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Prime Minister Stephen Harper’s decision – and it was his decision – about how to treat takeovers by state-owned companies will reverberate around the world.
Other countries – either the ones with state-owned enterprises (SOEs) or the ones with resources these SOEs wish to buy – won’t slavishly follow Mr. Harper’s lead. But some will take note of how an advanced industrial country handled this growing fact (or challenge) of world economics, as will countries with SOEs. The Canadian precedent – red-circling some industries against SOEs while toughening purchasing criteria in other industrial sectors – will be studied, if not copied.
The Canadian precedent is based on a fundamental premise: that SOEs don’t necessarily act the way shareholder-owned companies do. SOEs, such as those in China, contest that premise. They argue that, whatever the company’s controlling structure, SOEs act on market imperatives alone, up to and including listing their shares on stock markets.
It’s not easy generalizing about SOEs. It’s one thing to have an SOE from autocratic China, where the Communist Party and the military own big chunks of the economy, including interests in SOEs, and, say, Statoil of Norway, a profoundly democratic country that has wisely (unlike Alberta) husbanded its resource revenues in enterprises such as Statoil to make money for future generations.
SOEs come in many shapes and sizes, and from many different kinds of countries ranging from the authoritarian to the democratic and everything in between. That is among the reasons Mr. Harper’s policy wisely builds in flexibility for the government. Instead of hard and fast investment rules, we have rules that approximate guidelines rather than laws.
Mr. Harper ought to have clarified the “net benefit” test and how the government would deal with SOEs a long time ago. Everyone knew the “net benefit” test was vague to the point of being incomprehensible, and everyone also knew that SOEs were eyeing Canada’s natural resources.
As a result of this delay, the government had little choice but to approve the takeovers of Nexen (by China’s CNOOC) and Progress Energy (by Malaysia’s Petronas). Those deals were done before Mr. Harper clarified the rules. He could hardly have retroactively applied his new guidelines, unless he wanted to be known as the Hugo Chavez of the North.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/commentary/it-took-a-while-but-harper-got-it-right-on-soes/article6208073/