Prime Minister Stephen Harper likes to imagine Canada as "an emerging energy superpower." In 2012 while in China he declared, "We want to sell our energy to people who want to buy our energy .… We will uphold our responsibility to put the interests of Canadians ahead of foreign money and influence that seek to obstruct development in Canada in favour of energy imported from other, less stable parts of the world." It's a startling inversion of reality, given that "foreign money and influence," far from seeking to obstruct the sellout of Canadian natural resources, are at the forefront of those who are doing everything in their power to expedite the process.
In a new study by Madeline Drohan entitled The nine habits of highly effective resource economies: Lessons for Canada and published by the Canadian International Council (CIC), Drohan draws attention to the contradiction between developing an indigenous economy that represents a country's national interests and the well-being of its citizens, while selling its resource base, hand over fist, to foreign interests. "Yet there is an inherent conflict between these two goals: Can a country be a superpower if foreign corporations are calling the shots?" writes Drohan in Habit # 6: Don't bar the gates: foster home-grown champions.
In a series of articles (Failing grades: The Canadian resource economy; Raw deal: The Canadian resource economy; Carbon attacks: The Harper Conservatives and the Canadian resource economy; and Resource capitulation: FIPPA, fibs, and Canadian sellouts) I've been following the ideas presented in the CIC report, which provides a useful departure point for a detailed examination of Canada's approach to its natural resources -- and by extension to climate change, the economy, and society as a whole. And so it is with Don't bar the gates, although in contrast to earlier portions of the CIC report, this section develops a strong case to be very cautious with respect to courting foreign investment -- only to then to turn around and make some contradictory recommendations.
Soft sell or sellout?
Let's look at some facts. The report notes that in one year alone (2006), three of Canada's largest mineral and mining concerns -- Inco, Falconbridge, and Alcan -- were devoured by foreign multinationals "intent on becoming global behemoths." In a complex deal Viterra, Canada's largest agricultural company (with revenues of $11.8 billion in 2011) is being taken over by the Swiss-based Glencore International, which will split up the company selling some of its assets to Richardson International of Winnipeg and Agrium Inc. of Calgary -- all of this subject to a spider's web of regulatory approvals from not only Canada, but Australia and China as well. And so, another important pillar of the Canadian resource economy will vanish, now the property of the world's largest commodities trader. Snap your fingers and it's gone.
Waiting in the wings is the proposed $15.1 billion takeover of Calgary-based oil producer Nexen by CNOOC (China National Offshore Oil Corporation), a state owned enterprise (SOE) which is China's biggest offshore oil and natural gas producer. Swallowing Nexen would add an annual output of approximately 70 million barrels of oil to CNOOC's already vast fossil fuel resources. The Conservative government recently announced that it has extended its review of the proposed deal until December 10, 2012, apparently and uncharacteristically, concerned that the opposition parties all oppose the deal, public opinion (even in Alberta) is against it, and even much of the business community does not support the sellout.
Is a pattern beginning to emerge? As Andrew Sharpe and Blair Long point out in their recent report Innovation in Canadian Natural Resource Industries: A System-Based Analysis of Performance, Policy and Emerging Challenges, "foreign firms may be less interested in long-run viability than short-term profitability of resource extraction. As such, this means that there is a disincentive to invest heavily in innovation." To this, Drohan adds that, "There is a critical difference between foreign investment in natural resources and investment in other sectors such as telecommunications or manufacturing: Canadians own the resources. With ownership comes the responsibility to be careful stewards over the long haul."
Indeed, what is alarming is the degree of foreign control of Canadian industry already. The figure above (adapted from the CIC report and based on 2010 Statistics Canada data) illustrates the degree to which foreign firms already call the shots in the Canadian economy. More than 20 per cent of the insurance; non-depository credit lending (i.e., excluding banks and credit unions); accommodation and food services; administration, waste management, and remediation; professional, scientific, and technical services; wholesale; manufacturing; mining and quarrying; and oil and gas extraction sectors are owned by foreign interests. Indeed, mining and quarrying is 70 per cent foreign owned and oil and gas extraction is approaching 50 per cent. Over 50 percent of this foreign ownership is based in the United States, the other half being British, Dutch, Japanese, German, French, and other foreign nations.
Where does the buck stop?
For 22.5 per cent of all profits made in Canada, it's not in Canada, but in the coffers of the multinationals. That proportion is 47.1 per cent in the oil and gas extraction sector and a staggering 71.1 per cent in the mining and quarrying sector. Almost a quarter of all profit generated in the Canadian economy by the work of Canadians simply flows out of the country. What is the scale of this hemorrhaging? According to Report on Business, in 2009, of the 1,000 largest public companies in Canada, 564 posted profits that totaled $111,515,042,000; 22.5 per cent of this is $25,090,884,450, i.e., something on the order of $25.1 billion that simply leaves Canada every year rather than being re-invested in the fabric of the country.
One might like to imagine that there are counterbalancing economic benefits that make this sellout more palatable. The CIC report points out there are "wages paid to Canadian workers, taxes and royalties paid to governments, and supplies and services bought from Canadian firms." So, how does Canada do in these regards?
The Globe and Mail reports that according to the OECD, one in five full-time workers in Canada (21.1 per cent) earn less than two thirds of the median hourly wage, i.e. less than $17 an hour. This is significantly greater than the OECD industrial average of 16.3 per cent. Furthermore, "While not all low-wage workers live in poor families, low earnings are the main reason why more than one in ten working-age Canadians live in poverty." Thus, rather than Canadian workers reaping the benefits of our resource wealth, we instead have a country where ten per cent live in poverty and over 20 per cent are eking out an existence on what are clearly subsistence wages (and minimum wages in Canada range from $9.50 to $10.25 an hour). Not only that, but there is an increasing trend to hire temporary foreign workers (over 190,000 were imported in 2011) for a wide ambit of jobs in Canada. These workers earn up to 15 per cent less than the prevailing local wages, enjoy few if any benefits that are normally available to Canadians, and are almost universally without any of the assistance and protections that are afforded unionized workers in the country. Critics have called this practice "legislated discrimination."
