Industry Committee on May 6th, 2010

[Charlie Angus, NDP, Timmins—James Bay, ON]

As long as this isn't coming out of my time, you can talk as long as you want.

[The Chair, Conservative, Michael Chong]

We can all emit a string of blue expletives, and certainly when I'm in my shop replacing a ball joint on my car, I can let loose with the best of them, but it's a parliamentary committee, it's a public forum, so let's try to keep it....

Go ahead.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Okay, as long as it's not coming out of my time.

[The Chair, Conservative, Michael Chong]

It's not coming out of your time. Go ahead.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Again, I want to get back to our theories of economics. You know, I look at foreign investment. DeBeers came into Canada, and they are an old company. They want to control the diamond market for the next hundred years. They like the climate here, in terms of it being a good market. They invested a billion dollars and they built Victor diamond mine, and they're going to build a number of mines here.

Falconbridge was a great international company. It wasn't a fixer-upper. Falconbridge was very competitive; it was very smart. Inco was very smart.

We didn't have companies buying low and fixing them up. We saw companies that bought extremely high because there was a lot of flush money out there in the market and people were grabbing up companies. Xstrata--there's a company with no history, no record. They were just buying up companies, so they were allowed to.... The Conservative government just rubber-stamped it, didn't really look at their track record.

Now we see a lack of investment. We see copper refineries being shut down. We see the long-term potential of deposits.... I mean, mining is a long-term investment. These guys are high-grading the deposits; they're going to be out of Canada in 10 years, and the synergies that are lost from a takeover like that will never be recovered in the mining industry.

So the question we always come back to is, where is the net benefit to Canada? It's not to say there's going to be no investment, but there will have to be some conditions because these are not just private markets; these are public resources. With telecom, we deal with public airwaves; there's a public interest.

Professor Morck, how do we maintain that balance of ensuring that Canadians actually benefit from these deals at the end of the day?

[Prof. Randall Morck]

You're raising real issues. Capitalism has booms and busts. Capitalism has stock market bubbles. Capitalism has ego-driven takeovers. I said, when I was talking about multinationals, that lots of American firms that try to become multinationals fall flat on their faces precisely because they go abroad, buy high, don't buy the right companies or companies they know how to run, and they screw up, and their own shareholders back in New York suffer.

So I'm not saying this is perfect. I'm not saying this is the one thing you have to do and everything will be wonderful, but in my own research.... Again, I have done a string of papers with Andrei Shleifer at Harvard and Rob Vishny at the University of Chicago, where we look at this issue of takeovers. There is no question that a lot of takeovers are misguided, but enough of them are fixer-upper takeovers that you're better with takeovers than without them. That's what our research says.

[Charlie Angus, NDP, Timmins—James Bay, ON]

So when you have a problem, is that the role of government then?

[Prof. Randall Morck]

Can government do everything? Do we want government to come in and say, this takeover can go ahead and that one can't? Think of the lobbying opportunities that would generate if government actually put itself in that position. Maybe we have to accept some errors on one side to get the good benefits on the other. That's what we're in: government is about choosing the least bad policy sometimes, I think—

[Charlie Angus, NDP, Timmins—James Bay, ON]

I wanted—

[Prof. Randall Morck]

If I could just finish, I think with something like takeovers and foreign takeovers, we have to accept that there are costs and benefits, and we have to say a good policy is one where the benefits outweigh the costs.

[Charlie Angus, NDP, Timmins—James Bay, ON]

I see.

I'm running out of time. I just want to follow up on a few things.

[Prof. Randall Morck]

I think the chairman gave you extra time, if I understood.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Well, it didn't come out of my time. I won't say anything about Milton Friedman, so he doesn't cut me off again.

[Prof. Randall Morck]

Actually, I knew Milton Friedman, so if you want, I can respond.

[Charlie Angus, NDP, Timmins—James Bay, ON]

No, it's okay. We'll talk afterwards.

[Voices]

Oh, oh!

[Charlie Angus, NDP, Timmins—James Bay, ON]

Talking about effects on the telecom industry, my colleague, Mr. Braid, was concerned about the iPod levy under a compensatory regime for copyright. However, at the same time, his government is negotiating under the proposed anti-counterfeiting trade agreement on issues where they were looking at eliminating the safe harbour regimes for ISPs, so that ISPs would now be liable for lawsuits for whatever the consumers download.

I'd be very concerned that opening up cable companies to massive lawsuit infringements because they run the pipes would be seriously detrimental to people's willingness to invest in that market and to put forward more to try to capture more of the market. Do you think getting rid of ISP safe harbour liabilities would be a problem for our region?

[Prof. Randall Morck]

I think you've put your finger on another economic scatology here. There are these economists who run around saying that intellectual property rights need to be stronger, because having some copyrights promotes innovation. To an extent that is true. If you're an innovator and you have no patent protection, you're not going to innovate. If you're a musician and you have no copyright protection, you're maybe not going to write your songs. But copyright protection and patent protection can both easily be too strong too.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Right.

[Prof. Randall Morck]

If the patent protection is too strong, then a drug company may develop one drug and then rest for 100 years and not do anything more; or the musician may write one great song, live off it for 100 years, and not write the next song, because he doesn't have to.

Economists really have no idea—absolutely no idea—how strong intellectual property rights should be. We know that if they're too strong, it's bad. If they are too weak, it's bad. But we don't know what the right number is, and I am very worried that a lot of people in governments all over the world just think that stronger property rights are better, and that is just clearly not true. But where it should be, we don't have those numbers. We don't know.

[The Chair, Conservative, Michael Chong]

Thank you, Professor Morck.

Thank you, Mr. Angus.

[Prof. Randall Morck]

That was a bit off topic, I admit.

[The Chair, Conservative, Michael Chong]

Now we go to Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

I want to thank our guests for excellent presentations, and there were also good questions from everybody on this particular issue.

I have three questions. One is for Professor Hejazi. You talked about Canadian companies investing elsewhere around the globe. Are they facing obstacles in other countries? Are other countries putting up barriers to entrants and foreign investment like we're seeing here in Canada? Are there domestic content rules they are facing, or are we a little behind where the rest of the world is?

[Prof. Walid Hejazi]

I can't speak to the domestic content rules globally, but in terms of restrictions on entry, yes, the OECD study rates Canada as one of the most restrictive developed countries.

When you start thinking of developing countries, they tend to be more open to foreign investment, but that openness often comes with additional rules around joint ventures. The idea in China, for example, is that when a foreign company comes in, it needs to partner with a local company. One of the reasons for that is the transfer of technology.

Just to answer your question directly, among the developed countries, Canada is ranked as one of the more restrictive, mainly driven by these three key, closed infrastructure sectors: telecom, finance, and transportation. So we are restrictive.