November 2003: The Vanishing Country (Part I of III)

It’s not too late to preserve Canada as an independent country
November 1, 2003

The subtitle of my book The Vanishing Country, published a year ago by McLelland & Stewart, is Is it too late to save Canada? I personally don’t think it’s too late, but even some great Canadian nationalists such as Peter C. Newman and David Suzuki have said to me that in their opinion it is already too late, that we have already become so integrated into the United States as a result of the FTA and NAFTA that we’ve now passed the point of no return.

Just about the time that I began writing The Vanishing Country over three years ago, a public opinion poll appeared that showed that a startling one in four Canadians believed Canada would not survive the next 20-25 years.

Halfway through my work on the manuscript, in answer to a similar question, 30% said they did not believe Canada would survive as an independent country. Then, just as The Vanishing Country was published, a new poll revealed that 36% of Canadians thought that union with the United States was inevitable.

I would be very hard pressed to think of any other developed country that would have numbers about the survival of their country remotely close to those indicated in the three polls. Why would so many Canadians respond this way, especially when we know from other polls that Canadians love their country, are proud of Canada, consider themselves to be very fortunate to live here, believe that we have a much better quality of life than in most other countries, including the United States, and they certainly don’t want to see our country disappear and don’t want to become Americans?

Perhaps some of the things I describe in my book may be the answer: the increasing foreign ownership and control of Canada, the ongoing and accelerating integration with the United States, and the increasing pressure from our business and political élites for even greater integration and more harmonization with U.S. policies, standards and values.

Let’s begin by looking at some of the ways in which Canada has changed since the Free Trade Agreement came into effect in 1989, followed by NAFTA in 1994.

First, there have been huge increases in foreign ownership and foreign control, mostly American.

Second, Americanization in the form of privatization, harmonization, and deregulation has proceeded across the country.

Another important change has been the Americanization of our business and industry trade organizations and corporate boards of directors in key areas of the economy.

And, in recent years, there has been a profound change in the media, led by the far-right National Post, the Asper newspapers, and the cautious timidity of the CBC, largely because of its reduced budgets, and its fear of further reductions.

There have been many other important changes, but here I will mention only one more, perhaps the most important of all, and that is the attitude to Canadian sovereignty of governments in this country, particularly in Ottawa, in Ontario, and in Alberta.

Turning to the questions of foreign ownership and foreign control: Back in 1985, when Brian Mulroney was pitching the FTA and repeating ad nauseam that “We’ve been hostile to foreign capital in the past, but from now on we’re going to be open for business,” the profits non-Canadians made in the mineral fuels sector of the economy amounted to 68% of all profits, in mining it was also 68%, in food processing and packaging it was 53%, in tobacco it was 99.9%, in rubber products 84%, in the machinery industry 63%, in transportation equipment 94%, in electrical products 67%, in non-metallic minerals 71%, and in chemicals and chemical products 87%.

How’s that for being “hostile to foreign capital”?

After 15 years of free trade, most Canadians understand that now, in any consideration of trade policy, foreign direct investment, foreign ownership and foreign control must also be considered. They are also aware that Canada has much more foreign ownership than any other developed country in the world, by far.

Not content with this great extent of foreign ownership and control, there are those who want and are currently lobbying for even more. We’re being inundated with appeals to government that we must open up for more foreign ownership in telecommunications, airlines, book publishing and book-selling, banking, newspapers, the petroleum industry, etc. etc. The euphemism commonly employed is “the free flow of capital,” which essentially means selling off the rest of the country that is not already foreign-owned

At what point, I wonder, would most Canadians consider that foreign ownership in Canada had gone too far? Would it be 30%? 40%? 50%? 60%? Or as much as 70%?

During the last 18 years, since Mulroney abolished the Foreign Investment Review Agency and replaced it with Industry Canada’s rubber-stamp Investment Review Division, 10,441 corporations in Canada have been taken over, mostly by U.S. firms. Not one single takeover has been refused.

Some 35 different sectors of the Canadian economy are already majority foreign-owned, including most manufacturing and most of the petroleum industry.

Of the 100 biggest private companies in Canada, beginning with General Motors and ending with Rolls Royce, 67 are foreign-owned.

In 1997 there were 41 large Canadian petroleum companies. Today there are six. Of the 35 that no longer exist, U.S. companies bought up 21.

Now for years, we’ve constantly heard from our corporate and political leaders and our numerous continentalist newspaper editors and columnists how we Canadians must have foreign capital to finance badly needed new business development in our country.

