June 5, 1972 (28th Parliament, 4th Session)


Eric William Kierans


Hon. Eric Kierans (Duvernay):

Mr. Speaker, I am glad to have the opportunity to say a few words in this debate on Bill C-201.
I might start off on an informal note by relating an experience I had three weeks ago today at New York University when I was one of a group of 25 economists discussing the rising tide of nationalism throughout the world and the growing opposition to the activities and expansion of multinational corporations. I think we saw some of the results of this opposition in two countries just last week in the shape of expropriations and takeovers in Syria and Iraq. Included in the group were senior representatives of two of the largest multinational corporations, IBM and Standard Oil of New Jersey, neither of whom had found anything in our legislation to disturb them. They said we had adopted in Canada a very moderate and liberal policy which did, indeed, surprise them. But what surprised me most was that many economists there, Japanese, European, Latin American and Indian, did not really want to discuss the Canadian case. The Canadian case, to most of them, was not one which would provide them with indications of what they themselves could do by way of policy to prevent the growth of foreign investment on such a scale in their own countries. To them, the experience in Canada, where United States manufacturing and resource development activities have taken over to such an enormous extent, is, indeed, a horrible example, but what they were really concerned about finding was some hint of a policy which might prevent such a situation ever arising in their own countries. In other words, we are a special case.
I might say I agree with those who have expressed the view that the bill before us does nothing, really, to come to grips with the overwhelming problem which faces Canada. The reason for this, to a large extent, is that it attempts to provide solutions to a general, or national problem, by the taking of ad hoc decisions. In other words, each particular takeover is to be examined on its own merits, and if it is found to be in the general Canadian interest it will be approved, otherwise it will not be approved. But I submit to Your Honour that there is no takeover which could not, in a sense, be proven to be an advantage in particular situations. However, this is not where the problem lies. It matters not in whose riding this takes place. On examining a takeover, one looks at the reasons for the takeover. Let us say one finds on the side of the seller, or the Canadian, that he is a man who has grown old and tired, having developed his business. There is no continuity of management. He is responsible for an operation that employs 50 or 160 people, but his sons are not interested in entering the business. Therefore, he has to look around for management.
If it is not accepted that there should be this kind of takeover or sale of assets, then this whole enterprise is going to place in jeopardy the livelihood, the salaries and wages, of the existing employees of the firm. I do not think there is any member of this House who, if he were to act on behalf of such a buyer, could fail to prove that the buyer of such an enterprise could provide more research and development, as well as more capital, than existing entrepreneurs. By providing more employment and more products, he could prove that that particular takeover would be in the interests of that particular locality or region. As I say, that is not the problem that is facing Canada. Our problem is related to what I suppose could be called, not only in the discipline of economics but in

