Monday, March 23, 2009

The New Investment Act Returns us to Branch Plant Economy Status

Back in the 1970s, Canada had a branch-plant economy. We had companies here; we had jobs here; but all the decisions were made in foreign countries, and our employment and economic health depended on white guys in America. Like with US Steel recently, foreigners, mostly Americans, made the decisions about whether our jobs stayed or went. Prime Minister Pierre Trudeau aimed to change that and introduced the Foreign Investment Review Agency in 1974. Prime Minister Brian Mulroney's government amended that with the Investment Canada Act.
"Under our Progressive Conservative government, purchases worth more than $5 million were reviewed and we were able to hammer out conditions that a foreign buyer had to meet before the deal could close." (Sinclair Stevens, former Minister of Regional Industrial Expansion under Mulroney, The Toronto Star, 16 March 2009).
When Mulroney changed FIRA to ICA, there was great debate in Parliament. Newspaper editors waxed passionately for and against. Liberals threatened that the Conservatives were giving the candy store away to the Americans. But the Act passed. Since then, according to Stevens, successive governments reviewed 12.18 percent of all foreign takeovers, putting conditions on some, but not turning down a single one. Under Prime Minister Stephen Harper, that percentage has dropped to 5.32, less than half the norm.

One of those takeovers that the Harper government did review and actually put conditions on was US Steel of Stelco back in 2007. However, that did not stop US Steel from closing up shop recently and tossing almost 2,000 workers -- as well as government money -- down the drain. How effective are conditions when the Canadian government fails to enforce them?
"Foreign giants United States Steel and Vale Inco announced the layoff this week of nearly 2,000 Canadian workers amid faltering demand for steel and nickel. In both cases, the companies decided to cut Canadian operations they acquired during the commodities boom.

The layoffs prompted [Industry Minister Tony] Clement to warn both firms to honour commitments they made when Ottawa signed off on the takeovers several years ago." (Andrew Mayeda, Canwest News Services, 6 March 2009)

It was the Investment Canada Act that gave our government the power to enforce contractual obligations to Canada and her citizens, assuming that Clement is intending to follow up words with action. It was that Act that lent weight to Canadians' demands that Harper and his MP minions stop the foreign (American) takeover of MacDonald, Dettwiler and Associates Ltd. by Minnesota-based Alliant Techsystems Inc.

Now Harper, with the full support of Liberal Opposition Leader Michael Ignatieff, has slipped into the budget bill an amendment to that Act sans debate. The minimum investment dollars that will trigger a review will rise from $5 million to $1 billion. That's quite the jump and will render Canada impotent in most takeovers. Although the Senate alone caught the underhanded move and insisted Harper split the bill into two parts -- a spending stimulus that they could pass right away and fundamental budget changes that would go back to Parliament for that all-important debate -- Ignatieff demanded that the Liberal senators give in and pass both.

Meanwhile, the media remained mum. Unlike with Mulroney, who respected Parliament and expected debate, thus bringing out into the open his intentions, Harper did not, does not. And so the media, dependent on politicians feeding them info, watched the boat go by. Ignatieff didn't even see it. Back in January, the opposition had the government on its knees and could have easily insisted on amendments to the budget. The fact that Harper did an about-face from November to January told Ignatieff that he now had the upper hand. And what did he do? Speak passionately about how the Liberals would keep the fire to Conservative butts and promptly passed the bill, untouched. He acted as if Harper had all the cards. Or, more likely, given his vaunted intellectual prowess, he agreed with Harper on these fundamental changes to our economy.

Ignatieff, I'm sure, thinks his American cohorts will reap the benefits of this foreign takeover windfall. Harper probably thinks so too.

But American companies are not in a position right now to do much take overing. Other countries are or will be sooner. Chief among those is China. China has already tried to buy up our mostly American-owned oil companies (wonder why Canada has no say over how our oil patch is exploited and our own oil prices), but was rebuffed. But now Harper and Ignatieff have swung the door wide open to China buying up our companies, devalued by the global economy and our falling dollar, that will be worth up to just under the $1 billion mark. As much as Harper has stood against China's human rights abuses, clearly he doesn't consider their money and their power to determine our financial future all that offensive.

Harper has made admirable decisions in asserting our Arctic sovereignty. But sovereignty is more than just geographical territory. It's also financial territory -- the ability to employ our own workers, to determine the fate of our own economy -- and cultural territory -- the ability to show our own culture to our own people so that Canadians don't think the West Wing is how our country is run and then get up in arms over a natural Parliamentary procedure -- and research and science territory, which create high-paying jobs and birth businesses here, like Research in Motion. Like the radio CanCon rules, FIRA and ICA allowed Canadians to flourish in their chosen fields here in Canada. Now that Harper and Ignatieff have reversed three decades of successful policy without so much as a whisper from the opposition and the media, what will happen to our companies? Today, I am wondering...

Who stands on guard for Canada?

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