But, remarkably, of all the $503.1 billion of foreign direct investment monitored by the Investment Review Division since it opened for business in 1985, a startling 96.7% has been for takeovers of companies in Canada, and a pathetic, paltry 3.3% has been for new business investment.

Now exactly where do you think that all the hundreds of billions of dollars for the thousands of takeovers came from? Amazingly, no one in Ottawa can answer that question! Not Bank of Canada Governor David Dodge, not Prime Minister-in-Waiting Paul Martin or Finance Minister John Manley, not Industry Canada’s Investment Review Division--not even the excellent but underfunded Statistics Canada, which used to keep track of such information.

So the Montreal Canadiens and Teleglobe, just two prominent examples, are bought up by Americans, and the money comes mostly from our good old patriotic Canadian banks and from other Canadian financial institutions. Some 65% of all the financing for the increased foreign ownership and control of our country has come not from imported capital, but from our own Canadian sources of capital.

I guarantee you that no other developed country would allow its industries and companies to be bought by foreigners with its own domestic money.

What’s wrong, you may ask, with so much foreign ownership? You might first ask yourself why virtually all other developed countries shun a high degree of foreign control. There are many reasons: the corporate hollowing- out process that follows; the excessive foreign non-arm’s- length import of foreign parts, components and services; the failure to do R & D; the terribly costly transfer pricing, (Ford, Safeway, Coca-Cola, the big international drug companies.

A past president of the Canadian Institute of Chartered Accountants tells me that the fastest growing area of accountancy in Canada is transfer pricing--in other words, developing strategies to transfer profits out of Canada before they are taxable in this country.

And guess who it is that has to make up for the lost tax revenue? The country’s wage and salary earners.

Hollowing-out? The office vacancy rate in Calgary is sharply up during the past two years after a record number of takeovers in the oil and gas sector. Meanwhile, in Vancouver, the headquarters of almost one-third of the province’s largest firms have disappeared as companies such as Westcoast Energy and MacMillan Bloedel were taken over by foreign firms and their senior management and much of their office functions transferred down to head offices in the U.S.

In The Vanishing Country, I wrote:

A major problem with excessive foreign ownership is the loss of jobs that results when foreign corporations buy parts and components and services offshore or from the U.S. when similar-quality goods and services are available in Canada at competitive prices.

Foreign firms operating in Canada, on average, import three times as many parts, components, and services as similar-sized Canadian companies. In 1993, an OECD study showed that the ratio of foreign parts and components in manufacturing in the U.S. was 13%. In Japan it was 7%. In Canada it was over 50%, and it is probably much higher today. This exceptionally high foreign content is one of the key reasons why Canada’s unemployment rate has persistently been so much higher than it should have been.

But what about all the nonsense we’ve been hearing from Tom d’Aquino and friends about Canadians buying up the United States? Despite what you may have heard, despite the Japanese at one time buying up Pebble Beach and the Rockefeller Center (“My God, I think they got the Statue of Liberty!”), despite the Germans buying Chrysler, Doubleday and Random House, there is not one single industry in the United States that is majority foreign-owned.

Not one!

Only a tiny 6.4% of U.S. industry is foreign-owned, and of that, only 8% is Canadian, and most of that is a result of our Canadian banks funneling billions of dollars into the U.S.

As for all the huge amounts of Canadian direct investment abroad, once again, no one, repeat no one in Ottawa has the faintest idea just how much of all the so-called “Canadian” investment is, in fact, really Canadian. When Statistics Canada was still keeping track, which they are no longer doing due to budget cuts, as much as 30% to 40% wasn’t Canadian at all, but rather it was large foreign companies based in Canada sending dollars out of the country, often for nefarious tax purposes. (Witness, for example, the recent Enron multi-million dollar “slapshot” case complained about by our auditor-general, Sheila Fraser.)

And, while Canada’s banks poured billions of dollars out of the country, mostly to buy up U.S. banks, brokerages and trust companies, between 1998 and 2002 they closed 1,100 branches in Canada, as many worthy small and medium-size Canadian businesses were finding it difficult or impossible to raise the working capital that they required.

As for all the nonsense from the likes of Terence Corcoran, Sherry Cooper, Drew Fagan, the Conference Board, and of course, Tom d’Aquino, that foreign investment in Canada has been drying up and that Canada has not been a good place to invest--in every single year, from 1994 to 2000, foreign direct investment in Canada broke all previous records, and in 2000, the latest year for which official takeover dollar figures are available, as a percentage of GDP it was greater than in all G-7 countries.

