Regulating Foreign Ownership: A Split in Business Ranks?

One of the key contradictions of neo liberalism is between the ideology of free markets and limited government, and the reality that transnationals can and do seek to enhance their competitive position in the global order by presenting themselves to ‘their’ home states as champions of national economic development.

This contradiction has been relatively subdued in Canada given the supine nature of our business class, which is generally content to be a junior partner of bigger, mainly US, transnationals. However, there was an interesting opinion piece in the Globe on July 1 “A Prescription for Canada” by Rotman business school dean Roger Martin and Royal Bank CEO Gordon Nixon. One detects in it more than a whiff of economic nationalism, a refreshing change from the usual neo liberal platitudes we get from the Canadian Council of Chief Executives and the like.

Martin and Nixon weigh in on the issue of foreign take-overs of leading Canadian-based corporations, and argue that there are grounds for concern. Their key argument is that we are in the midst of a transition of global capitalism to ” a spikier world in which all the globally competitive firms in all industries are headquartered in a limited number of locations.” True enough given the consolodation going on in industry after industry as transnationals seek economies of scale and market power. “During this transformational period” they argue “we need to be building as many globally competitive firms and clusters thereof as possible. .. .We think that Canadian policy is largely indifferent to, if not ignores, the transformation that is going on today. While things may turn out fine with a policy of indifference, we think that the likelihood of that is sufficiently low and the downsides so devastating for Canada that we will argue that Canada needs to take positive action now.”

The prescription falls short. We get the usual CEO calls for lower corporate taxes and deregulation. What is interesting is the tentative call for enhanced review of foreign take-overs and a more proactive government role in regulating mergers and acqusitions.

They begin with the usual D’Aquino like caveats about interfering with capital flows:

” Thus even though we may wish to prevent foreign takeovers of our global leaders or emerging global leaders, if we re-established a harsh Foreign Investment Review Act (FIRA), we would jeopardize the ability of our leaders to expand and prosper abroad as other countries retaliate. Also, foreign investment in Canada has been a large contributor to our economic prosperity and should not be discouraged.”

But then they set off in a less familiar and more interesting direction:

“That having been said, governments around the world have a big incentive to help their global leaders and it would be foolish for Canada to be more accommodating to foreign investors in Canada than their home country governments are to our global leaders. It is not some sort of even-handed level playing field out there and as world economic power shifts, countries are playing an increasing role in global economic expansion. Governments are influencing foreign acquisitions by their home country firms and acquisitions of their home country firms by foreign acquirers. We need to assure that Canada is giving its firms a fair platform for globalization rather than passively accepting aggressive policies that advantage foreign firms.

First, Investment Canada should be empowered to delay any acquisition of a Canadian firm by a foreign company if a foreign government is withholding or restricting approval of a related or opposing acquisition by the Canadian firm.

Second, it should work to extract more value from foreign acquisition of Canadian companies through commitments from an acquirer such as maintenance of head office location or research programs. Clearly, this is tricky territory. Overly aggressive negotiation by Investment Canada would be taken by the international community to be the moral equivalent of protectionism. However, there are good recent examples of successful action by governments elsewhere. For example, when U.K.-based Billiton and Australia-based BHP proposed merging in 2001, the Australian Foreign Investment Review Board (FIRB) provided the merger with expedited approval and the Australian government made a number of regulatory changes that enabled a dual listing for the combined firm in Australia and UK in exchange for the commitment to maintain the BHP Billiton head office in Melbourne. As a result, Australia is home to one of the three giant mining conglomerates in the world rather than the ex-home of one of the pretenders to that echelon.”

I think the key point here is that we should – as we can under current investment agreements – review large foreign take-overs and approve them only if there is a net benefit to Canada, imposing conditions if necessary. I’d certainly add enhancement of employment (both number and quality of jobs) to the list of issues. Moreover, we need an open process of review when one is pushed for by interested parties, as opposed to the current, totally opaque process.

In short, a welcome sign of a crack in the conventional wisdom whcih we should pick up on.

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