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Harper's Make-and-Break Attitude on Foreign Investment

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In response to sustained public outcry, Prime Minister Stephen Harper was forced to take a position on foreign takeovers of important Canadian resources and assets. While it's good to see that nationwide anger can actually have an impact on this government's decisions, that is really the only good news from the recent decision.

First, whatever the quality of the decision itself, the way it was made is dangerous and undemocratic. Canada has legislation, the Investment Canada Act, that sets out the process and requirements for foreign purchases.

Changes to the Act should be debated in parliament and open to public scrutiny; changes to the regulations should be made by Cabinet and published in the Canada Gazette. In either case they would be made democratically, constitutionally, and open to judicial scrutiny. Instead, the Prime Minister has simply decided how his government will make these decisions going forward, substituting his personal, opaque, and final opinion on the matter for legislative debate and public rule-making.

That said, a bad process will usually result in a bad decision and this decision is typical. In this case the decision has tremendous fundamental flaws in addition to its undemocratic pedigree.

The ad hoc and last minute nature of the decision means that the PM has declared it will not apply to the CNOOC/Nexen takeover. Strange that the deal that prompted him to develop the policy will be immune from the policy -- unless you assume that the policy was merely a sop to the Canadian public and the PM does not in fact know or care whether the current deal meets that test. Can he choose to ignore his own rules the next time? Of course, but why ignore them when he can simply change them unilaterally again without debate or transparency or oversight of any kind?

In fact, the new rules will hardly apply to any takeovers -- they apply only to State Owned Enterprises (SOEs). If BP or Exxon or the Koch brothers or Blackwater decided to buy up some Canadian assets, the new rules would not apply. Coors takeover of Molson? Mittal's purchase of Arcelor? BHP Billington's purchase of Potash? None of these would even be on the radar for the new rules, because they are all private investments.

What the new rules do is codify, by way of Prime Ministerial directive, the conservative ideology that SOEs or crown corporations are always less efficient than private corporations, and that in the end SOEs cannot be trusted while private companies will always predictably obey free market rules.

Of course, SOEs come in an infinite variety of shapes and sizes, just like private companies. Some SOEs, like Norway's Statoil, are models of economic efficiency and success while some are corrupt organs of a nation's ruling elite. Of course, some private companies are models of economic efficiency while some are models of too-big-to-fail capitalist disaster. Pretending all SOEs or all private companies can be painted with a single brush is naked ideology, and wrong.

Money doesn't stink. A deal is a good deal if it's good for Canada, and it's bad if it's bad for Canada, and it makes no difference in the analysis whether the party on the other end of the deal is a US corporation or a global conglomerate or a crown corporation or an entrepreneurial billionaire.

If Crown corporations or SOEs are in fact less efficient, or in fact offer worse deals, then an objective analysis will identify those shortcomings. The new rules simply establish a discriminatory framework for holding SOEs to a different and higher standard than private companies.

Finally, the new "rules" are entirely vague: a "net benefit" test sounds appealing to anyone who has read John Stuart Mill, but it says nothing about how those benefits will be quantified. Even the companies that benefited directly from the decision are concerned about this complete absence of clarity.

What is the cost to future generations if we sell a certain asset today? Is an extra $1 per barrel as compared to today a net benefit to Canada when we could earn an extra $20 per barrel by refining domestically instead of shipping crude? Is a 2 per cent royalty a net benefit if Norway gets 51 per cent? Or perhaps the PM realizes that Canada is better off with his leadership, and therefore a foreign investment is a "net benefit" if and only if it increases his chances of re-election.

We don't know now, and presumably never will: what has been created is not a policy or a framework or a system for evaluating foreign purchases, but rather simply a new area of unchecked Prime Ministerial authority based on the current PM's ideological opposition to crown ownership.

CNOOC, Petronas Deal
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