Monday, September 24, 2007

Foreign Takeovers

I'm as free market economy as they come, but the recent rash of foreign takeovers over Canadian companies got me to thinking. What happens when those companies get bought out? Are Canadian companies buying as many foreign companies and if not why, and what companies are buying Canadian companies?

The answers to these questions are a bit disturbing to say the least, but what is more disturbing is the lack of action from the current government.

1. What happens when those companies get bought out?
While each deal is different, the usual end result is the loss of a corporate head office, and often the loss of many more jobs. As well, when a Canadian company becomes a subsidiary to an international conglomerate, corporate tax revenues also disappear. International corporations have many methods of playing with numbers to move revenues to the area with the lowest tax rates, which is not likely to be Canada. And so, when Canadian businesses are subject to foreign takeovers, we lose the corporate tax base, high paying corporate head quarter jobs, and spin off industries.

2. Are Canadian companies buying as many foreign companies?
No they are not. Many more Canadian companies are being bought, than foreign companies being bought by Canadians. Is this normal for free market economies? Not really. Well over half of Canada's manufacturing sector is foreign owned, while in the U.S., Japan, Germany, the U.K., Italy, France, the Netherlands, Norway, Finland and Sweden, foreign ownership in the manufacturing sector is less than 4 percent. Its gets scarier when you start looking into foreign ownership of companies controlling natural resources.

3. and if not why?
This is a complicated issue, but here are my gut feelings, and some reasons for them.

A. Lack of fair playing field rules. Many countries, including Australia and the U.K., have what are called fair playing field rules. These are laws that stipulate for any foreign takeover to be allowed, the company being taken over must be legally capable of taking over the foreign company taking them over. For example, Oil and Gas giant Primewest recently agreed to a 5 billion dollar takeover bid from TAQA North, a wholly owned subsidiary of the Abu Dhabi National Energy Company. TAQA can takeover Primewest, but Primewest cannot takeover TAQA. Another example is Inco's takeover by Brazilian giant CVRD. The Brazilian maintains shares with veto power, essentially eliminating the possibility of Canadian company taking CVRD over. We don't need the government to protect Canadian companies form unprotected foreign competitors, but we need the government to enforce fair rules.

B. Government not using the power of the Investment Canada Act. This act allows the Federal Government to block foreign takeovers if it is found that these takeovers do not have a "net benefit for Canada." It is simply not being used.

C. Taxes. Our corporate tax structure is overly complicated, favours certain industries over others, and is too high (Canada = 36%, Finland = 29%, Norway and Sweden = 28%, Brazil = 25%, Ireland = 12.5%, OECD average = 28%). This is a strategic disadvantage for Canadian businesses. The tax system should be simplified, applied equally across industries, and taxed at a rate that is competitive with other similar countries. I'm told the Income Trust debacle has left many companies vulnerable to foreign takeovers. I'm not entire sure I see the connection yet, however I believe going back on a campaign promise, especially one that impacts people's savings and pensions, is reprehensible. I would prefer to see one simplified tax system applied across all companies.

I believe the we need to re look at the rules around foreign takeovers. Economists believe we need to re look at the rules around foreign takeovers. Canadians believe we need to re look at the rules around foreign takeovers. Its too bad our government doesn't.

Something I don't understand

It is a tough time to be a politician in Canada. There are precious few real issues with which to distuinguish oneself. Everyone clamors for the middle ground. This is why I really do not understand the conservative government's continued attempts to water down, delay, and ultimately ignore the single largest threat not only to Canada but to humanity. Canadians want there government to lead. The scientific community says we need drastic action on climate change, the financial community says we need drastic action on climate change, and the voters are ready to say we need drastic action on climate change.

So here is an issue I expected to be fairly difficult to capitalize on. I figured that everyone would be jumping on the Climate Change band wagon trying to out green each other. The Conservatives, usually so quick to follow the polls, don't seem to be reading the polls on how Canadians feel about climate change. The Prime Minister is continuing to push internationally to weaken, delay, and otherwise subvert international climate change efforts. The conservative plan delays real reductions to as late as 2030. This is in contradiction to what the entire scientific community, and recent polls suggest the majority of Canadians, say we need to do.

