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TMX (Kevin Van Paassen/The Globe and Mail)
TMX (Kevin Van Paassen/The Globe and Mail)

Stephen Gordon

TMX, Potash not strategic assets, stable regulation is Add to ...

The expression "strategic asset" has been thrown around a lot recently in the context of the attempted sale of Potash Corp to BHP-Billington and the proposed merger of the TMX and LSE stock exchanges. But no one seems to be able to explain what they mean by the term, and I'm not even sure there is a useful definition as far as economic policy is concerned.

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My understanding is that in military circles, a strategic asset is something that is vital for maintaining operations. For example, the goal of strategic bombing is not to win a battle, but to eliminate the enemy's ability to wage war. If we want to extend this idea to economic policy, a strategic asset might be something that is vital to the functioning of an economy.

But if we accept that definition, then our natural resources clearly do not qualify. It is quite possible to build a prosperous economy without those resources; the obvious counter-example is Japan. The empirical literature on the factors driving economic growth suggests that the real strategic assets are institutional and human: a properly-functioning legal system and a well-educated work force.



In fact, an abundance of natural resources has often been cited as an obstacle to economic growth. Instead of working to establish the infrastructure necessary for sustained economic growth, politicians find that they can maintain power by diverting resource revenues to their supporters. Countries that have fallen victim to the resource curse are too numerous to list.



We can also exclude the TMX. What investors and firms need is access to well-regulated capital markets; the location of the head office of a stock exchange only matters to the people who work there.



A definition that is perhaps more pertinent to these measures is that for regulatory risk:



  • The risk that a change in laws and regulations will materially impact a security, business, sector or market. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of investment and/or change the competitive landscape.


By intervening in the BHP-Potash Corp and the TMX-LSE deals, the government is achieving the opposite of its stated policy goal. The uncertainties generated by these random acts of governance are eroding one of our most important economic strategic assets: a transparent and predictable regulatory environment.



Stephen Gordon is a professor of economics at Laval University in Quebec City and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE). A regular contributor to Economy Lab, he also maintains the economics blog Worthwhile Canadian Initiative.





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