Takeovers place key Canadian industries in foreign hands
In the late 1960s and throughout the first half of the 1970s, Canadians became increasingly concerned about the already high and rapidly increasing level of foreign ownership in Canada, which had reached over one-third of all non-financial industry corporate assets and over 37.4% of all revenues.
One result of this concern was the formation of the Committee For An Independent Canada (CIC), the Watkins Report, the Gray Report, and a steady stream of public opinion polls which reflected growing Canadian unease about foreign ownership–so much so that, after being presented with a 176,000-name petition by the CIC, Pierre Trudeau and his government brought in the Foreign Investment Review Act in 1975. Within a decade, foreign control dropped all the way down to 21.4%–still very high compared to other industrialized countries, but at least it was decreasing instead of continuing to increase at an alarming rate.
After Brian Mulroney abolished the Foreign Investment Review Agency and replaced it with the rubber-stamp Investment Canada, foreign direct investment and foreign control began to increase once again. By 2000, the foreign control of non-financial industries was at about the same level as in the mid-1960s. The latest official Statistics Canada figures at this writing are for 2003, when foreign control was back up to 29.3%, the highest level in 30 years.
Now, in 2006, there is little doubt that we have already passed the levels that caused such great concern in the 1970s, and are rapidly proceeding well beyond all previous record levels.
In this respect, it’s interesting to note that, in compiling its figures, Statistics Canada does not consider companies such as Air Canada, the CNR, Petro-Canada, or Canada’s largest oil and gas producer Encana in its foreign ownership calculations, even though all four and dozens of other important “Canadian” corporations are already majority-foreign-owned, mostly by Americans. Many other countries consider that as little as 10% foreign ownership can and often will represent effective foreign control.
(And hasn’t it been wonderful to see the CNR holding its annual meeting in the U.S. for the first time in its history?)
Today, about 35% of Canada’s largest corporations are thought to be foreign-owned, although this number is undoubtedly too low since in the annual business magazine listings the information about ownership is often shown as NA (not available) or many firms are only classified as “widely held.”
For those right-wing continentalists and their comprador colleagues who make their perpetual, widely-publicized pleas for more foreign direct investment (the Chamber of Commerce, The Conference Board, The Canadian Council of Chief Executives, the C.D. Howe and Fraser Institutes, our leading newspapers, etc.), we should have nothing but contempt. As we shall see, what they are asking for is plain and simple: more foreign ownership and control of our resources, our industry, our high-tech companies, and other businesses. How so?
Let’s look at the startling figures for foreign direct investment since Brian Mulroney declared Canada “open for business” and dumped the Foreign Investment Review Agency. To the end of December, 2005, 11,501 companies in Canada were taken over by non-resident-controlled corporations. The total dollar amount monitored by Investment Canada was an enormous $620.7 billion. Of this amount, 97.1% was for takeovers, and only a pathetic 2.9% was for the hoped-for new business investment!
Since Investment Canada began keeping track, (June 30, 1985), some 64% of these foreign direct investments have been attributed to American firms. Far behind in second place is the United Kingdom at just over 9%. So, essentially, when we talk about foreign ownership and control in Canada, it’s predominantly American. And, contrary to all the nonsense in our newspapers about Canadian direct investment in the U.S. exceeding U.S. direct investment in Canada, the American ownership of Canada was over $63.5 billion higher and of course represented a much greater percentage of assets and GDP.
As might be expected, a very large percentage of Canadian direct investment abroad was by our good old patriotic Canadian banks—42%, to be exact.
For some very good reasons, most Americans think that they have the right to buy up as much of the ownership and control of Canada as they wish.
For some truly bizarre reasons, many of our leading politicians and journalists see no problem with all of this. In fact, many of our political leaders and our most prominent editorial writers and columnists encourage more U.S. investment at almost every opportunity that the topic comes up, seemingly ignorant of the fact that what they are asking for is even more foreign ownership and foreign control of our country.