"The time for doubt has passed,” Mr. Ban, the Secretary General of the UN said. ”What we do not have is time. The time for action is now. That is why I have invited you, the leaders of the world. … The unprecedented challenge of climate change demands unprecedented action and unprecedented leadership.”

I wish this was not an issue I could campaign on. I wish this was an issue upon which everyone agreed on the course of action. I wish my country was a global leader in preventing climate change, and I plan to do my damnedest to make sure we are.

Thursday, September 20, 2007

One more thing

The Langley Cruise-In was fantastic! I hadn't been in a couple of years and was blown away at how big it has gotten. My favorite vehicle was a 1912 Detroit Electric car brought by the Vancouver Electric Vehicle Association.

First we need better transit, ie a rail option through the valley, but electric cars need to happen as well. If anyone is interested in converting there car to electric, or purchasing a full electric car, please send me an email at I'd be happy to help.

Loonie breaks greenback, SPP is Evil, need lower taxes on investment

What a surprise to wake up to find the Canadian dollar is above the American dollar. Unless you are taking a vacation in the US tomorrow, this is bad news for the Canadian economy, and another sign of Conservative fiscal mismanagement.

A high dollar, while it may seem nice if you are going on holiday, is very hard on the economy in general. It makes our goods and services more expensive to other countries which really hurts any export business. Tembec, a large lumber and pulp and paper company recently halted shipments of lumber as it simply can't afford to sell its products to the US at the current value of the dollar. It may prevent the Bank of Canada from being able to control inflation. It discourages foreign investment. It encourages Canadians to invest abroad instead of at home.

One of the major reasons for concern around the dollar's meteoric rise, is the reasons behind why it is rising. The number one reason, is not actually a rise in the value of the Canadian dollar, but a precipitous drop in the American dollar. Canada is still very much tied to the U.S. economy, and the current government seems to not be concerned. Personally, I would much prefer to have our exports spread around the globe, and not rely so heavily on the U.S. to buy our goods and services. It makes Canada subject not only to the Conservative mismanagement of the Economy, but also the Bush mismanagement of the U.S. economy. Anyone concerned about closer ties with the U.S. , should read up on the S.P.P., here is a link to the wikipedia entry:
If you google S.P.P. you will find many leftist, protest everything type websites, but their concerns are valid. I am not necessarily opposed to such an agreement, but the method with which it is being pursued is abhorrent. No public debate, no parliamentary oversight, no public discourse.

That was a bit of a distraction. So back to the causes of the rising Canadian dollar. Second is the high price of oil, and the governments continued subsidizing of the tar sands. Oil is currently at 82$ US a barrel. Canada is a major supplier to the US, the largest consumer of oil in the world. So here is something I do not understand. We are subsidizing (and make no mistake, the accelerated capital cost allowance for tar sands projects is a subsidy) an industry that is massively profitable, pollutes water and air, creates massive amounts of greenhouse gas, is not renewable, and contributes to the rise of the dollar that hurts our sustainable industries such as forestry, the automotive sector and any export services. I don't want to penalize the oil industry, but I certainly don't think they warrant any continued tax protection.

Thirdly, there is continued high global demand for commodities. Canada's large production of these basic resources also puts upward pressure on our dollar.

So where does this all lead to? Is it all doom and gloom? Well, maybe. The Bank of Canada is in a tough place. They are facing a dollar that is significantly above their target level. Normally in that case one would cut interest rates, which discourages foreign purchases of the dollar. But they can't do that, because our economy is currently overheated, and cutting the interest rate encourages spending, which would lead to inflation. Now if the economy is overheated, and the bank wants to slow things down to avoid inflation (which they do), they would usually raise the interest rates. But they can't, because that would put more upward pressure on the dollar, as international investors would lend in Canada to take advantage of the higher rates. The last time the dollar was this high, Canada faced the economist's nightmare: stagflation, inflation at the same time of recession. Does this sound confusing?

