Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

The federal government heeded the advice of the business-dominated Economic Advisory Council and set out a new welcome mat for foreign investors in the recent Economic Statement. The threshold for review of foreign takeovers of Canadian companies will be raised to $1-billion from $600-million (up from just $369-million in 2015); a new agency, the Invest in Canada Hub, will be set up with a mandate to woo foreign corporations; and reviews of the security implications of foreign takeovers are likely to be limited.

The report of the Advisory Council expressed alarm about Canada "falling behind" in the competition for foreign investment, without a single critical word on the possible costs of foreign takeovers. This is consistent with the Liberal record (a Liberal government has never turned down a foreign takeover) but at odds with the public interest and even the government's own broader economic agenda.

Not to be misunderstood, new "greenfield" foreign investments and takeovers, especially in advanced manufacturing and the so-called knowledge economy, can indeed be a good thing for Canada. Foreign investors can bring better access to new markets, to new technology, new capital and technical expertise. Some of the country's most innovative and dynamic companies, such as Pratt & Whitney Canada, are foreign-owned.

Story continues below advertisement

But, foreign investment, especially in the form of foreign takeovers, is not necessarily a good thing, and can lead to the loss of productive capacity, new investment and good jobs in Canada. Accordingly, it is reasonable to continue to review takeovers and subject them to the test of being of "net benefit" to Canadians.

Foreign takeovers risk the loss of control to non-residents who seek to maximize returns on a worldwide basis and have no specific interest in maintaining and expanding Canadian operations. This has recently been the case in the mineral resource sector where some huge transnationals have shut down Canadian mining and processing operations as part of a global capacity-reduction strategy, rather than operate them on a reduced basis in response to a temporary slump in demand.

Foreign ownership carries serious macro-economic risks. Sudden large inflows, as in the resource company takeover boom of the mid-2000s, helped drive up the exchange rate of the Canadian dollar at the cost of non-resource Canadian exporters. And a rise in foreign ownership involves a long-run flow of profits to foreign owners and reduced personal income tax revenues.

Canadian-owned companies that operate on an international basis are just as, or even more, innovative and productive than foreign-owned transnational corporations operating in Canada. Our key goal as a country should be to promote the growth of the former.

Canadian-owned transnational companies are more likely to maintain significant head office employment at home; more likely to undertake significant research and development in Canada and to build links to our universities and colleges; more likely to engage Canadian suppliers of goods and services, including professional, financial, and consulting services; and are more likely to be part of regional networks and clusters of firms.

It is for these reasons that many prominent representatives of Corporate Canada have argued that foreign takeovers can lead to a "hollowing out" of Canadian operations.

In the important "knowledge-based" sector, a foreign corporation may make an acquisition in Canada mainly to gain control of patents and other intellectual capital developed in Canada, with the aim of transferring that knowledge to another country. This was flagged as a major problem by the Expert Panel on Innovation headed by Tom Jenkins, which reported to the Harper government in 2011.

Story continues below advertisement

The problem is particularly significant given that corporate research and development in Canada is highly subsidized through tax credits and other government incentives, which are likely to be increased as part of the Trudeau government's new innovation strategy.

The case for support is based on the premise that knowledge developed in Canada will lead to more innovative Canadian businesses and better Canadian jobs, but this is less likely to happen if there is no regulation of takeovers.

The central point is that acquisitions by foreign corporations of Canadian companies may be in the interests of shareholders and corporate executives, but harmful from the perspective of workers and local communities, and negative in terms of the desired path of sectoral and national economic development.

That is why it makes sense to review significant takeovers to examine the effects on employment, productivity, innovation, and technological development, and their compatibility with broader economic development policies. To further ensure that there is a net benefit for Canadians, the government may require the company to amend its plan in the form of specific undertakings and commitments.

Certainly we need a more nuanced approach to foreign ownership than just putting out the welcome mat.

Andrew Jackson is an adjunct research professor in the Institute of Political Economy at Carleton University in Ottawa and senior policy adviser to the Broadbent Institute.

Follow related topics

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies