Mel Watkins' Submission To The Competition Policy Review Panel

"The much-publicized indices of competitiveness too often read like wish-lists of what business wants government to do and not do – like lowering corporate taxes and income taxes on the rich, e.g., CEOs of big companies. Their gains are clear; there is no guarantee that the country or the majority of its citizens benefit. And if you “build the field” to corporate specifications, it is assumed, first, that they (the foreign investors) will come, and, second, that so-called “synergies” will result and trickle down to the benefit of all concerned. As arguments go, it is both doubly tenuous and self-evidently self-serving of corporate interests." "A striking feature of the present wave of takeovers of Canadian companies is its concentration in the resources sector. The boom in commodity prices has created liquidity in the resource sector that feeds takeovers. Companies either use that liquidity to do takeovers, or they get taken over themselves. It is a case of eat or be eaten. In a way that is hard to fathom, Canadian resource companies, some of long standing, have been ending up as the icing on someone else’s cake." "There is a large question here that is rarely posed in a serious way about what exactly is wrong with Canadian business. It becomes tiresome endlessly to be told by business interests that the problem is not theirs, but rather that the business environment is not favourable -- this in spite of the fact that big business in Canada has consistently gotten its way around freedom of trade and investment, and when that doesn’t work well enough, simply insists on more of the same. Free trade with the United States was supposed to close the productivity gap in manufacturing; now the fact this has not happened seems poised to become the rationale for eliminating remaining restrictions on private foreign investment. Foreign ownership has played a significant if not dominant role in the Canadian political economy for centuries, and certainly for the last century. The Canadian economy has done as well, or as ill, as it has within that constraint. If it has problems today, as in the productivity gap vis-à-vis the American economy, it is hard to believe that yet more foreign ownership would eliminate them. On the face of it, more and better Canadian ownership with less foreign ownership would seem a better bet." "Indeed, the foreign ownership question and the apparent inadequacies of Canadian business need to be located within the broader context of Canada’s status within a succession of empires, French, British and American. The literary critic Northrop Frye wrote in 1971 that Canada was “a pure colony, colonial in psychology as well as in mercantile economics.”" "In the light of present oil and gas prices, it would be interesting to calculate what PetroCanada would be worth today as a public enterprise and how Canadians in general would be reaping windfall gains from public ownership. Certainly, a case can be made for public ownership, or Crown corporations, over private ownership and private foreign ownership, in particular in oil and gas. Crowns have a commitment to stay in Canada and prosper here. They can be given broader mandates than those imposed by private ownership: on climate change, on Canadian energy security, on appropriation of economic rents, on diversification beyond resource extraction. Diana Gibson of Parkland Institute in Alberta makes the brilliant point that there are lots of state-owned companies in our tar sands – the problem is that none of them are Canadian." "Existing sectoral regimes – in banking and financial services, telecommunications, broadcasting, cultural industries, airlines – appear to have been successful and should be maintained. If it ain’t broke, don’t fix it – and where, from the perspective of the public interest, is the evidence of breakage? Canadian banks have high rates of return and have been active in direct investments abroad, notably in the U.S., which suggests that it is not necessary to have domestic mergers for that to happen. Any policy that would put the Canadian financial sector under American ownership seems foolish in light of the recent excesses of American institutions. Nothing should be done that risks further weakening the hand of Canadian regulators. Lest putting the financial sector off-limits in today’s world seems old-fashioned and out of step with the times, China does not permit or countenance majority equity ownership by foreign interests in its banking and financial services industry." "It seems bizarre to call for less regulation in the financial sector at a time when the subprime mortgage imbroglio in the U.S. is reverberating around the world, creating costs for many people and companies and countries, with a rising chorus of voices wondering why the Fed sat on its regulations when this was happening; American ownership of Canadian financial institutions would have facilitated the spread of American malpractice into Canada. To quote James Gillies, Dean emeritus of York University’s Schulich School of Business (RoB Magazine, January 2008): “We need to assure that firms considered strategic to the development of our economy are not taken over. The markets alone will not provide the optimal solution. If we relied on markets alone to determine our economic destiny, this country would not exist.”" "Were China to mix foreign investment decisions and foreign policy, it would not, frankly, be a novel event on the part of a superpower. In the past, U.S. firms operating abroad have been issued government directives about remitting earnings from subsidiaries and about their subsidiaries not trading with Cuba, both to Canada’s detriment. There is also the notorious and well-documented case where the U.S. government (State Department and CIA) collaborated with the American multinational giant IT&T to overthrow the democratically elected government of Chile, to the financial advantage of IT&T. In the United States today, there is a clear mixing of foreign policy and foreign investment with respect to oil." "Having failed to play the private capitalist game in a sufficiently serious way, Canada now seems destined to miss its chance to be an active player in the sovereign wealth fund game, now arguably the most important game in the global village. Imagine what the Canada Development Corporation would be today if it had been seen as an embryonic sovereign wealth fund seeded by the economic rents that inhere in resource exploitation, too much of which has drained out of the country under the aegis of foreign ownership. Less foreign ownership in resources would have facilitated less foreign ownership in the rest of the economy. As well, there is something ironic about the savings of “ordinary Canadians” in pension funds being used to further the mergers-and-acquisitions game that is so uncertain in its benefits for them." "As the Panel is undoubtedly aware, there are important persons within the corporate world who have insider knowledge at a high level and have expressed concerns about hollowing out: Gerry Schwartz, CEO of Onex Corporation; Peter Munk, founder of Barrick Gold; Dominic D’Alessandro, Manulife Financial; Gordon Nixon, CEO of RBC; Dick Haskayne of oil and gas fame; Tom Caldwell of Caldwell Securities; Bombardier executives. Some advocate tough policy. Haskanyne asks why, if no one can own more than 20% of a bank, the same rule isn’t applied to oil and gas. Nixon is reported as saying that, “if the banks do not have ownership restrictions, they’ll be gone;” he went on to suggest that “[t]he new owners would likely run Canadian banks by remote control from enormous head offices and information centres outside the country [and] top jobs would disappear and urban vitality would suffer.” Indeed, we now seem to be seeing more dissent within the business community than there was during the debate about free trade, and even relatively more business critics of foreign takeovers today than there were business supporters of Walter Gordon in the 1960s. It remains to be seen, however, to what extent these dissenters are willing, as it were, to walk the talk and put heat on the Harper government." "In fact, Canada is not a developing country deficient in capital and education. It is, frankly, not clear why we have such an apparently bottomless need for foreign direct investment. It would seem, rather, that we have a business class, and governments beholden to them, unable to shake off a colonial, complacent, attitude." "Despite NAFTA, the U.S. government has unilaterally taken these border-thickening measures [since 9/11/01] with slight consultation and little if any forewarning; it has done so despite Canada bending over backwards to harmonize its security and intelligence policies, with highly adverse consequences for Canadian sovereignty and civil liberties. The better question for the Panel may be at what point the Canadian government and Canadian businesses should spend less energy banging their heads against the American border and more on developing opportunities elsewhere – though in the process we should avoid signing any more agreements of the NAFTA variety that tie the hands of governments while further empowering corporations. Beyond that, such integration may well be less necessary for Canada. The U.S. is losing weight within the global economy; it makes sense for Canada to adjust accordingly. Efforts in the past to diversify trade away from high dependence on the U.S. by both the Diefenbaker government and the Trudeau government failed, but the times are now different." http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/vwapj/Canadian_Centre_Policy_Alternatives.pdf/$FILE/Canadian_Centre_Policy_Alternatives.pdf

Note: http://www.ic.gc.ca/epi...