Editorial - At the Rio Tinto Alcan takeover news conference at noon yesterday, Yves Fortier, the Prime Minister of Alcan, laid out the harsh terms the corporate state of Alcan had extracted from Rio Tinto after days of tough "bite-the-bullet" negotiations. Rio Tinto has guaranteed, in writing, the "maintenance of our cultural and other community commitments, which include certain flagship activities, such as the International Jazz Festival of Montreal that ended last Sunday."
With that, presumably, the great Liberal anxiety fit over the loss of a national and provincial corporate champion should come to an end. Call it the Van Morrison clause: From now on, possibly into perpetuity, the world's ageing jazz/pop stars will be able to find refuge at the Montreal Jazz Festival, thanks to Rio Tinto. All takeover angst may well disappear following this grand gesture of corporate jazz responsibility.
To be fair, Rio Tinto Alcan also made a big deal of the fact that the merged company will carry through on other Alcan commitments and plans: $2-billion investment in Quebec, expansion of operations in Kitimat, B.C., maintain or even increase jobs locally, establishment of a $200-million Rio Tinto Alcan Foundation, and reaffirmation of the Alcan "continuity agreement" with the government of Quebec. That extortionate agreement,
boiled down, forces Rio Tinto to keep Alcan's head office in Mont-real and jobs in Quebec, or else it won't qualify for subsidies and cheap electric power.
As such trade-offs go, Rio Tinto Alcan is a great deal for Quebec, the city of Montreal and -- above all -- shareholders of Alcan, who will walk away with US$101 a share. The money alone should go a long way to soothing the troubled minds who think Canada is selling out its corporate jewels for peanuts. Nothing has been lost here, but plenty gained in terms of bolstering aluminum production in Canada -- although it's far from clear that Rio Tinto Alcan would not have been doing all these things anyway.
The Alcan takeover should also be a lesson for the Competition Policy Review Panel announced yesterday by Industry Minister Maxime Bernier and Finance Minister Jim Flaherty. The last thing Canada needs is rumblings of new government restrictions on foreign ownership and investment.
Recent talk in corporate and political circles about the "hollowing out" of corporate head offices has already catapulted Canada on to the front page of The Wall Street Journal as a leading member of a seedy club of corporatist gangsters. "Foreign Investors Face New Hurdles Across the Globe," said a front page story last week. "China, Canada, Russia Grow Wary of Acquirers."
What the hell is Canada doing on that list? You might expect Russia and China, models of authoritarianism and state thuggery, to be setting up new bureaucracies and legal barriers to foreign direct investment. But Canada?
Glen Hodgson, the Conference Board of Canada's chief economist, just finished a report for the Woodrow Wilson International Center pointing out that Canada's dismal productivity performance could be pinned in part on lack of foreign direct investment. "A key factor behind the productivity gap is Canada's sliding performance in attracting foreign direct investment, where Canada ranks near the bottom of the OECD in terms of inward FDI relative to GDP."
By that measure, Canada is well below what it should be getting in foreign investment. Another report ranks Canada 21st out of 25 countries in terms of attractiveness for FDI. Canada, in other words, needs more Alcan deals -- more foreign direct investment coming in to bolster economic links with the rest of the world. Instead of appearing in a lineup with Russia and China, Canada should be leading the world in pushing for open investment policies and setting home policies that encourage investment --foreign and local.
The new Ottawa panel, chaired by former BCE executive Red Wilson, has a mandate that gives it the opportunity to clear the political air on takeovers and foreign investment. It has been asked, for example, to take a look at Canada's existing "sectoral restrictions" on foreign control, including telecom, media and airlines.
The panel isn't exactly brimming with radical free marketers, but it's hard to imagine that at the beginning of the 21st Century it will find any benefit in erecting new obstacles to market-based foreign investment driven by the kinds of forces that led to Rio Tinto's Alcan takeover.
There is, however, one new trend, and that's the rise of state-controlled corporate entities. If Rio Tinto were Rio China, owned and operated by the government of China, then perhaps the government of Canada should intervene in an Alcan takeover. The new panel's mandate calls for an examination of the state-controlled phenomenon, and raises the possible need for "national security" review of takeovers by state corporations.
Worrying about the likes of a Rio China makes a lot more economic policy sense than forcing foreign investors to sign a Van Morrison clause to protect a jazz festival.
There are few serious national issues surrounding foreign investment, aside from the fact that it appears Canada is falling behind. The larger question is what governments should be doing to enhance Canada's investment attractiveness. The issue is not what we do about the foreign investment we're getting, but what we do about the investment we're not getting.
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