A.E. Safarian, Foreign Ownership of Canadian Industry, Third Edition.
This is the third edition of Safarian's classic analysis of foreign ownership of Canadian industry, a detailed study of firm performance based on interviews and questionnaires, which were completed in 1959. The study involved 280 companies, 227 of which were controlled in the United States. The remaining 53 were controlled in overseas countries.
The first edition was published in 1966 when Safarian was at the University of Saskatchewan. Seven years later a second edition appeared with a comprehensive 25 page preface. This third edition emerged nearly a half century after the first edition as a result of the demand for this out-of-print classic.
The first edition of the book began: "For over a decade there has been persistent criticism of the role of foreign investment in Canada" (Toronto: McGraw-Hill, 1966, v). In examining the validity of this criticism Safarian took a highly quantitative approach, primarily because there was a lack of data on the topic. Focus was limited to the commodity-producing sector. Safarian's statistics showed that petroleum and natural gas and mining and smelting were the two sectors where non-resident ownership was highest, even higher than in manufacturing. In each sector there were massive amounts of capital invested, particularly in petroleum and natural gas.
In 1973, the second edition was published, by which time Safarian was at the University of Toronto. In the preface, Safarian again noted criticism of foreign investment--and particularly American corporate investment--in Canadian industry. This edition presented the author with the opportunity to write a comprehensive and thoughtful preface covering some "of the broader issues as they have been shaped in more recent years, particularly in terms of the effects of the growth of American-owned corporations in Canada." (xx)
At that time, not only was 80% of foreign direct investment (FDI) in Canada from the United States, but nearly 30% of all US investment abroad was in Canada. In the early 1970s, a large and vocal community, including both the CBC and the Toronto Star, Canada's largest circulation newspaper, offered frequent criticisms of the amount of FDI in Canada, implying that FDI was harmful to Canada in ways that domestic investment was not.
The second edition's preface examined the economic cost/benefits of FDI, the effect it has on balance of payments, as well as dealing with some political and social issues, often overlooked by other economists. Safarian pointed out that there were strong attitudes against FDI within Canada in spite "of careful empirical studies which largely refute" (xxv) these concerns. He also argued that a protectionist environment "inhibits entrepreneurial skills leading to an inefficient structure of industry." (xxx) Entering the slippery slope for economists of political and social issues, Safarian goes to "the heart of the Canadian dilemma--the ties through investment, trade, communications, military alliances, population transfer ... to the powerful and restless giant to the south." (xxxix) He concluded the preface by writing that "some of the evidence [against FDI] consists of foothills capable of being ascended by governments, and all too many of the alleged shortcomings amount to nothing more than molehills." (xliv)
The body of the book begins with an explanation of the need for a study based on firm information using "careful statistical analysis." (25) He notes that major legislative changes, including the 1957 provisions which resulted in the mutualization of the Canadian life insurance industry, had been based on a lack of such information. This is followed by a detailed chapter describing the rigorous statistical background to the study. Then there are chapters on such diverse topics as firm management, exports and imports, knowledge transfer, comparative costs of production, pattern of ownership and finance, and finally nationality of ownership and firm performance, but not of employment patterns. In addition, there are a multitude of tables, 73 in all. The appendix includes the questionnaires and letters that were sent to the non-resident owned and resident-owned companies.
Canada is a very different place today than it was when this book first appeared. Trading arrangements are very different; internationally we have the World Trade Organization (WTO) rather than the General Agreement on Tariffs and Trade (GATT). More importantly, Canada has signed a Free Trade Agreement (FTA) with the United States, followed by a North American Free Trade Agreement (NAFTA). As Safarian makes clear, the protectionist trade arrangements in place for the first nine decades of the 20th century were a major reason for FDI. But with the arrival of freer trade, and with growing affluence, Canada moved from being a major importer of capital to a net exporter of capital in the latter part of the 1990s. Furthermore, the structure of corporate Canada is dramatically different than at the time of the writing of the earlier editions.
When Safarian researched his book, Big Oil and Big Auto as well as mining were dominated by foreign-owned or controlled companies. What a difference half a century makes. Big Oil has changed completely, with the arrival of a number of large widely held Canadian companies, none of whom are headquartered in Toronto but rather in Calgary. The biggest company in the automotive sector is a Canadian-owned parts manufacturer, Magna, which has nearly five times the revenue of erstwhile giant General Motors of Canada, which is now smaller than not only Ford and Chrysler, but also Honda. The biggest mining companies are Canadian owned.
Given all this change, what is there about this book that makes it relevant when the subject matter is so different today than when it was written? What is consistent between the two periods, although perhaps not to the same degree today, is a xenophobic concern about foreign investment. This can be traced back to the 1950s and the Royal Commission on Canada's Economic Prospects, chaired by Walter Gordon, a strong Canadian nationalist and future minister of finance in the Liberal government. The Report expressed concerns about foreign ownership of the economy, especially in the resource sector. When Gordon became finance minister, he commissioned Mel Watkins, a left-wing professor of economics and political science at the University of Toronto, to further investigate foreign ownership of the Canadian economy. The resulting Watkins Report led to the establishment of the Canada Development Corporation during the Trudeau era.
While those years seem long past, we have recently seen the reaction to Australian-based BHP Billiton's attempt to purchase Saskatoon-based Potash Corporation of Canada, the Chinese National Overseas Oil Corporation (CNOOC) purchase of Nexen, and the reaction in 2013 to the possible entry of Verizon, an American telecom company, into the Canadian market. Whatever the reason it can be seen that in spite of dramatic changes in corporate Canada, in FDI, and in trade agreements the issue of foreign ownership of Canadian industry is still subject to spirited emotional debate. Safarian's book is a useful antidote by providing a combination of detailed information and reasoned logic to rebut the arguments against FDI.
University of Toronto
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|Article Type:||Book review|
|Date:||Mar 22, 2014|
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