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other disciplines as well, the fallacy of composition. In other words, you cannot extend from the examination of a particular case a generalization to arrive at a general or national policy.
Let me give the House a simple example. A wheat farmer in the west could decide of his own accord to double the acreage he sows, in which case obviously he would reap tremendous advantages. On the other hand, if all wheat farmers in the west decided at the same time to double their acreage, the disadvantages, the catastrophes and the chaos could be monumental to the industry as a whole. This is what we face in this particular situation. It is not merely a given takeover that is at stake here, but rather the volume and amount of the takeovers that are taking place and indeed are a fact of life in this country that we call Canada.
Let me give the House another example. None of the problems that the United States has had with its balance of payments recently can be attributed to the developing nations. Indeed, the developing nations of this world have helped and saved the United States from having a very much worse balance of payments problem. In each of the last three years the United States drained from its operations in the developing nations in the world more than $4 billion a year. Approximately one-third of this $4 billion was accounted for in an export surplus that the United States had with the developing nations. The other two-thirds was the return on capital, royalty fees, research fees, management fees, and profits pulled out of the developing nations and back into the United States.
Again let me give an example. In the year 1971 United States oil companies invested in Libya $1.8 billion. The profits of those companies amounted approximately to $1.6 billion. What they withdrew was $1.5 billion.
In the over-all structure of relations between the United States and the developing countries, the following summary can be made. Their balance of payments improved initially on merchandise trade and current account by $4 billion. But obviously, the developing countries needed the money to pay for the deficit in their current account so there had to be a capital outflow. What was the composition of that capital outflow from the United States to the developing nations? The United States-and we are just as guilty of this sort of thing-declare that they want to help the developing nations of the world in their current accounts, and they pull out $4 billion. Then, these nations say that somehow this has to be equalized because they have to pay their bills. Therefore the United States replies that it will give them grants in aid totalling approximately half that amount, which is $2 billion. We all know that these grants in aid are tied. What is exported is really equipment and also technology, though technology that is suitable in the United States may not necessarily be suitable in each of the recipient underdeveloped nations. The other $2 billion, to equalize accounts from the point of view of the developing nations of the world, is an increasing outflow of private investment from the United States.
Now, Mr. Speaker, what does this investment do? It can only do one thing: it searches out the ownership of, and title and proprietary rights to, even more resources than the United States already has in each developing country. As a result, the problem accelerates. We can all see that
Foreign Takeovers Review Act
there is a political limit to this which will very shortly be reached in most countries and has already been reached in others-long ago in Cuba, and now in Chile, Peru and the Middle East. So I say that the problem for Canada is not that we should be worrying about a particular takeover, but rather the whole problem of the amount of takeovers and the amount of foreign investment that we have permitted in this country, indeed, that we have encouraged and are still encouraging.
The fallacy of composition is, perhaps, a simple error in logic. Sometimes it can be called sophistry and sometimes deception, though certainly there is no implication of deception here or intention to delude people. However, the problem cannot be solved on this basis. What it demands is an over-all attack on the entire problem of just what Canada's economic objectives are, and how we can best attain them. It is also an examination of the results of a continuation down this particular road and whether it is going to lead us, as indeed it already has to a very great extent, to the position where we can only pay our deficit on merchandise trade and capital account by selling off more and more of our own property. As I say, there is a limit, and in the case of Canada I am sure we will be smart enough to reverse this pattern, even though for most other countries it would already have been well past the point of return.
I ask, is there a policy that we can develop, an over-all policy rather than a policy directed to the examination of a particular merger or takeover between two particular firms? I say that there is such a policy, an over-all policy that demands the integration of all our policies. It demands the integration of our fiscal policy, our monetary policy, our commercial trade policy, our exchange rate policy. We should find this policy and seek the solution to reversing this kind of trend, though not without putting some burdens, stresses and strains on the economy.
I do not think anyone can rightfully claim that this bill comes even close to approaching the real problem. It comes close to discouraging new foreign investment, but it does not discourage new investment of its own accord. Any firm not presently in Canada can invest, which is what the United States wanted to be made quite clear. They said it was fine, that they would not have to buy anyone out, but that they could start up all the subsidiaries they wanted. In fact, the United States goes even further and, by giving all sorts of grants, encourages companies to enter Canada and provide further competition to a manufacturing industry that is already far too heavily concentrated.
With regard to existing investment in Canada, we have already taken other measures to permit expansion at a faster rate than hitherto. There is already more than sufficient foreign investment here in Canada for them in their own innerdynamic way to progress far more rapidly than the gross national product does. In other words, by the proportion by which they do expand more rapidly than the economy as a whole expands, they will acquire increasing control. Some of these measures have even been sanctified in the most recent budget in the granting of two-year writeoffs to firms. The firms who are getting the best of such a thing are the large firms.

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Foreign Takeovers Review Act
In the population of firms in Canada we may say we control 50 per cent of manufacturing, but the 50 per cent we control are the small and medium-size firms. The 50 per cent controlled largely by foreign capital are part of the largest sector, and these are the firms that can invest $10 million or $20 million and can writeoff such expenditures from capital equipment rather than the profits they make on the Canadian consumer market. In other words, we are digging the pit deeper and nothing in this legislation is in any way going to reverse that.
What we have to come to grips with, and this was quite clear at New York University, is the fact that there are a great many people in this world, including those in Japan and the Common Market, and obviously in the United States, who are convinced that the only way in which a nation can obtain growth is by the use and encouragement of multi-national corporations. They recognize there is growing resentment around the world to activities of such giants. Who do they blame? They blame the people who feel insecure and disturbed because of this.
We hear from distinguished economists such as Charles P. Kindleberger of MIT who says:
International firms stimulate the development of international policies. They leave less room for the independent, idiosyncratic, law-unto-itself national state.
That is what this House is all about.
Raymond Vernon, the distinguished Harvard professor, states:
The basic asymmetry between multinational enterprises and national governments may be tolerable up to a point, but beyond that point there is a need to re-establish balance through accountability to a governing body multinational in scope.
This is what this bill talks about, multinational enterprise being a firm which operates in one country and wants to cross over into your country. Here we have a law for corporations that permits such institutions to live in perpetuity. No one of us here is immortal, and even this institution reviews itself, perhaps for the better, every four years. Every institution we can think of is accountable in some way to somebody except that institution called a corporation, and because a corporation has conquered time, the institution of corporation now wants to conquer space. It wants to be able to go anywhere. It is a kind of pantheism. When it tries to go forward it runs up against a resistance of bodies exactly of the kind we have here in this House today.
Let me get a little closer to the problem. George Ball, a name we know well, in an article referring to the importance of being stateless, that is an international corporation being stateless and subject to nobody, not even its own government, says:
An international companies' act, as I see it, has intrinsic merits. It offers the best means I can think of to preserve the great potential of the world corporation for expanding.
What is he trying to say here? I suggest he is referring to an attempt to create a supranational authority, with a charter that would be granted by the United Nations, which would be above the activities of the different national assemblies across the world. This search for a supranational state is a logical development we are pres-

