Foreign ownership in the resource sector

A centrepiece of Canada’s industrial policy is attracting foreign investment. This seems to me a lack of imagination on the part of our elites; rather than develop genuine industrial stategies, so much the better to just let foreign capital come and create the jobs for us. And in the resource sector, the flipside of investment is that we lose control over domestic resources while profits flow outside the country (usually south). But it is a two-side affair: some Canadian corporations are also big investors overseas, in particular in the area of mining. This explains why Canada is always so eager to negotiate new rules to liberalize foreign investment.

Duncan Cameron reflects on some of these considerations in his rabble.ca column:

Foreign ownership of resource based corporations turns Canada into a twenty-first century version of a tenant farmer: the absentee owners get the economic surpluses, Canadians get only enough to live on.

With the breakthrough of China and India into the front ranks of economic power, increased world demand for resources has pushed up Canadian commodity prices and increased corporate profits.

… Meanwhile in Chile, … Canada just happens to be the fourth largest foreign owner in Chile and the largest in mining. Promoting Canadian business as foreign owners was the Liberal “team Canada” strategy, introduced by Jean Chrétien. Canadian patriotism was a cover for foreign exploitation. Now, with the Americas trip, the strategy is officially bipartisan and Harper is defending Canadian business ownership abroad.

Call this the assisted economic suicide strategy for Chile and the three other countries on the visit: Columbia, Haiti, and Barbados. Just as Canada gets bilked by its absentee landlords, so Canadian companies, aided by our government, can strive to bilk others by themselves becoming absentee landlords. Overall, Canada puts on a little imperialist face.

… The increased levels of foreign ownership in Canada are the best reason going for calling for higher tax rates for corporations. The Canadian Labour Congress has shown that when properly weighted for size, Canada’s corporate taxes are about the same as in other countries. Canada has the highest level of foreign ownership of any industrialized country. Since those levels are rising, the way to get appreciable benefits for our citizens from the exploitation of our natural resources is through corporate taxation.

As an example of how not to do things, the Alberta government’s 25 cents-per-barrel royalty on the $60 barrel of synthetic crude from the Alberta tar sands will do nicely. Tar sands production is undertaken by American companies, at great environmental expense for super-profits and shipped to American consumers. The Alberta citizen gets two bits a barrel.

But I wonder what the punchline is: should we rely on our domestic capitalists as a better alternative to foreign capitalists? Or should we look more towards public ownership and/or ensure that the public gets a better royalty on its resource base? Norway, for eaxmple, has been much more aggressive in ensuring that the state has both a financial stake in oil development, and that they get a much higher share of the royalties than in places like Alberta. And has been noted previously, a higher royalty take in Alberta could slow the boom down to take the wind out of inflationary pressures, and reduce our CO2 emissions.

4 comments

  • I was struck by the way Gordon Nixon of RBC, and the head of Manulife, Dominic D’Alessandro, concluded their Globe and Mail lament for the loss of head offices, and Canadian companies, with a plea for lower corporate taxes, as if this would reverse the trend.
    First, if corporations were over-taxed why would outsiders want to take them over?
    Second, if more corporate dividends, profits, and interest payments are going out of the country, why not at least raise corporate taxes?
    Calling for corporate tax hikes does not deal with the structural issues Marc raises, and which are the important ones. However, we need to deal with a climate of opinion where corporate tax rates are supposed to be a competitiveness issue, when the foreign control of the Canadian economy makes them more of a fiscal capacity issue. Why not raise the importance of taxing corporations because so many of them are foreign controlled, as a way of getting both foreign control and low corporate taxes on the agenda?

  • What’s the big deal if a foreign company like Rio Tinto takes over Alcan? If the deal is done for stock, all the Canadian shareholders of Alcan now become shareholders of Tinto. As shareholders they own part of Tinto’s assets, and therefore Alcan’s. The profits that Alcan makes flow to Tinto shareholders, including these former Canadian shareholders. Just like before. This flowing of profits out of the country you decry simply does not happen.

    If the deal is done for cash, former Canadian Alcan holders get a big cash infusion. They can now invest in other Canadian mining companies, help fund startups exploring in Canada, or put it overseas. This new investment, say in a new diamond mine, creates jobs and helps pay taxes.

  • I do not know how much Canadian ownership there is of Rio Tinto, obviouly it goes up with the diappearance of Alcan. The inflow of new money pushs up the Canadian dollar short term, and sets up an outflow of interest, dividends and profits to foreign owners. The outflow is planned to exceed the inflow, or the buyers would not have put up the money.
    If the Canadian Alcan owners get Rio Tinto stock, they may choose to re-invest their dividends in Rio Tinto, or sell and buy something else in Canada, we do not know. What we do know is that new money flowing into the Canadin market has one less Canadian place to go, and this amplifies the primary problems with foreign ownership which revolve around the different pattern of behavior between domestic head office and branch plant offices in terms of employment and contracting for primary banking accounting, legal, advertising and other services.
    If the takeover is funded by credit, expect the Canadian assets to be run down to pay the loan.

  • “Or should we look more towards public ownership and/or ensure that the public gets a better royalty on its resource base?”

    I remember the Tories initiated publically-owned Ontario Hydro to help grow business in Ontario. In the current neo-liberal political climate, it will certainly take a brave political party, or a minority gov’t with the support of the NDP.

    As an example of this majority viewpoint today, I was watching the Senate committee on Forest and Agriculture today, and the Forest association head cheese was there begging for lower taxes…but he also raised the CN rail monopoly as a problem. I was surprised that no one brought up publically owning the rail again. The NDP’s policy on the Senate as non-existent is really killing them and our businesses.

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