It is no longer enough for an enterprise to be better and more efficient than the enterprise across the street. Industries —and countries themselves—have to be as good as the most efficient competitor on the other side of the globe. This new reality has brought about one of the greatest attitudinal turnarounds of this century. Nations that reviled foreign investors now seek strategic alliances with them to help transform their economies and compete against other nations for their place in the sun.
For the first time ever, all the world seems to love foreign investors and transnationals. This planetary flip-flop began in the 1980s, then accelerated in the fall of 1989 with the collapse of communism. Even before that, countries like Canada began once again to accept foreign-owned transnationals after rejecting the global nationalism of the 1960s and 1970s. Now that the Cold War has ended, other nations such as India, Russia, Mexico and even Cuba have opened wide their markets and ownership rules.
Countries now race one another to scrap foreign ownership restrictions and shamelessly court foreign investors, no matter what their political stripe. In a form of global groupthink, once-protectionist and nationalist governments have also begun the wholesale abandonment or sale of their precious public enterprises from Crown corporations to actual government agencies or departments. Holland just listed its postal system on the stock market as a private enterprise. France and Britain are considering similar plans.
The United Nations estimates that between 1985 and 1990 privatizations in 70 capitalist and former Communist countries represented the sale of $282 billion in assets. More recently, countries such as Italy and France have embarked on massive asset sales in the tens of billions of dollars at the same time as huge portions of Latin America or Eastern Europe are placed on the block. Canada must do the same.
Countries now race one another to shamelessly court foreign investors, no matter what their political stripe
Government enterprises have been mostly disasters. Many, like Britain’s Leyland car manufacturer, were unable to withstand foreign competition arising from the lowering of tariff barriers through international agreements such as GATT (General Agreement on Tariffs and Trade). Others, like the Nova Scotia-owned Sydney Steel Corp., were unviable for political reasons and were shamelessly coddled, awarded special privileges and controlled by incompetent politicians and civil servants. Because the only buyers of government assets were transnationals, they have become acceptable to the same politicians who reviled and replaced them with public enterprises—and by so doing impoverished their citizens. Unfortunately, Canada, with its ignorant economic nationalists who cost taxpayers billions in bad public enterprise, was no exception.
Another reason why attitudes towards foreign investment have changed is simply because globalization is here to stay. By 1990, there were 35,000 transnationals worldwide whose international savvy and 170,000 subsidiaries allowed them to grow in markets around the world. Their successes lie in adapting their goods and services to local
needs while organizing their affairs to maximize use of global opportunities. About onethird of what the world called trade in 1990 was actually intercorporate transfers between these transnational subsidiaries operating in different countries. And UN figures showed that their combined sales in that year were roughly twice the world’s trade of $2.8 trillion. Transnationals make internal decisions that affect the trade figures, currencies and interest rates in smaller or underdeveloped countries. As a result, many such countries fear the transnationals, amid speculation that they could one day replace governments. Back in the 1970s, there were dire predictions that an oligopoly of 300 transnationals would one day control 80 per cent of the nonCommunist world’s capital. But by 1992, the top 100 corporations had acquired only an estimated 16 per cent of the world’s total capital of $26 trillion and the top 300 represented 24 per cent, according to The Economist.
The dire predictions of transnational control were wrong because transnational power was overstated. Some of these giants win and some lose, but none grow exponentially forever. Besides, transnationals are no longer direct economic extensions of military powers. After the First World War, Britain, the United States, France and others rarely used gunboat diplomacy to openly protect corporate or trade interests. And since the end of the Cold War, freer trade has made protection and aggression unnecessary in countries that play by the rules of the trade game.
There is also no longer a fear that U.S. investment will swamp and dominate the economies of smaller nations. Such fears led Mexico to remain isolationist until it went bust in the 1980s, and explain why even such U.S. allies as Canada restricted investment and created large state enterprises or subsidized their own domestic transnationals. While U.S. transnationals are enormous and powerful, they do not dominate the world economy and likely never will.
Even so, Canada, Mexico, Brazil, France, Italy, Angola and dozens of others ended up wasting billions of tax dollars subsidizing state and other enterprises, amid concern that foreign involvement in their economies would somehow result in a loss of sovereignty. But governments, including that of the protectionist United States, now routinely surrender previously sacrosanct controls to international organizations such as GATT or to regional trading blocs. Besides, sovereignty erodes as pressures push nations to match policies, taxes and regulations in competing countries.
That’s not to say that governments must surrender their power to faceless tycoons. But none should delude themselves into thinking they can swim against the current. With today’s broad access to corporate and government information, companies can no longer hide economic inefficiencies. Globalization imposes competition. And all countries must heed this or become economic orphans.
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