ently going through. This is an attempt to place what we could call a cosmocorp, whether it is a multi-flag, multibranch, multiinternational or multinational authority, beyond the reach of politics, making it above politics, or making it apolitical.
I will admit that corporate planners may be able to do things better. There is no doubt that they have accumulated in their hands greater resources; capital, technology and even management skills, and they can apply this to given operations, but they cannot decide for a people how their nation's resources should be allocated. That is what a House like this is all about. It is politics that defines what the inhabitants of a state think are the problems that should be solved rather than the multinational corporations, no matter what their claims are to a superior technical nature.
I agree with a free flow of international capital. As an economist I agree with this just as I agree with free trade of goods and products. What is also being advocated today with the free flow of international capital is the idea of a free flow of ownership and property rights. This is a completely different thing.
The United States was built on a free flow of international capital, mainly from the United Kingdom, but there were no property rights involved. This capital was in the form of loans, debentures and bonds to enable the United States to get going, but the ownership, control and equity in the future growth of the United States remained in American hands. This is the kind of consideration we have to give to an over-all strategy in order to come to grips with the problems facing this country.
I have my grave doubts, too, about a great deal of the claims made for this sort of institution. The bulk of investment funds does not come from capital markets, it comes from the consumer; the dollar that you and I pay for whatever product we buy. Some 80 per cent of new capital expenditures are financed by profits retained out of that dollar bill. They are financed by depreciation allowances, accelerated investment allowances, double depreciation and depletion in the case of mineral resources. These are the things that enable corporations to accumulate the money they invest tomorrow.
The actual investment of these funds is determined not so much by what the consumer wants or what the consumer needs, it is determined more with an accent on the growth that the corporation direction wants or for which it is searching. These are the funds that count. It is not the salaries and wages corporations pay in a certain locality or riding that are important. They are important in a limited way, and deadly important to the people who are employed, but the people who are so employed could also be employed by a wise and expansionary government policy doing things that are perhaps more satisfactory to the consumer. The money that is paid the employee is not nearly as important as the money that is retained. These are charges against the dollar for distribution, for royalty fees, for management fees and for research and development, all paid for by the consumer. The profits are made and used to reinvest for research and development, technology, plants and equipment for tomorrow. If you cede this for the whole future direction you give up not only ownership rights to your economy today, you give up
June 5, 1972

