Friday, July 13, 2007

A "hollowed out" Canada

As yet another major Canadian company (Alcan) gets sold off to an overseas investor, and commentators continue to discuss the "hollowing out" of corporate Canada, I have to admit that I just have an insufficient grasp of macro-economics to have any opinion on it.
In the just the last couple of years, foreign companies have taken over several big names in the Canadian industrial and service sectors:

  • Alcan (aluminum)
  • Inco (mining)
  • Falconbridge (mining)
  • LionOre (mining)
  • Dofasco (steel)
  • Algona (steel)
  • Ipsco (steel)
  • ATI (computer chips)
  • Four Seasons Hotels (hotels)
  • Hudson Bay Company (retailer)
Government policy has always been not to block take-overs, but supposedly to ensure that there are promises of job security, and apparently there are arguments that such take-overs can actually be good for a country (although I have never seen these arguments analysed).

Interestingly, the Investment Industry Association of Canada claimed recently that Canada is doing at least as much of the global hollowing out as it is receiving. According to them, Canadian companies bought 500 foreign companies worth $111-billion last year, while foreigners bought only 175 Canadian firms worth $84-billion, and that the number of Canadian head offices increased 4% between 1999 and 2005.
This was obviously before the recent Alcan deal, which on its own is worth $38-billion and single-handedly turns this argument on its head. But it gives me cause to wonder why a major Canadian investment organization would condone such events if they were not in the interests of the Canadian economy. Is this a case of globalization for its own sake?
My gut reaction is that it can't be a good thing for Canada. I suppose I don't really care whether the profits (or losses for that matter) go to rich shareholders overseas rather than rich shareholders in Canada. But I just have this woolly, non-economic and unsupported feeling that in the long run Canada would be better off retaining control of its assets.
"Hollowing out" is probably as good a label for it as any.

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