Cue the vapid economic nationalism
The same phenomenon was played out in the equity markets. Anticipating a bidding war, investors marked up the price of Alcan stock beyond even the 20% premium implied by Alcoa’s offer: the stock closed at $90.57, up 34% on the day. The effects spilled over into the broader market: The S&P/TSX composite index jumped more than 95 points, or 0.7%. On a market capitalization in excess of $2-trillion, that works out to an additional $16-billion in shareholder wealth.
All told, then, in addition to the roughly $8-billion windfall for Alcan shareholders, the Alcoa bid enriched shareholders in other Canadian companies, including the mutual funds and pension plans through which millions of Canadians invest their savings, by approximately the same amount. And that’s not all. An increase in the purchasing power of the Canadian dollar means imports cost less: on roughly $265-billion in merchandise imports from the US a year, a half-cent rise in the dollar translates into savings of more than $1-billion annually for Canadian consumers.
Or in other words, a national catastrophe. “It’s a bad day for Canada,” the Liberal finance critic, John McCallum, moaned to Dow Jones. No, “it’s a disaster for Canada,” a Toronto money manager wailed to Bloomberg News. The Toronto Star dispatched its best financial writer, David Olive, to whip up the obligatory “hollowing out” piece, raising the usual fears about loss of sovereignty, head office jobs and so forth. His effort paled, however, beside a truly hysterical editorial in the Globe and Mail, which along with its latest redesign seems to have remade itself as the most strident exponent of economic nationalism in the country.
“As leading Canadian companies fall into the hands of foreign acquirers at an alarming rate,” it began -- and went straight downhill from there. Our “corporate icons” are being “swallowed,” it fumed, while the federal government has offered “no coherent plan to safeguard Canada’s strategic industries,” or even “whether it considers any industries vital to this country’s future and hence essential to keep under Canadian control.”
(And this flourish: “Where are the government policies necessary to foster the bold strategic thinking that would turn more Canadian companies into global acquirers instead of sitting ducks?” That’s it! A strategic thinking initiative! And who better to lead it than government?)
At no time in the entire piece does the Globe indicate what any of this means: what’s a “strategic” industry, how these are to be identified even today, let alone in future, and why it is “essential” that they be owned by Canadians, beyond the vague concern that under foreign ownership, ‘the real decisions will inevitably be made elsewhere by managers who owe no allegiance to Canada or its strategic interests.” Canadian managers, you understand, are not motivated by profit or their next bonus like managers elsewhere in the universe, but by Canada’s “strategic interests.”
But then, this is par for the course. Economic nationalists never get around to explaining just how Canada’s sovereignty -- the right of our governments to make laws for the public good -- is tied up in the ownership of a private corporation. It’s just sort of assumed. But in fact a foreign-owned company may as easily be taxed or regulated as a Canadian, as a moment’s thought will reveal. Or if sovereignty is synonymous with ownership, how is either preserved by depriving Canadians of one of the most elementary rights of ownership, the right to sell?
But back to the dollar. It cannot have escaped notice that the dollar has been rising steadily, from 85 cents to over 90 cents, over the past seven weeks -- coinciding with the latest wave of foreign takeovers. First thought: so much for the notion, popular a while back, that foreign takeovers were driven by a low dollar -- the “fire sale” theory. Second thought: so far as the dollar is a factor, then Canadian firms are rather less exposed to foreign takeover than they were before. The same high-profile sales of our “corporate icons” that excite such nationalist passion, by sucking in capital and driving up the dollar, make other Canadian companies less attractive to foreign buyers.
As is so often the case in these matters, the debate over foreign investment pits the interests, not of Canadians against foreigners, but of some Canadians against other Canadians. By preventing or inhibiting the sale of Alcan, we would not only be depriving Alcan’s Canadian owners of the capital gain to which they are entitled, but also shareholders in those other Canadian firms in which the newly liquid Alcan shareholders might choose to reinvest -- not to mention Canadian consumers, who might otherwise benefit from the lower prices associated with a higher dollar.
Industries vital to Canada’s future? Alcan’s owners would only sell if they thought they could earn higher returns elsewhere -- in other firms, and other industries -- than by holding onto their shares. I suggest they are better placed to make these judgments than the Globe’s editors.
5/09/2007