Moreover, the foreign investment figure for 2000 was an all-time record four and one-half times larger than in any previous year! Not surprisingly, in that same year there was another brand new record number of takeovers of Canadian companies, once again mostly by Americans.

So, what has all of this got to do with trade?

I doubt that today, over 14 years after the FTA came into effect and almost 10 years after NAFTA, that one in a hundred Canadians knows that as a result of the investment clauses in both the FTA and NAFTA, Americans can continue to buy up Canada, whether we like it or not, despite the fact that the polls consistently show that most Canadians don’t like it at all!

Those who think that there should be some limit on the degree of foreign ownership in Canada must then consider exactly what is to be done with the unprecedented investment clauses in the agreements and consider whether they want even more of the same in the currently-being-negotiated FTAA and the GATS, because that’s almost certainly what we’re going to get.

While it might be argued that proper government guidelines can assure domestic benefit from foreign investment, unfortunately both the FTA and NAFTA prohibit regulations designed to encourage a long list of requirements that would guarantee a better performance by foreign corporations operating in Canada. Gone are the days when federal, provincial, or local governments could mandate performance standards affecting job creation, R & D, technology transfers, domestic content, or mandate local, regional, or domestic purchasing or hiring requirements.

Now let’s look at some comments by the staunchest supporters of the FTA and NAFTA, and see how they have reacted to the renewed rapid growth of foreign ownership in Canada.

Let’s start with the late Mr. Justice “Bud” Estey:

“I supported free trade a decade ago. Now I am starting to suspect that Canada may have contracted out our independence to those trade agreements. The problem is that we are letting corporations with no loyalty to this country strip it of its finite resources.”

Comments by Peter Lougheed astounded Canadians late in 1999:

“I know people will fall from their chairs to hear me say this, but maybe right now we need to return to the Foreign Investment Review Agency. We need to be more interventionist. The passive approach isn’t working. If (the present trend) continues, we are going to look at our country in about three years and say: What have we got left?”

That was four years ago. Since then, there have been two new annual records in foreign takeovers.

Even “leap-of-faith” Donald Macdonald now admits that he is very concerned about the growth of foreign ownership in Canada, but he says he doesn’t know what to do about it.

Let me end this discussion of foreign ownership by quoting one of our more observant and astute experts on the subject:

“I’ve yet to see a takeover that has created a single job--except of course for lawyers and accountants.”

--Brian Mulroney, Where I Stand, 1983.

Is it too late to save Canada? No, I don’t think it is. But some very important things will have to happen soon if we’re going to ensure that our grandchildren grow up to be Canadians.

First, Canada cannot possibly survive if we continue to sell off the ownership and control of our corporations, our resources, our land, our hi-tech companies, our manufacturing, retail and wholesale firms, and other areas of our economy.

But, instead, what we hear from the likes of our trade minister, Mr. Pettigrew, is that one of our primary goals must be “to increase the flow of two-way investment.”

In other words, let’s have our banks and other financial institutions continue to pour Canadian savings out of the country, while at the same time continuing to finance foreigners in buying up the ownership and control of our country.

You will not be surprised if I admit having the gravest doubts about Mr. Pettigrew’s ability to properly handle his portfolio in the national interest.

I wonder how many Canadians have ever seen an economic analysis of the free trade years.

We’ve all heard a great deal about our increased exports, but one important study shows that 85% of those increased exports were not due to the FTA or NAFTA, but to the low value of the Canadian dollar and to the expanding U.S. economy. This was a 2001 study by Industry Canada, and it showed that only 9% of the increase in Canada’s exports could be linked to the FTA or NAFTA.

During the long debate about the FTA in the last half of the 1980s, the Mulroney government and its corporate friends promised Canadians improved productivity and competitiveness, greater prosperity, more factories from many different countries locating in Canada to serve the U.S. market, better wages, and a long list of other promises that were certain to materialize because of our newly-gained “guaranteed access” to the U.S. market.

To say that the Americans got pretty well everything they wanted by the time the FTA was signed in 1988 would be an understatement. The U.S. Trade Representative, Clayton Yeutter, pithily summed up the prospects for Canada when he frankly remnarked: “The Canadians don’t understand what they’ve signed. In 20 years they will be sucked into the U.S. economy.”

