Stuck Between Two Centuries

Yesterday afternoon, our International Trade Minister David Emerson and his Indian counterpart announced a trade agreement between the two countries which will guarantee fair legal treatment for each other's investors. Whatever that may mean, this type of agreement is generally regarded as a stepping stone for an eventual free-trade deal. So who knows, in five to ten years, we might have free-trade with India (I can already hear the NDP screaming).

This agreement follows a major free-trade deal which we signed last June 7 with the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland), and to add to the buzz, there are negotiations being currently undertaken towards a free-trade deal with South-Korea. So wake up people; borders are disappearing and trade is increasing. Meet... globalisation.

We’ve all heard of this fancy phenomenon called globalisation and we’ve all got a rough idea of what it means and entails: more trade, less tariffs, more outsourcing, more communication and the list goes on. But while we may all know about it and understand it and while our International Trade Ministry may be taking steps to keep up with it, our monetary policy is still years behind and our whole business sector seems to be complacently watching it hit us.

We all seem to assume that globalisation will only affect us in terms of job losses and money leaks; that it is simply about Canadian firms investing and moving operations abroad. This is all true, but globalisation also means the reverse. It also means foreign companies investing in and moving to Canada, foreign workers resettling in Canada and foreign capital coming to Canada.

Just look at the banking sector. Ten years ago, there was only the “Big Five”, which had a total monopoly over the whole Canadian banking world that allowed them to comfortably sit on their market share and gauge consumers by charging ridiculously high fees while paying no interest on their personal savings. Today, we’ve got new foreign players such as the Dutch giant ING, who are attacking the “Big Five” right in their home turf and forcing them start competing for business.

The clear winner from this new situation is the Canadian consumer, who can’t be taken for granted anymore and who is now being offered more and more options and benefits. The clear losers, of course are the big Canadian banks, who are now facing competition in what is the only market they have access to because of their small size (compared to giants from other countries). Now, you’d think that the government would have adjusted its monetary policy and let Canadian banks merge so as to make them competitive on the international stage thus allowing them to compensate losses at home with gains abroad, but our government is still living in the 20^th century and assuming that letting banks merge would ultimately hurt Canadian consumers. Of course, our big banks merging would have absolutely not effect on the consumers because of the foreign competition which would force them to keep competing for their business.

Another example would be our mining giants (or what we think are giants), which all seem to be disappearing into foreign hands. Instead to giving them the tools to be aggressive on the foreign takeover market through smart tax policy and less merger regulation, the government has been content with letting them stick to the home market until they grow big enough to become takeover prey. Remember Inco and Falconbridge? One of the reasons that they didn’t merge was become they feared our Competition Bureau would put its foot down. And more recently, we saw Flaherty’s failed budget bill on “double dipping” and “offshore tax deductions” which precipitated the bidding war for Alcan.

One could advocate that Canada should close its borders to foreign takeovers and encourage its companies to stick to the domestic market. That model was very much in style during the last century, and is still adopted by a number of countries. Today, most economists would advocate that Canada should open its borders to foreign takeovers while also giving its companies the tools to make foreign takeovers. That model is theoretically much more adapted to the reality of globalisation.

At the moment, Canada is stuck between the two and suffering from it. Our borders are open and our firms are going like hotcakes, but they aren’t being given the tools to engage in merging and buying abroad. We should really stop now, because this can only lead to troubles.