ownership rights and the right to direct your economy tor all time.
There is undeniably a tremendous hostility because of the very magnitude of the problem. It will accelerate during the next three, four or five years because at the present time what is worrying the multinational corporations of the world and the three big trading blocs is that an overwhelming proportion of these are owned and controlled in the United States. The Japanese have the funds and the will to acquire their share. They will go searching out. The Europeans will need their share. In this flow of buying out the resources and markets of the world, there will inevitably be a counter reaction of tremendous hostility and resentment. I only hope that when this resentment comes we will have the grace to say it was our fault, mea culpa, mea culpa, mea maxima culpa, and that when finally it becomes a political realization we will say it is something we ourselves should have and could have foreseen and can hardly blame the dependent nations for engaging in it.
I do not want to go any further into the operations of the multinational corporations. I suspect greatly that the claims that are made about the benefits of their technology to countries such as Canada are exaggerated and that if we had a positive economic policy of our own we could easily equal the so-called advantages and expand well beyond them because it is not technical efficiency which counts. It is the relationship of the efficiency to the supply and factors of production of the economy of a country such as Canada. If we rely on the promises of technology we must remember that our problems are much more. The promises of technology really demand tremendous capital and capital is not in surplus in Canada. Normally when you make an economic decision you make it to use to the utmost the factors that are in surplus, as in our case labour and employment, and to husband your resources in the area of capital. You can have a perfectly rational technology and efficiency which on purely technical grounds seems to be superior. If it employs more of the factor that is absent in the economy and less of the factor that is plentiful in the economy then it is not a rational economic decision.
They sell production techniques, but these techniques which they export to Canada and across the world are the production techniques they developed for their own domestic market. That they could be equally suitable to countries all over the world is somewhat doubtful. There is no reason to believe they are. In fact, the introduction of technologies that are superior to the state of the art in many countries creates great strains and stresses which have a distinct impact on the social, cultural and political fabric of each of these countries. As I have suggested we need an over-all attack on the problem. Because the problem is so serious, and so large a part of the population of this country is aware of it and has as they say a gut feeling that something is wrong, I think we need the co-operation perhaps of all parties in developing it. I must simply say that I do not expect that kind of policy to come from what we euphemistically call an establishment here in Canada. I do not expect it. I do not blame the cabinet for this kind
Foreign Takeovers Review Act
of a bill. It is the kind of bill which could be promoted only by the people who are here in the civil service.
You know, Galbraith yesterday talked about the structure in the United States and the symbiosis, as he said, of bureaucrats and the great corporations and the social establishment. Symbiosis I suspect is a good word for shacking up or living together. We have the same situation here. It is understandable. You do not find many deputy ministers talking individually with farmers or small businessmen who have gone bankrupt, had tax problems and perhaps had something to say about the kind of policies which led to this. Or you do not find them talking to small entrepreneurs who are successful. The conjunction here, the meeting of the minds here in Ottawa, is between the bureaucrats in the large corporations and in our very large federal departments. It is understandable. They belong to the same jet set. I do not mean the watering holes of the world but rather the same international conferences in the Genevas, the Tokyos, the Parises or the Washingtons. They meet on the same plane and attend these same conferences and meetings.
As I say, they do not see any representative of the real guts or the vast majority of the people who make this economy go. The president and the vice-president of a corporation and a deputy minister have roughly the same standards of living and the same salaries. They have roughly the same size of organization and the same number of employees. They have a billion dollar budget in each case and perhaps more in some cases, but the relationships and comparisons are reasonably of the same order. They have the same motivation. Their 22,000 employees they would like to see grow to 25,000 tomorrow. That would be a significant indication of their importance. Applied to the private sector they are judged now not by the old classic definition of how well they can handle the assets entrusted to them or the profits made but more on the growth of their assets and the growth of the number of employees. This largely applies to departments. They have the same kind of motivation. They also have the same kind of utter confidence in themselves that they know what is good for people. So you find them not really considering the problems of small business or service industries today but how can they goose the economy with some physical leap forward into technology.
Technology for what? To produce things people do not want. It may be the moon, supersonic aircraft or technology to provide services the people do not want. They have the same priorities for destroyers, CF-5's or hydrofoils. Now, the current one going on is that somehow there is a technology of STOL aircraft which might place Canada in the forefront. The large corporations and bureaucrats get their heads together and talk about sums of $200 million to invest in this project. I do not know why people want to go from Montreal to Ottawa in 48 minutes instead of two hours. I do not see how many people, less than one per cent of the population, would ever take advantage of such a service. However, I can see how the people of Canada would pay out $200 million to provide such things as more clothes, better houses, transportation, food, and the things we need in so many areas of our population.

June 5, 1972
Foreign Takeovers Review Act
But I think the greatest bond of sympathy that I can find between the two groups, a bond of sympathy that does not and cannot exist between the average Canadian entrepreneur or farmer and a civil servant, is that they are not operating with their own money. The ordinary farmer and the middle sized manufacturer is operating with his own money, and right off the bat there is a distinction between him and the civil servant. But there is no distinction between the civil servant at the highest level and the bureaucrat of a large corporation; neither of them is making these decisions for our benefit and neither of them is handling his own money. The vice president of a multinational corporation or his board of directors are not operating with their own funds; they are operating with the funds of the shareholders about whom they could not care less because what they are maximizing is their own expansion, growth, prestige and status, and all that they want to do is to give as little to the people who actually own the company as they possibly can to keep them satisfied. Nor is the civil servant operating with his own money. He is operating with the taxpayers' money. So all of his dreams and visions will not cost him a nickel. There is lots more where that came from.
This kind of bill came out of that kind of environment. It did not come from the cabinet or from the members of the caucus who have a political sensitivity to the problem as it actually is and to the depth, width and breadth of the solutions that are actually needed.
I am sorry to say that I would vote for the bill because it is a small step forward, and something is better than nothing, but I will vote for it on that basis only. But after a long period of gestation, far more than the normal nine months, I would like to say that if this is all that the government can bring forward as a response to the kind of problems and to the depth of the problems that foreign ownership represents for the Canadian people, the government would have been better off not to have brought it forward at all.

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