Potash and the Renaissance of Economic Nationalism
Who would have thought it. More than twenty years after the Canada-US FTA all but buried the economic nationalist legacy of the Trudeau era, a major foreign take-over seems to have been blocked. That’s twice under the Conservatives, after years of Liberal rubber stamping of foreign acquisitions under the Investment Canada Act. This is certainly worthy of some celebration.
I was rather struck by Saskatchewan Premier Brad Wall’s comment that a balance had to be struck between free markets and neo liberal doctrine on the one hand (he didn’t quite use those words) and the public interest on the other. In recent days those sentiments have been voiced by a number of prominent business leaders and eminently mainstream politicians. I had lunch the other day with a prominent business association leader who voiced the opinion – in private – that the entire round of recent mining take-overs has been a disaster for national economic development.
It is easy to cast the Conservative decision as pure politics, and surely Harper and Clement were pushed into this against their will. But the fact remains that a major crack and division has opened up within the ranks of the conventionally wise, and that a welcome precedent has been set. If a take-over serves only the needs of investors and does not serve the national economic interest, then it should be rejected.
We can and should build on this decision to push for transparent public interest reviews of takeovers, and effective enforcement of any conditions imposed. Some foreign investments do make sense, but most come at a cost – the loss of head office and supplier jobs; the weakening of local economic linkages; loss of corporate tax revenue as higher corporate debt is taken on to finance the transaction; and, often, direct job losses and a deterioration in industrial relations as operations are squeezed to pay for the often excessive take-over premium.
That said, there are more than a few contradictions in the position of those who have supported blocking this particular transaction. BHP might have made things worse, but the existing Potash Corp is no corporate saint. It moved some key jobs out of Canada, and has been paying its CEO obscene amounts of money , despite the fact that huge windfall profits have come from a dramatic rise in commodity prices driven by soaring global demand. As Erin Weir has argued on this blog, there is a very one sided split of resource rents as between shareholders and the people of Saskatchewan who own the reource, not to mention all Canadian taxpayers. If there is a case against BHP gaining control of the resource, what exactly is the case for the status quo compared to the alternative of some return in the direction of public control, if not outright crown ownership as under the pre Devine NDP government? If we need strategic control of potash, why not strategic control of oil and gas and minerals, all of which seem set to be set for years of rising prices and could be in short supply?
And if we are going to review large foreign take-overs to determine if they are in the public interest, why not large domestic acquisitions as well? (They are currently subject only to a competition review.)
So, a good decision that raises a lot of interesting questions.
I have a couple things to say about this- What about Vale, US Steel, and a few other acquisitions that have resulted in foreign companies running formerly healthy companies into the ground. Lets recall a simple economic rule, the more concentration a company has within an industry- the better off they are in buying up capacity and destroying it. How many times have we seen that in Canada??? SO many time it is pathetic- instead of having Economic Development Departments within Government, we need Economic De-Industrialization Prevention Departments- which I do believe was once called FIRA.
The continentalists at the Globe are having a hissy-fit. They just can’t stand the precedent and implications. When the world is still here tomorrow maybe they will breath in and calm down. As for today…blue in the face.
Since Ottawa’s announcement, PCS shares have continued trading above BHP’s offer of $130 per share.
To me, that suggests shareholders would have rejected BHP’s offer anyway. Indeed, significant PCS shareholders like Stephen Jarislowsky and Dick Haskayne were among the earliest and loudest advocates of blocking it.
So, the Conservatives reap the good politics of “stopping†a foreign takeover without necessarily producing a different outcome than financial markets. Where the rubber would hit the road is if Ottawa blocked a takeover that shareholders were eager to accept.
Nevertheless, I agree that last week’s decision sets an interesting precedent and raises important questions.