As for taxes and royalties to governments, examining the oil and gas sector reveals an appalling situation. For instance, Alberta charges oil companies a one per cent royalty on tar sands revenues until they recoup all their investments (thereafter a 25 per cent royalty rate applies). The Alberta government charges the lowest rates of almost any government in the world; its share of all oil revenues is only 39 per cent. Compare this to the 76 per cent that Norway collects. Rather then providing a fulsome revenue stream to Canadian government coffers, the GlobalSubsidies.org study of the Canadian oil industry, Fossil Fuels -- At what cost? found that every year "provincial and federal governments are providing over $2.8 billion in subsidies to the oil sector in Alberta, Saskatchewan and offshore Newfoundland and Labrador" (and these three provinces account for 97 per cent of Canadian oil production).
I'm not aware of data on the supplies and services bought from Canadian firms by foreign-owned companies, but the salient point here -- as is the case with the preceding two metrics -- is that such "spin-off" benefits to the Canadian economy from activities in these resources and industrial sectors would also accrue were the companies that managed them Canadian-owned. And, there is a compelling case that the benefits might be substantially greater if the enterprises were Canadian-owned, had to employ Canadians, and invested their profits in Canada. Thus, foreign ownership per se does not provide a net economic benefit to the country.
The siren song of protectionism
Despite this highly troubling picture that embracing foreign ownership bodes for Canada, its people, and its sovereignty, the compass of the CIC report frequently spins from this magnetic inclination to the opposite: "As the world struggles to recover from the global financial crisis and ensuing recession in much of the developed world, an increasing number of governments have succumbed to the siren song of protectionism. … Canada should not follow suit. Protectionist measures put a chill on foreign investment." This advice is seemingly at odds with all that has preceded it.
The CIC report highlights three important lessons from other resource rich countries that have grappled with such problems.
1. Have a long-term view on where natural resources fit in the economy;
2. Decide how much and what kind of foreign investment is welcome and … how that is determined; and
3. Remove obstacles to the emergence of Canadian global heavyweights.
These are, in the main, sound suggestions that underscore (for instance) the fact that Canada has no national energy strategy (and consequently no long-term, short-term, or medium term plan beyond the Harper doctrine of "We want to sell our energy to people who want to buy our energy." As for what foreign investment is welcome, the Harper government's approach appears to be non-discriminatory: whoever would like to buy up Canada's resources is welcome to them. "Our view is that foreign investment generally speaking is of benefit to the Canadian economy," the Prime Minister recently said when asked about the proposed Nexen acquisition by CNOOC. "We will give greater clarity on our policy framework going forward when we take a couple of decisions that are before us." John Ibbitson writing in the Globe and Mail warned, "A rejection of CNOOC/Nexen could deal a blow to Canada's relations with China, to future foreign investment in Canada, and to the government's own reputation for competence." However, if approving the deal sells Canadian resources and values down the river, then rejection is clearly the better option. Doing otherwise would confirm the government's reputation for incompetence.
Even when foreign ownership bids have been rejected by the federal government, such as the 2010 rejection of Australia's BHP Billiton's bid for Potash Corporation of Saskatchewan, or the recent rejection of the proposed acquisition of Progress Energy Resources by the Malaysian state-owned Petronas, the reasons for such decisions are generally far from transparent. "Few developed countries shroud their decisions in as much secrecy as Canada," says the CIC report.
As for the China-Canada Foreign Investment Promotion and Protection Agreement (FIPPA), which Osgoode Hall law professor and international investment law expert Gus Van Harten is "deeply concerned" with, and about which he has articulated 14 significant problem areas, the Harper Conservatives appear ready to ram this legislation through with unseemly haste and with the least possible debate and scrutiny (see Resource capitulation: FIPPA, fibs and Canadian sellouts).
As for removing "obstacles" to the development Canadian global heavyweights, this very much depends on what such "obstacles" are. The spring's omnibus budget bill (C-38) removed a phenomenal spectrum of organizations, processes, and legislation to protect Canada's environment, all of which could be construed as "obstacles" to development (see Abuse of process: Bill C-38 and the Harper agenda). The CIC report further asserts that "Canadians would not fret as much about foreign takeovers if they had more resource powerhouses headquartered here," an extremely dubious proposition. I would posit that the alarm being expressed by many concerned Canadians, provincial governments, opposition parties, and some members of the business community with respect to foreign takeovers would not in the least be assuaged if there were more "resource powerhouses headquartered" in Canada.
One either cares -- on principle -- about retaining control of our economy and natural resources, or not. On either believes in benefiting socially, economically, and environmentally from the richness of our country, or not. One either has a commitment to retaining the powers to be wise and judicious stewards of the future of our country, or not. One either is resolute in ensuring that the benefits of economic development accrue first and foremost to our own citizens, rather than further enriching already profitable multinational corporations, sovereign wealth funds owned by foreign governments, state owned enterprises, or the investors in pension and hedge funds, or not. It's these values that should remain uppermost in developing any just and equitable approach to market development and investment. This is a strategy to foster Canada's becoming an economic superpower as well as a superpower of justice, responsibility, wisdom, and equitability. The "or not" position is a fast track to becoming a supermarket -- of resources, citizens, livelihoods, and national sovereignty. Take your pick.
[Part 6 in this series is Foreign aid and natural resources: Allies or enemies?; Part 4 is Resource capitulation: FIPPA, fibs, and Canadian sellouts.]
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