in Motion Inc. of BlackBerry fame — are pitted against deep-pocketed state-owned or subsidized firms prepared to outbid any potential local buyer of Canadian firms placed on the auction block.
It isn't fair, says Boeing Co., but there it is: Airbus SAS, created and still subsidized by European governments, and laid low recently by cost-overruns on its planned superjumbo jet, has captured half the world market for commercial jetliners. In the process, Airbus killed the commercial jet businesses of Lockheed Martin Corp. and McDonnell Douglas Co., and created the current duopoly of itself and Boeing in the process. (Boeing itself is heavily subsidized by Pentagon orders.)
Bombardier, endlessly cited as Exhibit A in the folly of government handouts, is in the fight of its life against Embraer SA, which began life as an arm of the Brazilian air force and continues to be financed by Brasilia. Free-market purists naturally look askance at Embraer and Brazilian mining colossus CVRD (Companhia Vale do Rio Doce), created by the Brazilian government in 1942 and still largely owned by the Brazilian state, which reserves the right to veto any proposed change in CVRD's head-office location.
But looking askance doesn't change the fact that CVRD alone was able to make a rich enough bid to satisfy Inco shareholders, and that the tune in Sudbury is now called by executives 8,500 kilometres away.
It's not as though Canada lacks the money to buy back its economy. Canadian enterprises invested close to half a trillion dollars abroad last year. Canadian institutional investors, notably provincial government employee pension funds, are gobbling up British ports, airfields and water utilities, shopping-cart makers in North Carolina, bedding companies in Los Angeles and laundry-equipment makers in Wisconsin. (Where were these folks when Inco and Falconbridge were attempting last year their "made in Canada" nickel-mining merger that backfired and put them both "in play"?)
And it's not like we lack the smarts to run our industrial economy. The computer science graduates at the University of Waterloo who aren't recruited each year by Google Inc. are scooped up by Microsoft Corp.
So, was economic nationalism a concept that died before its time? Count the number of Canadian companies that dominate their industries around the world (you won't need seven fingers). Compare that with the number of Swiss and Swedish world-beaters, and bear in mind that we're not exactly making progress. In the previous century, Seagram led the world in liquor sales, Massey-Ferguson in farm equipment outside the United States, William Davis Co. in pork-packing, Moore Corp. in business forms, Abitibi-Price Inc. in newsprint, Canadian Breweries Ltd. in beer, Bata Ltd. in shoes, Bombardier in Ski-Doos, and Connaught Labs in insulin — to cite a few examples.
Author Peter C. Newman, a cofounder of the CIC in 1971, is dismayed that "there's no popular outcry, there's no popular whimper" about our decline in economic sovereignty.
"When these leading companies disappear, we lose our membership card in the global economy," Newman says. "We're becoming a kind of Manchuria, supplying raw materials to the more mature world."
Additional articles by David Olive
