The Truth About Canada (27 page)

For Thomas Caldwell, one of the key problems has been that, “increasingly, power accrued to corporate managers who saw themselves as elite, entitled not only to inflated compensation as hired hands, but also to the rewards of ownership without risk [while] consultants continually justified wildly inflated pay, bonuses and option schemes for senior management. To hear those managers described as risk-takers is a joke.”

It would take a whole book to explain properly why our country is being sold off. Yes, some, or much, or even most, of it is related to greed, pure and simple, but that alone cannot explain the extraordinary and virtually unique absence of patriotism and loyalty to homeland among so many of our corporate establishment. Surely, though, the fact that so much of our media is either American or controlled by our own far-right conservative continentalists is one reason why our hollowed-out country is sleepwalking back to colonial status.

As discussed above, for years now, Canada’s business community, always promptly echoed by our business press, has been wailing about our supposed low levels of foreign direct investment. As indicated earlier, a good way to measure foreign direct investment is as a percentage of GDP. By this measure, in 2005, foreign direct investment in Canada was higher than in 18 OECD countries, including France, Finland, Germany, Poland, Mexico, Austria, Norway, the United States, Turkey, Greece, Italy, Iceland, and Korea. It was 3.5 times as high as in the United States, 51 times as high as in Japan, and over a third higher than the OECD average. It was also higher than in non-OECD countries such as South Africa, Brazil, Russia, and India.
²⁰
And this was
before
the huge takeovers in 2006 and 2007.

It’s worth repeating that much of so-called inward foreign direct investment in Canada is, in fact,
not
inward at all. Rather, it is money generously supplied by Canada’s banks and other financial institutions to finance the sell-off of Canadian businesses to foreign, mostly American, buyers.

In June 2006, a new Statistics Canada study was published (
The Daily
, June 2) that showed, among other things, that foreign-controlled corporations already take 30 percent of all corporate operating revenues
in Canada, and their assets were already over $1.1-trillion. In the words of Statistics Canada, in 2004, “foreign-controlled profits soared to a staggering record of $68 billion.” For Statistics Canada to use a word like “staggering” is highly unusual. Yet, typically, there was barely a tiny ripple in the media.

In 2005, world inflows of foreign direct investment were almost $916-billion (U.S.). China had an inflow of about $60-billion, all of Africa $30-billion, Russia about $25-billion, Mexico about $17-billion, India about $6-billion. Canada, with only 32.7 million people, had had an inflow of $41-billion, the third highest annual amount in our history.

During the 10 years from 1996 to 2005, foreign direct investment in Canada totalled $330.14-billion. In the previous 10 years, it amounted to only $77.25-billion. And, as mentioned earlier, in 2006, foreign direct investment in Canada, at $75.6-billion, was the second highest total in our history.

Here are just a few of the 26 countries that in 2006 had foreign direct investment inflows below ours: Hong Kong, Russia, Brazil, Mexico, Chile, India, South Korea, South Africa, Argentina, Taiwan, Peru, and Saudi Arabia. Of a list of 26 OECD countries, 21 had inflows of less than $10-billion (U.S.).

Of course, foreign-controlled assets are much greater than foreign direct investment. As mentioned earlier, you can easily control a widely held corporation worth $100-million with a $10-million direct investment. Another important way that the value of foreign takeovers is understated is the fact that the investment review division of Industry Canada reports acquisitions by book value, not market value. Nor does it adequately reflect two of the largest sources of the expansion of foreign assets: funds raised in Canada for acquisitions (for example, the takeovers of the Montreal Canadians, Teleglobe, Shoppers Drug Mart, and so on), and expansion by the use of retained earnings. The result is very misleading numbers that downplay the situation.

In May 2006, however, Statistics Canada released a shocking new report. I read six newspapers a day and saw not one single word about the document, titled
Market Value of Foreign Direct Investment Position
.
²¹
The report showed that while the oft-reported book value of foreign direct investment in Canada at the end of 2005 was $415.56-billion, the true market value of that investment was an enormous $771.33-billion — an increase of $355.77-billion greater than any previously reported figure! Moreover, the market value of foreign direct investment in Canada had increased by a huge 47 percent between 2002 and 2005.

This unreported study came just eight days after the
Globe and Mail
said Canada should make it even easier for foreign companies to buy up ownership and control of Canadian companies. This despite the fact that Canada already had the highest degree of foreign ownership and control of any major developed country, and that foreign ownership and control has been increasing now for 18 consecutive years.

Typical of the constant corporate wail that we’re not getting enough foreign investment was an August 9, 2005,
National Post
piece by Jack Mintz, then president and CEO of the far-right continentalist C.D. Howe Institute. “Canada has experienced a loss in the worldwide share of foreign direct investment.… [A main reason is] an onerous tax regime … [and] withholding taxes levied on dividends and interest payments made to non-resident owners.”

More recently, Mintz said there’s nothing to be concerned about, since “Canada historically has not been the place where people are particularly trying to buy assets.”
²²

Interesting. If Canada has been such a poor place for foreigners to invest in, then why do they keep setting new records buying up more and more of our country, year after year, with over 12,000 companies already under their control?

The problem in Canada isn’t that we need more foreign direct investment. The problem is that we already have far, far too much foreign ownership and control. The last thing we need is more of the same.

