Vive Le Canada

The Hollowing Out of Corporate Canada
Date: Wednesday, December 17 2003

[RBC CEO Gord Nixon says that RBC wouldn't have become a big international player if it wasn't takeover-proof. "If the banks didn't have ownership restrictions, they'd all be gone" - NSay]

The Hollowing Out of Corporate Canada

by Eric Reguly

Is Toronto's Bay Street corridor in danger of looking like downtown Buffalo?

Gord Nixon, the CEO of Royal Bank, is by nature a free trader. His company, Canada's largest by market value, has bought about US$6-billion of banks, insurers and brokerages in the United States in the past three years and has every intention of continuing the spending spree. Royal, as a result, has evolved into a truly international player and it won't be long before the Canadian operations are smaller than the foreign ones.

This is what any city, any country cherishes-big, thriving head offices anchoring vast empires. Head offices provide challenging, high-paying jobs, which in turn create other jobs, from accountants and lawyers to ad designers and chefs. They support the arts and pay taxes that buy social services. They keep talented university grads from fleeing. It is no exaggeration to say that Royal and the other Big Five banks keep downtown Toronto from looking like Buffalo, N.Y., on a bad night.


The hollowing out trend will go in fits and starts-the bear market has substantially reduced the takeover pace-but the long-range outlook doesn't look favourable for Canada. What can be down to slow it down, even reverse it? There is no easy answer. Federal governments, no matter what their political stripe, will likely keep some sort of ownership restrictions on "strategic" industries, with financial services at the top of the list. Making Canada more competitive, Nixon's solution, is probably the best idea. Among other things, it means keeping tax rates competitive, ditching the onerous capital tax, eliminating inter-provincial trade barriers and ramping up research and development expenditures (Canada's R&D spending is among the lowest in the world). It also means convincing Ottawa not to act simply as a money-transfer point, sucking tax dollars out of Toronto and Calgary and pumping them into loser industries and have-not provinces. If the world discovers that Canada is a superb place to invest, it will attract and keep head offices. This process could take decades. In the meantime, watch Canada's cities get more hollow before they fill up again.

Eric Reguly writes a business column for The Globe and Mail and co-hosts "The Close" on Report on Business Television.

The Hollowing Out of Corporate Canada

The Hollowing Out of Co...

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