Confused on Potash

Another win for the cement-heads. The whole farrago about strategic resources, net benefit to Canada, head office jobs, the hollowing out of this great country and all the other economic nationalist mumbo-jumbo – swallowed whole by the not-so-Conservative senior management. Potash is off. It’s in the national interest. Well, yes, the shareholders may have had their rights “restricted” (one might wonder what it means to be a shareholder at all if you’re not allowed to sell your shares, but that’s just the kind of debating trick that free-market fundamentalists like to spring on the unsuspecting).

For an example (conveniently close to hand) of what passes for middle-of-the-road thinking on this issue, here are Adam Daifallah and Dov Zigler in the Post (Nov 6):
First of all, regardless of who “owns” Potash Corp.’s shares, most of its earnings are kept in Potash Corp. and reinvested in Saskatchewan. During the first six months of 2010, Potash Corp. retained earnings of CDN$862.9-million but only paid a dividend of CDN$59.3-million. These earnings stay in Potash Corp. and aren’t sent to the shareholders.
If a global firm were to buy Potash Corp., that earnings stream would get retained somewhere other than in Canada. Essentially, the BHP Billiton buyout would have paid off Potash Corp.’s international shareholder base to stop retaining Potash Corp.’s earnings in its largely Canadian potash activities. Instead, the cash flow would have accrued to BHP and largely been reinvested in BHP’s global mining plans.
Of course, that is the whole purpose of investment: for investors to reap the profits. And if they are foreigners, then, yes, the profits go out of the country. If this is objectionable why allow foreigners to invest in Canada all? Why do we allow Starbucks to sell coffee and Apple iPhones when these earnings streams are flowing out of the country? Shouldn’t we just make everybody buy from Tim Horton’s and RIM and keep all that money in our local communities?

For some reason foreigners, rapacious and, well, foreign, as they may be, don’t share these attitudes. Fortunately for us. So, for example, a couple of Canadian pension funds just acquired a high-speed rail link in the UK (actually the only high-speed rail link; but don’t laugh - we don’t have any). Presumably, the point is to export the profit stream back to Canada for the benefit of their retirees. Following the logic of economic nationalists, this should not be allowed.

Ironically, Canada is a direct beneficiary of open investment: it owns more of the rest of the world than the rest of the world owns of Canada. Yet here we are at a time of rising protectionist sentiment and looming competitive devaluations, gumming up the works with investment regulations that do nothing except cater to local superstitions (in addition to the great work we are doing at the WTO with the defence of dairy quotas).

Whatever his other qualities, though, the PM can still do the political math. The choice was to risk some (or possibly all) of the 13 Tory seats Saskatchewan or losing the support of fiscal conservatives. Since there are no fiscal conservatives in Canada this is pretty much a no-brainer.