The following industries in Canada are now majority or heavily foreign-owned: manufacturing, the petroleum industry, chemicals and chemical products, mineral fuels, non-metalic mineral products, food processing and packaging, electric products, tobacco products, machinery, transportation equipment, computers, major advertising firms, meat packing, aircraft, etc., etc. and etc.
Altogether, some 36 different sectors of the Canadian economy are heavily or majority foreign-owned and/or controlled. And now the Harper government is under increasing pressure to allow the foreign takeovers of Canadian utilities, airlines, book stores and book publishers, telecommunication companies, and others.
In comparison, in the United States, there’s not one major industry that is majority-foreign-owned or controlled. Seven smaller industry groupings have majority foreign ownership, but overall only 4.7% of U.S. private industry employment is in foreign-owned firms.
Another way of comparing foreign direct investment in Canada and the U.S. is as a percentage of GDP. In Canada in the 1990s it averaged 22%. In the U.S., it was only 8%.
Well over half of all manufacturing in Canada is foreign-owned. In comparison, among the other 29 OECD countries, all of the following are below 4%: Japan, Germany, the U.S., Poland, Norway, Italy, the Netherlands, Finland, the United Kingdom, France, Sweden, and the Czech Republic. No other major industrialized country has a level of foreign ownership of its manufacturing even a third as high as Canada’s.
As I pointed out in my book The Vanishing Country,
Tom d’Aquino and his fellow patriots at the Business Council on National Issues (now the Canadian Council of Chief Executives) have been complaining for years that Canada isn’t getting enough foreign investment. Let’s turn to official Statistics Canada figures and look at recent foreign direct investment which in the 1990s amounted to $126 billion for the entire decade. In 2000, it exploded to a new annual record greater than in any G-7 country, and a record 509 Canadian firms were taken over. The value of these takeovers was a startling $81.8 billion. The previous record, set the year before, was $18.1 billion.
By 2000, foreign direct investment in Canada was over two-and-a half times as much as it was in 1990, and over four- and- a-half times as much as it was in 1980.
So much for all the misleading complaints from our continentalist corporate sellouts that Canada hasn’t been getting enough foreign direct investment.
It’s always interesting to ask these people just how much of the country they’re prepared to sell off. None of them will ever give you an answer. Try writing Stephen Harper a letter asking him this question and see what you get.
If you have a strong stomach, go to the Investment Canada website (investcan.ic.gc.ca) and have a look at any one month of takeovers of businesses in Canada. Month after month, year after year, in every region of the country, the long list of takeovers is appalling: petroleum and mining companies, forestry and energy distribution companies, clothing and design companies, computer and software companies, wholesale and retail operations, hotels and entire resorts, tar sands companies, a multitude of important service industry companies, our largest and most successful steel producer, insurance and finance firms, real estate and construction companies, home heating and power companies, asset management firms, restaurants, breweries, bakeries, research firms–and the list, month after month, goes on and on and on.
It’s remarkable, but too sad to be laughable, to hear the constant whining about poor productivity, lack of Canadian patents and innovation, poor levels of high-tech exports, etc., when almost every day another Canadian high-tech company is taken over by foreign corporations. As others have pointed out, 125 such companies in the Ottawa area alone were taken over in the decade ending in 2003.
In the late 1990s, there were over 40 large Canadian petroleum companies. Since then, U.S. companies have purchased over 20. Now there are only six left.
In April, 2005, then Liberal Minister of Industry David Emerson wrote to concerned citizens that he strongly believed that the well-being of Canada’s petroleum and manufacturing industries “is very much in the national interest,” and that “a key element in supporting these industries is to allow and indeed promote foreign investment.” The hapless Emerson seemed quite unaware that both the petroleum and manufacturing industries were already majority foreign-owned. One must wonder just at what level Mr. Emerson and his political and corporate colleagues would be satisfied that enough is enough. Would it be 60% 70%? 80%? Or should it be 100 foreign ownership and control? Too bad that some MP or some press gallery member hasn’t long ago asked such a question of our political leaders.
