At one point during the coverage of last Thursday's budget, Allan Gregg suggested that some of the measures - liberalizing the telecoms market, tariff cuts - would bring economic nationalism back to the public agenda (my immediate reaction). And today, Jeffrey Simpson is talking about the perils of the 'branch plant economy'.
Just what is the problem with foreign ownership, anyway? The usual stories about low productivity and R&D being done elsewhere are hopelessly out of date. A 2005 StatsCan study (pdf) found that "foreign-controlled plants are more productive than domestic-controlled plants" and "are also more innovative, more R&D intensive and use more advanced technologies." Their presence also has spillover effects, forcing domestic rivals to increase their productivity as well. What's not to like?
And it's important to remember that Canadians own foreign assets as well. In fact, Canadian direct holdings abroad are greater than foreign direct holdings in Canada. We can stop worrying about 'Canadian champions': by this zero-sum metric, we're already winning. What's our prize?
What happens when foreigners buy an existing Canadian asset? The way this transaction is usually described, it occurs by accident when the government isn't paying proper attention. But before foreigners can buy a Canadian-owned asset, the Canadian owners have to agree to sell it. And it is presumably the case that the price is higher than what they think the asset is worth, or they wouldn't agree to the transaction. Any discussion of foreign takeovers that misses the part about willing Canadian sellers is going to be flawed.
Probably the biggest losers are the former Canadian managers, who will be either pushed aside or down the ladder as the new owners install their people. Indeed, it is presumably the case that their justification for paying top dollar for those assets is that they can manage them better than the previous Canadian managers could. And they're probably right.
In his 2008 Innis Lecture, Dan Trefler made this comment:
Figure 11 shows the average educational attainment of managers in Canada and the United States. Fewer than one in three Canadian managers has a university degree. In contrast, almost half of U.S. managers have a university degree, many of them advanced degrees. Not only are Canadian managers less well educated but they do not seem to appreciate the value of an education. In extensive surveying done by the Institute for Competitiveness and Prosperity (ICP), the most pronounced difference we found between Ontario and U.S. peer-state managers was in attitudes towards education.
One question posed was: ‘If you had to give advice to a young person about the level of education they should have, which one of the following would you advise them to achieve?’ While it was almost unheard of for an American manager to recommend less than a university degree, fully one-quarter of Ontario managers responded that a high-school diploma was good enough. See figure 12 and ICP (2003b, 36). Canadian managers live in a marketplace where education is not important because innovation is not important.
I really don't see the point in insisting on Canadian ownership of assets located in Canada if that means tolerating mediocre management, low rates of innovation and poor productivity.
Here are those figures: