The Truth About Canada (25 page)

But wait a minute. In 2006, foreign direct investment in India was only $8.8-billion, in all of Russia it was only $31-billion, in Mexico and Brazil less than $21-billion. Again, compare that with Canada’s $78.3-billion.

What will be the impact on Canadian long-term productivity from increasing foreign takeovers? According to BMO, “One area that often suffers is research, technology, design and development.”

Hilarious yet again is big business in Canada yelping almost daily about what a poor place Canada has been to invest in. Corporate taxes will have to be slashed even further. Our regulations and standards must now be harmonized with American regulations and standards, etc., etc., or else we’ll be in the poorhouse.

Funny, in March 2005, the Economist-Intelligence Unit, in their
Assessing the General Business Environment
, said that Canada ranks second in the world in forecasts from 2005 to 2009 as a place to invest. Perhaps they meant the second-easiest place in the world to take over good companies.

Meanwhile, the boys at the CCCE are shoving their piles of money out of the country just as enthusiastically as they shout “We must cut taxes!”

Incredible as it may seem, given the already very high levels of foreign ownership and control in Canada, a “secret” February 2006 Industry Canada document proposed that Ottawa should encourage even more takeovers of Canadian businesses. The document called current levels of foreign ownership and control “reasonable” and suggested reducing or removing restrictions on foreign takeovers in telecommunications, broadcasting, publishing, and banking. The public servants who authored this absurd document should have been fired long ago. However, it should be noted that many key pages of the documents prepared for the Conservative Industry minister at the time, Maxime Bernier, were heavily censored. Now why do you think that would be? Could it be because the censored material was information about why more foreign ownership would be unwise, information that Bernier did not want Canadians to see?

Bernier is a former important member of the right-wing Montreal Economic Institute think tank and seems to top even the enthusiasm of Thomas d’Aquino, head the Canadian Council of Chief Executives, for selling off even more of our country. Mind you, that’s difficult. In January, 2008, Mr. d’Aquino told Canadians not to fear all the foreign takeovers. He advised us that government should not impose any new restrictions; on the contrary, most restrictions on selling off the country should be removed.

Meanwhile, true to form, despite the recent huge amounts of new foreign investment and takeovers, the C.D. Howe Institute claims that “there are tax-related obstacles when it comes to foreign investment in Canada’s private equity sector.”
⁶
Apparently, a great many very enthusiastic foreign investors are not familiar with these “tax-related obstacles.”

And despite the already high levels of foreign ownership and control in Canada, and the enormous new foreign direct investment in 2006, Neil Reynolds of the
Globe and Mail
tells his readers that “Canada does not have a conducive environment for foreign investment,” while Ian Russell, the head of the Investment Industry Association of Canada, somehow ignoring Canada’s consecutive years of record-breaking corporate profits, tells his Toronto luncheon audience, “There is too little incentive for Canadians to invest and keep investing.”
⁷
Good grief!

Never underestimate the enthusiasm of the Harper government for selling off the part of Canada that isn’t already foreign-owned. At this writing, Trade Minister David Emerson and Finance Minister Jim Flaherty have been in Beijing trying to convince the Chinese to come in and buy up whatever the Americans and Europeans don’t already own. When Emerson was Industry minister in the Paul Martin government, he replied to a citizen concerned about the growing level of foreign ownership and foreign control in Canada with this profound observation: “I strongly believe that the well-being of Canada’s petroleum and manufacturing industries is very much in the national interest.” Then, apparently not knowing that both these industries were already majority foreign-owned and foreign-controlled, he continued, “A key element to supporting these industries is to allow and indeed promote foreign investments.… I see no reason at this point to introduce specific foreign ownership limits.” (In 2005, before the huge takeovers of 2006 and 2007, foreign corporations already took in 56.5 percent of all manufacturing profits and 55.2 percent of all oil and gas revenue.) And then, the confidence-destroying clanger from Emerson: “Please rest assured that the investment review process is rigorous.”

According to Stephen Harper, speaking in the House of Commons, foreign takeovers will only be approved if they produce a “net benefit”
after being reviewed by Investment Canada and if the big foreign companies “pay their fair share of tax in this country.”
⁸
What a joke!

Eric Reguly, writing in the
Globe and Mail
(August 11, 2006), ridiculed Investment Canada, calling it “a total pushover,” which raises the question: “What is the point of Investment Canada? If it’s a perpetual rubber-stamp machine that is useless, why not save the taxpayer a few bucks and sink it in the Ottawa River?”

Any suggestion that takeovers are not allowed by Investment Canada unless they provide a “net benefit” to Canada is absurd. A
Toronto Star
editorial on July 29, 2007, had it right: “Whether a takeover confers a net benefit is beside the point if that benefit is not greater than the one Canada would realize were the firm to continue operating under Canadian control … the net benefit test is the weakest one conceivable.”

Whereas other countries around the world frequently reject takeovers if they are not clearly beneficial, Canada has few barriers. Investment Canada, since its inception in 1985, has not turned down one single takeover.
Not one, in more than 10,500!
Regulations that other countries routinely employ to retain control of their corporations are mostly absent in Canada. Yet Maxime Bernier’s director of parliamentary affairs, Darren Cunningham, claimed that Investment Canada protects Canada’s best interests and “bad deals will be caught.”
⁹
(From June 30, 1985, to June 30, 2007, only 12.5 percent of takeovers in Canada were even reviewed by Investment Canada.)