Emerson also indicated that Canadians need not be concerned about the investment review process, which he described as “rigorous,” with ”systematic and well-established systems.” What total bunk! Since FIRA was dumped by Brian Mulroney, not one single takeover of over 11,500 has been denied.
Bear in mind that the current goal of Investment Canada is to facilitate and solicit even more foreign direct investment, not to limit or control it. This was the Mulroney government goal when it abolished the Foreign Investment Revenue Agency, and both the Chrétien and Martin governments enthusiastically continued this policy and continued selling off the ownership and control of our country. If anything, the Harper government will almost certainly open the door even wider to new record levels of takeovers of more of our businesses, resources, and land.
While the Mulroney, Chrétien, and Martin governments actively encouraged more foreign direct investment, the Harper government will likely make all three look like rabid nationalists in comparison. At the same time, it’s interesting to note that consistently the Canadian people have shown that they want otherwise. Year and year, poll after poll, Canadians say we already have too much foreign ownership and control and we don’t need more.
Under Stephen Harper’s new government, is there anything that will not be for sale? American corporations are eyeing our airlines, our telecommunications firms, our mining companies, our book publishers, and what is left of the petroleum and manufacturing industries. What can we expect in the future? Globe and Mail business columnist Andrew Willis is to the point: “Expect takeovers to continue at a red-hot pace.”
Virtually universal conventional wisdom among our corporate élite, our blinkered media, and our federal and provincial politicians leads us to believe that the development of Canada and our standard of living has been largely due to the influx of foreign capital. Not so. In fact, most of the massive takeover of corporations in Canada has been financed by Canada’s good old reliable Canadian banks and our other financial institutions, including the Caisse and our very own pension funds.
For example, the Recreational Products Division of Bombardier’s takeover was financed by two Canadian banks (BMO and RBC) and a Quebec Caisse. The CIBC was the leading lender in the takeover of Shoppers Drug Mart. The CIBC and the Bank of Nova Scotia helped finance the Yellow Pages Sale.
As I have pointed out many times in the past, no one on Ottawa knows just how much of the sale of our country has been financed with our own money–not the Department of Finance, not the Bank of Canada, not Statistics Canada, not the PMO or the PCO: no one! Why is that? Simple. None of them are interested. They don’t care. One thing is for sure: it could happen in no other developed country.
Meanwhile, incredibly, thanks mostly to our banks and other Canadian financial institutions, the outflow of foreign direct investment from Canada in the period 1995-2004 was greater than such outflows for Germany, the United States, Italy, Finland, Sweden, and, all-combined, Portugal, Belgium, Luxembourg, Norway, Austria, New Zealand, Australia, and Ireland.
As every year goes by, it becomes increasingly clear how poorly Canada’s negotiators emerged from both the FTA and the NAFTA talks. Here we will mention only the egregious mandatory energy-sharing clauses, our inability to control our own petroleum prices, the notorious Chapter 11, the absurd straight-jacketing of industrial strategy options, and the mandatory treatment of American corporations as if they were 100% Canadian. I cannot imagine any other country giving away so many vitally important policy options. (Mexico laughed at the Americans when the U.S. proposed NAFTA petroleum clauses similar to the ones Canadians so stupidly accepted.)
Under the terms of both the FTA and NAFTA, Canada gave away many of the tools used by nations around the world to keep a reasonable check on excessive and/or detrimental foreign ownership and control, and even abandoned many of the options to ensure takeovers had to clearly bring benefits to this country.
All of this raises two very interesting and important questions, one easy to answer, the other very difficult to answer. The first and easy question is why do other developed countries reject such high levels of foreign ownership and foreign control?