Try throwing in a GST cut that nobody from the Bank of Canada recommended, destroying the Income Trust sector by going back on a campaign promise, a US economy heading for recession, a collapsing US real estate market and the hollowing out of many Canadian industrial sector because of weak controls on foreign takeovers.

So what can the government do? A high Canadian dollar, while it make it difficult to sell goods for export, makes it easier to invest in equipment. The current tax structure does not encourage companies (or individuals for that matter) to invest. A lower corporate tax rate on investment that doesn't discriminate by sector would go a long way to helping Canadian companies take advantage of the current high dollar.

Unfortunately, it doesn't seem that any of the Conservatives are at all conservative with their fiscal or monetary policy.

APEC Summit thoughts

I was dismayed at our Prime Minister’s recent speech at the APEC Summit and hope that the residents of Langley share these thoughts. It was my sincere hope that the coming session of Parliament would see a government that was prepared to act on climate change, a government that is prepared to make the decisions that Canada needs and demands it to make, a government that sees the future of Canada as more important than the latest poll. What I hear is a Prime Minister that uses the international stage to play party politics, a government that will wait for important issues to settle themselves, and a party that fails to understand the gravity of the situation.

Let me explain my dismay with this speech.

In Mr. Harper’s speech he said “The weight of scientific evidence holds that our atmosphere is getting hotter, that human activity is a significant contributor, and that there will be serious consequences for all life on earth.” This is progress from his previous statements on “so-called” climate change.

However he immediately follows it up with a partisan attack, claiming that the previous government paid little more than lip service. I guess he has forgotten who signed the Kyoto Protocol and who chaired the Montreal conference on climate change, when he and his party were still denying the existence of global warming.

However this still gave me hope as maybe this was the beginning of an announcement for real action on Greenhouse Gas Emissions. We know Mr. Harper is an addict and can’t resist a party jab, but perhaps this was finally going to be some real action.

Alas no. Mr. Harper says he wants Canada to be a leader in Greenouse Gas Reductions, then says our emissions will not start to decline until 2010 at the earliest. By then, the UK’s emissions will be 12.5% below 1990 levels, not just flattening out. It doesn’t appear Canada will be a leader on reductions under his plans.

Mr. Harper says he wants to balance economic and environmental concerns when dealing with global warming. He says that “So, for the first time ever, Canada is now setting mandatory emission reduction targets for industries that produce greenhouse gases and air pollution.

Companies will be required to reduce greenhouse gas emissions 18 percent per unit of production over the next three years.”

However this plan has no cap on the total emissions.

Mr. Harper says “They can buy emission credits from other Canadian firms that have beaten their targets.
Emissions trading is an important element of our government’s market-driven approach. It creates strong incentives for firms to go beyond their targets.”

However economists such as Don Drummond, Chief Economist at TD disagrees. “If regulations were not put in place to cap emissions, free reign on emissions would render the price of pollution equal to zero.”

It doesn’t appear Canada will be a leader on developing a global marketplace for Greenhouse Gas emissions.

Mr. Harper says he wants Canada to be a global leader in clean energy technology, then cites Clean Coal as an example.

“There is no such thing as clean coal.” Marilyn Berlin Snell, The Sierra Club.

“There is no such thing as clean coal.” Janice Nease, Executive Director, Coal River Mountain Watch.

“There is no such thing as clean coal.” Dan Becker, director of the Sierra Club's Global Warming and Energy Program.

“There is no such thing as clean coal.” Jan Davis, president of the Hunter Environment Lobby group.

“There is no such thing as clean coal.” US Senate Majority Leader Harry Reid.

It is dirty when it is mined, it is dirty when it is burned. It doesn’t appear Canada will be a leader in developing clean technology under Mr. Harper’s plan.

Mr. Harper finishes his speech by saying “We want to lead, not by lecturing, but by example,“

I think this is a great idea. When?