Foreign ownership: why sometimes it’s best just to let go

COYNE: A willingness to cash in shows a focus, not on past glories, but on future opportunities

Photograph by Andrew Tolson

You knew from the start who would lead the opposition to BHP Billiton’s $40-billion takeover bid for Potash Corp. of Saskatchewan. It would be the same crew who always raise the alarm over any foreign takeover, even one from so unmenacing a direction as Australia.

Sure enough, within days, there they all were: the Council of Canadians (“We need a federal public inquiry, not just on this takeover but on the takeover of Canadian mining companies in general”), the United Steelworkers Union (“the most recent economic jewel swept up in the relentless surge of foreign takeovers”) and . . . the Globe and Mail?

Oh yes. While the Toronto Star has barely mentioned the bid, the Globe’s news pages have been a parade of anxious headlines: “Canada’s ‘bright light’ at risk of foreign takeover . . . Potash bid tests Canada’s takeover rules . . . etc.” And there at the front of the parade, pitchfork in hand, was the unlikely figure of Jeffrey Simpson.

“Another sell-off, another sellout,” screamed the headline atop Simpson’s Aug. 24 column. “At heart, sadly, Canadians are a rentier people,” it began. “We live off the bounty of the land and its resources that we own, but, where possible, we rent to foreigners and their companies. We live a good, comfortable life, without apparently much ambition to be creative.”

To that general failure of vision, add the specific failure to realize our manifest destiny in the strategic business of digging stuff out of the ground. “If there’s one industry in which Canada should be a world leader,” Simpson asserted, “with its own multinationals spanning the globe, it’s mining.” Yet somehow our purblind capitalist class is unable to see what is obvious to any Ottawa-based newspaper columnist.

There are a lot of ways to answer this, but the very worst is that offered by the federal government. It would be lame enough if, like so many commentators, it confined itself to pointing out that foreign ownership of Canada’s economy has in fact been falling over the decades, or that Canadian investors own more of the world’s assets than the world owns of ours, both of which are true but irrelevant.

But the Tories, who as the National Post’s John Ivison reports, are anxious to be known as the party of “free markets, free enterprise and free trade,” can’t even muster that. Rather, their free-market riposte is to promise tighter scrutiny of this and subsequent bids, together with a raft of conditions obliging the new owners to create jobs, buy from local suppliers, and so on.

Someone else, then, will have to make the real argument: that foreign investment—yes, even in miningis a good thing, something to be encouraged, not punished, in the name of, among other things, Canadian ownership. One of the principal attributes of ownership, after all, is the right to sell. It seems an odd defence of our sovereignty that would deprive Canadians of that right.

Why would they want to sell? One, if the price offered is worth at least as much as the discounted stream of future returns they might otherwise expect to earn on the shares. And two, if there is some other use to which they can put the capital thus liberated that pays at least as high a return. So to forbid the sale is not only to deprive the Canadian owners of these firms from obtaining the best price for their shares, but to deprive other Canadian companies of the new investment they might otherwise hope to receive from the proceeds.

The initial takeover bid, in other words, is not the end of the process, but the start. The iconic name—the Inco, the Alcan, the Potash Corp., whose sale makes all the headlines—is merely the point of entry, the conduit through which foreign capital is diffused across the economy. And while the companies Canadians choose to sell are typically in mature industries at the top of the cycle, the companies in which they reinvest may well be smaller start-ups, in newer industries.

This is in fact the very opposite of the process Simpson decries. If Canadians were such risk-averse, uncreative bumps on a log as he suggests, they’d hold on to their existing investments, the companies they’d always known in the industries that had always paid dividends in the past. Their willingness to cash in their stakes is evidence that their focus is not on past glories, but future opportunities.

Well yes, you may say, but surely it’s sensible to attach some conditions to the sale. To what end? It isn’t just that such undertakings are routinely violated: it’s why they are that should give us pause. The jobs and investments that last, the kind we should want, are not the ones companies yield up grudgingly, under duress, but the ones they take on willingly, because they make sense on their own terms.

Indeed, the new owners’ ability to run the operation with fewer jobs rather than more ought to be a point in their favour. The prosperity we now enjoy did not come about because employers hired more workers than they needed, but because of their ruthless determination to hire as few as they could get away with—and because by and large governments have acquiesced in this. If instead they had insisted on protecting every existing job, we would still have 80 per cent of the workforce in agriculture, as we did a century ago.

We get that when it comes to domestic owners. Why should it be any different for foreigners?




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