Economist Mel Watkins says Investment Canada has given a whole new meaning to “Buy Canadian.”

As to Harper’s promise that big foreign companies will pay their fair share of taxes in this country, Leonard Farber, of Ogilvy Renault, writes in the
Globe and Mail:

A former Finance official says “foreign takeovers will result in less tax at both the federal and provincial levels.”

First, he said, there’d be no more tax revenue from Canadian investors. “[Also], private equity will load up debt in Canada … rendering the operation basically non-taxable
in Canada, and interest crossing the border will be free of withholding tax.”
¹⁰

By the end of 2006, the following industries in Canada were majority or heavily foreign-owned: manufacturing, the petroleum industry, chemicals and chemical products, mineral fuels, non-metallic mineral products, food processing and packaging, electric products, tobacco products, machinery, transportation equipment, computers, major advertising firms, meat packing, brewing, aircraft, etc.,
etc.

Altogether, some 36 different sectors of the Canadian economy are now 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, bookstores and book publishers, telecommunication companies, and other industries.

In comparison, in the United States there’s
not one single industry
that is majority foreign-owned or controlled. Not one! And only two have foreign ownership of assets in the 30 percent range.

Another way of comparing foreign direct investment in Canada and the United States is as a percentage of GDP. In Canada in the 1990s, it averaged 22 percent. In the United States, it was only 8 percent. At the end of 2005, only 4.7 percent of private industry in the United States was controlled by foreign firms. As already indicated, over half of all manufacturing in Canada is now foreign-owned. In comparison, among the other 29 OECD countries, all of the following are far below the level in Canada: Japan, Germany, the United States, 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 anywhere near as high as Canada’s.

In the decade of the 1990s, foreign direct investment in Canada amounted to $126-billion. By 2000, it was over two and a half times as much as it was in 1990. By the end of 2007, Investment Canada had recorded new foreign direct investment in takeovers alone of $603.88-billion.

It’s always interesting to ask our gung-ho sellouts just how much of the country they’re prepared to sell off. None of them will ever give you
an answer. I asked Anne Golden of the Conference Board of Canada this question, and all she could say was, “That’s an interesting question.” Try writing Stephen Harper a letter asking him this question and see what reply you get.

If you have a strong stomach, go to the Investment Canada website (
http://strategis.ic.gc.ca/epic/site/ica-lic.nsf/en/h_lkooo14e.html
) 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 resorts, a multitude of important service industry companies, our largest steel producers, insurance and finance firms, real estate and construction companies, home heating and power companies, asset management firms, restaurants, breweries, bakeries, research firms — 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, and so on, when almost every week another Canadian high-tech company is taken over, by a foreign corporation. As others have pointed out, 125 such companies in the Ottawa area alone were taken over in the decade ending in 2003. And now you can also wave goodbye to the Canadarm and Radarsat-2, along with all the other high-tech companies recently taken over by Microsoft and IBM.

In the late 1990s, there were over 40 large Canadian petroleum companies. Since then, foreign companies have purchased most of them. Now there are only six left.

One really must wonder what the level of foreign ownership has to be before Mr. Harper and his corporate colleagues are satisfied that enough is enough. Sixty percent? Seventy? Eighty? Or should it be 100 percent foreign ownership and control? Too bad that some Member of Parliament or the Press Gallery hasn’t long ago asked such a question of our political leaders.

Today, the goal of Investment Canada is to
facilitate and solicit even
more foreign direct investment
, not to limit or control it. This was the goal of the Mulroney government when it abolished the Foreign Investment Review Agency, and both the Chrétien and Martin governments enthusiastically continued this policy. If anything, the Harper government, despite some rhetoric to the contrary, seems eager to open the door even wider and allow new record levels of takeovers of our businesses, resources, and land.

At the same time, it’s interesting to note that the Canadian public has consistently shown that it wants otherwise. Year after year, in poll after poll, Canadians say we already have too much foreign ownership and control and we don’t need more. In September 2007, a Canadian Press/Decima poll said that 72 percent of Canadians reported that they wanted the federal government to do more to limit foreign takeovers, including 66 percent of Conservatives polled.

In sharp contrast, but certainly true to form, by a margin of eight to one, Canadian CEOs said they were opposed to any controls,
¹¹
while the likes of Roger Martin of the Rotman School of Management and the Royal Bank’s Gordon Nixon warn against any “harsh” action or “overly aggressive negotiations by Investment Canada” to stem the tide of foreign takeovers,
¹²
and the Canadian Chamber of Commerce has warned the Harper government to interfere as little as possible in future foreign investment takeovers.
¹³
If that doesn’t tell you a great deal about our Canadian business elite, I don’t know what will.

The conventional wisdom among our corporate elite, much of our media, and our federal and provincial politicians would have us 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 our own good old reliable Canadian banks and our other financial institutions, including the caisses populaires, and our very own pension funds.

Canada’s leading investment bankers and our largest pension funds should be called before a parliamentary committee to explain why they devote so much of their capital to financing the foreign acquisition of Canadian assets. Instead of financing the sell-off of our country, why
aren’t they financing the growth of Canadian companies that need expansion capital? Companies that are bought up don’t create many new jobs, if they create any at all, and they rarely grow into globally competitive firms.
Toronto Star
economics columnist David Crane puts it well: “Our investment banks and pension funds are not aligned with the long-term interests of Canada, and that has to change,” instead of making their priority their big commissions and capital gains from selling off the country.