Even now, many years after the first free trade agreement came into effect, most Canadians don’t realize that the Mulroney government agreed to some extraordinary terms. The Chrétien government then accepted Mulroney-negotiated NAFTA terms that were even worse, and some that can only be described as appalling. This was, of course, the very same group of Liberals who so earnestly and enthusiastically promised in the 1993 federal election campaign that they would negotiate away all the objectionable and damaging FTA and NAFTA provisions.

In energy and in resources, Canada’s ability to control its own supplies and prices has been drastically reduced. Canadian oil and natural gas prices are now set in the U.S. If the U.S. faces a severe shortage and its market dictates huge price increases, too bad: Canadians will have to pay the same high prices. Thanks to NAFTA, Canadian oil and gas can no longer be sold at lower prices in Canada than the prices we charge Americans.

Perhaps even worse, even if we begin to run short, we will still have to continue sharing our diminishing supplies with the U.S.--even if we face a severe supply crisis.

Bear in mind that our established proven reserves of natural gas are down to only 8.3 years, and we haven’t replaced our diminishing reserves for over 20 years.

So, let’s see now. If Alberta begins to run out of natural gas, Ontario will run short, Quebec will be out of luck, Saskatchewan and Manitoba will have to endure freezing prairie winters, but, incredibly, we will still have to supply Americans with two-thirds of our production from across Canada.

How’s that for employing the fundamental free trade theory of comparative advantage?

But what about the Mackenzie delta reserves? Much of these will go directly to Fort McMurray to help produce tar sands oil for export to the U.S.

Mexico, by the way, absolutely refused to sign similar mandatory resource-sharing clauses when they signed on to NAFTA. So much for the abilities of our cabinet ministers and trade negotiators.

Now let’s do a quick review about what we’ve heard and read about “the great success” of the two trade agreements, and about our great dependency on our exports to the U.S., and our resulting vulnerability.

Brian Mulroney keeps boasting that “free trade has been the best thing ever for Canada.” Diane Francis of The Financial Post says “free trade is demonstrably the best public policy ever adopted in Canada.” William Dymond, testifying before the Senate Foreign Affairs Committee, said, “The results have surpassed the expectations of government and business. I will not bore you with the details or the numbers.”

Dymond was one of Mulroney’s key free trade agreement negotiators. When I read those words of his testimony, I wondered if Dymond actually had the numbers, or if he did indeed have the numbers but didn’t want to reveal them, or if, like so many other Mulroney supporters, he just took for granted the great success of the trade deals, or perhaps, like so many of our political, business, and economic journalists, he simply wasn’t interested in doing the research necessary to evaluate the agreements’ actual economic impact.

Not to be outdone, the terrible twins of continental integration, Michael Walker of the Fraser Institute and the CCCE’s d’Aquino, use almost identical words: “Free trade brings immense benefits to Canada,” and “Free trade created immense benefits for Canadians,” including what Mulroney has described as “a bounty of jobs.”

Sylvia Ostry and Gilbert Winham, in a Globe and Mail op-ed piece last June, told us--note this--that the agreements “buoyed the Canadian economy through the 1990s.”

Okay, let’s look at this purported “great success” of the two trade agreements that “buoyed our economy in the 1990s.”

First, the growth rate of Canada’s gross domestic product (GDP) during the 1990s was lower than during any decade since the Great Depression! In the period 1990-2000, compared to all other countries, Canada placed an embarrassing 80th in GDP growth!

During nine of the past 13 decades, Canada’s GDP growth was greater than that in the U.S., but, since the FTA came into effect, the U.S. outperformed Canada in eight of 14 years.

During the decade before the FTA, in GDP growth, Canada outperformed the G-7 average, the OECD average, and the average of the European Union. During the 1990s, under free trade, it fell behind all of them.

Joe Martin, adjunct professor at the Rotman School of Management in Toronto, sums it up in these words: “From 1939 to 1989, Canada made extraordinary progress compared with the United States. In 1939, our GDP per capita was less than 70% that of the United States. By 1989, it was 90%, and then the wheels came off. . . [During the free-trade decade of the 1990s] our snail’s-pace growth resulted in our sinking to 80% of the United States by 1999, a precipitous decline in only 10 years.”


(Mel Hurtig is a noted Canadian publisher and the author of many best-selling books, including his latest, The Vanished Country, the main themes of which he discusses and updates in this three-part series. In Part II, in our next issue, he continues his account of the devastating effects of the free trade agreements on this country and the ongoing efforts by our political, business and media élites to further undermine our sovereignty and transform Canada into a subservient U.S. colony.)