One thing I continue to find disconcerting is the persistent and widespread misinformation in the press about foreign ownership and control. Whether it’s the number of Canadian companies taken over or the number of Canadian takeovers outside of Canada, or the amount of R&D foreign companies do in Canada, or the dollar value of takeovers, in far
too many cases the information the public receives is simply not true and is frequently terribly misleading. The OECD noted this in June 2007, when it rightly questioned the numerous claims “that Canadian firms have been as aggressive acquisitors of foreign firms as foreign firms have been of Canadian companies.”
²³

Sitting on my desk is a pile of misleading press clippings, too many to detail, but I’ll mention two examples. In April 2007,
Report on Business
told its readers that, in 2006, 123 companies in Canada were taken over by foreigners. Interesting, but the correct number of takeovers was 363, quite a difference. On Canada Day, 2007, Gordon Nixon and Roger Martin told
Globe and Mail
readers that there were only 455 foreign takeovers of Canadian companies from 2001 to 2006. In fact, there were 1,441 takeovers. Again, quite a difference.
²⁴
One would think that people like Nixon and Martin would try to get their numbers right.

Industry Minister Jim Prentice repeats the ridiculous Mulroney slogan “Canada is open for business but not for sale,” a position which the
Globe and Mail
described as a “balanced approach.”
²⁵
Prentice repeats the nonsense, across the country, that Canadian companies have been buying more foreign companies than foreigners are buying Canadian companies. When challenged by me, Prentice’s Ottawa officials claimed that in the period from 1996 to June 2007, Canadian companies acquired 3,898 foreign companies, while foreign companies acquired only 1,540 Canadian companies. Not one single journalist or member of Parliament was curious enough to pick up the telephone and check Prentice’s numbers with Investment Canada.
²⁶
Had they done so, they would have found that, yet again, the Harper government was intentionally misleading Canadians on the issue. The correct number of takeovers of companies in Canada was not 1,540 but 6,355.

As a further contribution to the correction of corporate and political BS, let me note that in the 10 years after the Foreign Investment Review Agency was established, real GDP increased at an average annual rate of 3.54 percent. In the 10 years after Brian Mulroney dumped the Foreign Investment Review Agency for Investment Canada, real average annual GDP increased at an average rate of only 2.52 percent.

So much for all the nonsense about how controls on foreign direct investment damaged the Canadian economy.

I’ll leave the last words to former Deputy Prime Minister Paul Hellyer, former Quebec Industry Minister Rodrigue Tremblay, and financier Stephen Jarislowsky. For Hellyer, “I tried to find a nicer word than treasonous to describe what is going on, but to no avail. It is time to call a spade a spade and let our politicians — and the ‘experts’ who advise them — know in no uncertain terms that we hold them accountable for their unforgivable negligence.”
²⁷

For Tremblay, “Canada as a whole is in danger of losing control of its most important economic levers.… The slogan ‘Masters in our own house’ seems very remote these days.… What is happening surely appears to be contrary to Canada’s best interests.”
²⁸

For Jarislowsky, “What’s happening is ‘economic suicide.’ ”
²⁹

25

FOREIGN TAKEOVERS

“It’s a disaster for Canada. Anything and everything is for sale. We’ll run out of companies to invest in.”
¹

I
n early 2006, business columnist Andrew Willis of the
Globe and Mail
wrote:

Virtually every company in this country without a controlling shareholder seems to be on the auction block these days.

The unanswered question is just how the people of Canada, and their elected officials in Ottawa, feel about selling off the biggest businesses in the land.

Expect takeovers to continue at a red-hot pace.

And, of course, Willis was right. It’s been hard to open a daily newspaper without a story about yet another foreign takeover. As to how Canadians feel, the evidence is mixed. As mentioned earlier, in all public opinion polls, for many years, Canadians overwhelmingly have said we already have too much foreign ownership and foreign control and don’t need more. Yet there has been relatively little in the way of a public outcry as more and more corporate icons fall.
²

How does Ottawa feel? Don’t expect much change. The chances of the Harper government doing anything of real importance about growing foreign ownership and control are at best remote. When asked about it in June 2007, the prime minister said he had “no intention of
intervening.” Perhaps Lynton (Red) Wilson and his policy review panel appointed in the summer of 2007 to study the problem will have enough influence with Harper to prove me wrong. Perhaps. Certainly there’s a chance that strong public opinion might make a difference. Yet if the Liberals regain power in Ottawa, based on their record in office during the Chrétien and Martin years there’s little evidence that they will be much better.

According to Stéphane Dion, “Canada is not for sale [sound familiar?]. I believe domestic ownership does matter.… I promise to … protect our economic sovereignty.”
³
Very nice. But it would have been nice to have heard from Dion during all the Chrétien and Martin years when so many companies were vanishing from Canadian control. Dion later reassured the business community that he was “no protectionist.”

As David Olive wrote in 2006 in the
Toronto Star
,

In the past two years, more than a dozen of Canada’s largest corporations with total assets of more than $57 billion have been swallowed by foreign predators. And the response has been … well, there really hasn’t been a response.

There have been no calls in Parliament, any legislature, the media, or the halls of academe for a royal commission on the consequences for our economic sovereignty from this unprecedented yard sale of Canadian industrial assets.

So, we have

the outsourcing of decision-making to Switzerland and California, the sapping of the Toronto Stock Exchange as listings disappear: the decline in business for ancillary providers such as legal, accounting and underwriting firms and the implications for philanthropy as CEOş focus on the communities in which they live … [leaving] too many absentee owners of glorified shipping depots.

Meanwhile, “Our G-7 partners France, Germany and Italy regularly thwart attempted outside takeovers deemed to be of strategic national importance.”
⁴

The appalling hypocrisy of most of Canada’s business leaders regarding the foreign takeover of the Canadian economy is matched only by the gullibility of some of our business journalists. For example, a
Financial Post
writer quotes a CEO as suggesting that even more tax cuts “might boost profits and create ‘a powerful incentive’ for companies to remain independent.” Nowhere in the article does the writer mention the successive years of record corporate profits in Canada, or the fact that yet lower taxes would be even more likely to encourage foreign takeovers than the substantial decreases in taxes have done already.