There are many important reasons, too many to do justice to in this essay, but, to begin, here’s just one: Foreign firms import much of their goods and services from their parent company, almost always at high non-arms-length prices. Here are G-7 figures for imports of goods and services as a percentage of GDP that I have published before:
Canada: 41%
Germany: 28%
United Kingdom: 27%
France: 24%
Italy: 24%
United States: 13%
Japan: 9%
These figures represent a huge loss of jobs, profits, and overall economic activity caused by excessive imports resulting from excessive foreign ownership and control. Overall, foreign firms operating in Canada import three times as many parts and components and services as similar-sized Canadian companies. In a truly remarkable comparison, an OECD study showed that the ratio of foreign parts and components in manufacturing in the U.S, was 13%, in Japan 7%, and in Canada it was over 50%.
In the United States, when China National Offshore Oil Corporation tried to take over the American oil firm Unocal Corp., the ninth largest U.S. oil company, Washington stepped in to take steps to block the Chinese bid.
In France, when Pepsi attempted a takeover of the famous Danone SA food company, French Prime Minister Dominique de Villepin warned Pepsi not to proceed further.
And there are many, many other examples of governments stepping in to curb foreign takeovers in every part of the world every year.
Transfer pricing is another important reason other countries limit foreign ownership. Foreign subsidiaries are charged high or even outrageous prices for goods and services which must be purchased from their parent companies. Firms such as Safeway, Ford, Coca-Cola, and the large pharmaceutical companies, to mention a few, transfer their profits out of Canada before they are taxable here. Hence, every Canadian reading these words gets the privilege of paying more tax.
Another reason excessive foreign ownership is discouraged is that the dominance of foreign corporations in an industrial sector inevitably brings pressure on government policy in both domestic and foreign policy development. The job of foreign subsidiaries is to make as much profit as possible for their foreign parent. There is no such thing as a Canadian national interest in any such considerations. ExxonMobil, as one example, tells Imperial Oil what to do about maximizing or minimizing their public positions on petroleum reserves, and the result no doubt benefits ExxonMobil, but it may well not be in Canada’s national interest.
Other downsides include the fact that key decisions on the opening and closing of plants, the level of wages and dividends, the marginalization of Canadian directors, the inability of subsidiaries to compete with their parent in export markets unless permission is granted, and the adoption of U.S. standards, values, and policies are made by the foreign parent.
There’s no room here to do proper justice to all the other foreign ownership negatives, but much can be summed up in my favorite quote on the subject of takeovers, which comes from none other than Brian Mulroney: “I’ve yet to see a takeover that has created a single job, except of course for lawyers and accountants.”
Try looking at the number of jobs per million dollars in sales and compare Canadian firms and U.S. subsidiaries. The numbers are shocking and most revealing. In 2000, foreign firms in Canada made 53% of all manufacturing shipments in this country, but employed under 32% of manufacturing workers.
The second question is much more difficult and truly borders on the bizarre. After the takeover of the Hudson’s Bay Company, the marvellous Fairmont Hotel icons and Dofasco, The Economist put it this way: “In many other countries, the sale of national heirlooms would spark fierce opposition. Not in Canada.”
Author Peter C. Newman says: “In all other developed countries, the economic élite defend their country’s sovereignty because not only is it in their own interest to do so, but they are proud of their country and wish it to be more than a place where their children and grandchildren can best look forward to being serfs.”
David Crane, columnist for the Toronto Star, pinpoints one element of the problem: “The upsurge in foreign ownership and control in the Canadian economy would not be taking place if our financial markets were focused on building Canadian companies, rather than selling them.”
It would take at least several chapters like this to properly try to explain the sell-off of our country. Yes, some or even much of it is related pure and simple to greed, but that alone cannot explain the extraordinary and virtually unique-in-the-world absence of patriotism and loyalty to one’s homeland among so many of our corporate establishment. Surely, though, the fact that so much of our media is either American or is controlled by our own far-right conservative continentalists are factors in our country’s silent sleepwalking to colonial status.
(Mel Hurtig is a distinguished publisher and nationalist, and the author of many best-selling books, including The Vanishing Country and Rush to Armageddon. This article was adapted from his essay in the upcoming CCPA/Lorimer book Living With Uncle: Canada-U.S. Relations in the Age of American Empire.)
