Thank you, Mr. Chairman, and thank you, committee.
I am here almost by complete coincidence, by getting an e-mail late yesterday afternoon while I was in the airport in Vancouver, flying here for another purpose. I did manage to organize a few thoughts, and I hope they're relatively coherent, but they're nowhere near as well organized as my co-panellists', so bear with me.
Let me give you just a bit of background about myself.
I'm currently the Kaiser professor of international business at Western Washington University, which is in Bellingham, Washington, about 60 miles from Vancouver, but I'm also an adjunct professor at the Segal Graduate School of Business in Vancouver. I have had my academic career in Canada, starting at York University's faculty of administrative studies, and then at UBC, and then at Simon Fraser University.
My background has been focused very heavily on issues of foreign ownership, particularly foreign ownership in Canada, and the telecommunications and broadcasting industries. I've written extensively on all of these topics. I did not prepare a bibliography, but I can tell you that in 1986 I published an article in Telecommunications Policy, and the article was focused on foreign ownership and telecommunications, with a particular focus on Canada. So I addressed many of the issues in this article, I think, that you're going to be talking about in this committee and that were already raised by my co-panellists today. Most recently, I completed a fairly extensive report on foreign investment in Canada for the Global Competitiveness Committee. These are the background areas I'm going to draw on to make my comments.
Now, there are a number of fundamental questions that are clearly being considered by the committee and that are raised by my co-panellists, so let me start with the main point.
Why do we tolerate foreign ownership? Why do we even want foreign ownership in any industry, to start with? The answer, I think, has been made relatively clear over at least 30 years of academic research: foreign investment improves efficiency in the host economy. That is a fundamental, empirical observation. I'll say it again: foreign investment, inward investment, improves productivity in the host economy. That's my own research for Canada. I've had a number of papers published in the Canadian Journal of Economics that document this, and there are literally hundreds of studies out there.
Now, the question is why is foreign investment of benefit to the productivity of the host economy? There are a variety of channels that people talk about that have been identified. It's the source of inward technology. This technology spills over to domestic firms. Domestic firms then get the benefit of this technology that comes into the host economy. Workers who are trained in foreign-owned companies improve their skills. They migrate, they start their own companies, or they work for Canadian-owned companies.
The competition itself--a point that was raised a moment ago by Mr. Paradis--improves efficiency. How much competition is enough? We're never going to be perfectly competitive in any industry. By definition, “perfect competition” is enough. We'll never have perfect competition. More is almost always better than less, but in any case, empirically inward investment does stimulate competition, and improved competition stimulates improved efficiency.
Now, is there any reason to believe that's different for the telecommunications industry? There's no reason to believe it's different from the telecommunications industry. There are lots of concerns about why the telecommunications industry is unique. And by the way, I agree completely with the panellists that it's very hard to arbitrarily separate discussions of the telecommunications industry from the broadcasting sector. They intersect, they interact, but so do a lot of industries . I'll get back to that point in a minute, and that will be one of my last points.
The co-panellists offered you a variety of reasons for concern about why telecommunications might be different, why this is a sensitive sector and it requires special consideration. Now, I'm not going to deny that telecommunications is an important sector. It is. Clearly, it is. It's very important. But I'm not sure it's unique, in the sense that it obviates the basic wisdom that an open market, with free-flowing capital and labour and inputs of other sorts, is good for the industry in terms of improved efficiency, and is ultimately good for consumers.
Let's look at some of the concerns. The concern was raised that rural Canadians will be disadvantaged because foreign owners will want to charge prices that reflect the costs of providing service in high-cost areas. Well, so did Canadian telecommunications companies. I was involved in almost all of the deregulation hearings, starting with the long distance hearing and the CNCP hearing. Canadian carriers from Bell Canada on down all wanted to charge prices that were reflective of costs. In the end, the subsidy was determined by government policy. CRTC policy is directed by government, and that presumably would continue.
There are concerns about trusting foreign managers with critical infrastructure like telecommunications, which we use for defence and security. Again, those are assets the Government of Canada has sovereignty over. An act of sabotage, terrorism, or misuse of those facilities is certainly, to my knowledge, a criminal act, and could be made one if it's not at present.
Foreign managers and foreign investors absolutely are concerned with profits. So are Canadian managers and Canadian investors. To the best of my understanding, the Government of Canada has no less sovereignty over a foreign company operating in Canada than it does over a domestically owned company operating in Canada. There is nothing in any trade agreement that I know of that makes that invalid. A company is subject to the sovereign rules of the state in which it does business.
Technological change is often raised as a concern. Where is the R and D going to come from if the industry is owned by foreigners? The concern is that they're not going to do R and D. Well, that's not necessarily true. It's been true in the past that Canadian-owned telcos did more R and D per dollar of sales than foreign companies operating in Canada in roughly the same industry, but things are changing. The whole notion of global value chains is making location a very fungible item in the calculation of corporate strategy. Companies are moving activities to where it's efficient to do those activities. It may well be that by saying no to foreigners that they can't come here, even if they want to move R and D facilities here, we're actually denying our industry the opportunity to grow and to do more technology.
At the end of the day, the world is becoming more integrated. It's becoming much more specialized in what it does, where activities are done, and how they're done. We can choose not to be part of global value chains, but if we do, we're hurting ourselves. I don't think telecommunications are any different. If we have strong suppliers of equipment, foreign-owned companies will want to buy the equipment in Canada. They have to. In a competitive industry, they can't afford not to. You have to buy the inputs that are giving you the most value for the money you pay.
I could go on, but I know that time is short and that you want to ask questions. Let me just say that the issue of the cultural identity component of telecommunications is a tricky one. I've written a lot about that as well. It's not made me popular with almost anyone in the cultural industry, but I don't think I've changed my mind on this. I think many of the things I've said about telecommunications apply to culture as well. At the end of the day, if Canadians want content and we want them to watch content that's Canadian, we want them to watch it on the best available technology that can deliver that content. So why deny Canada the opportunity to import improved technology through foreign ownership? By the way, if it's not improved technology, the foreign companies are going to come in here and lose money and they are going to leave. The market will decide whether that's the best way to deliver those signals.
Thank you very much.