Same old story: Hewers of wood, drawers of water

We've sold off assets so often, branch plants 'R' us

In a global economy, a country needs global companies, headquartered at home

By Jeffrey Simpsons
The Globe and Mail

Downtown North Bay.
Downtown North Bay.

North Bay is not far from Ottawa — 50 minutes by plane, four and a half hours by road — but the city and, indeed, all of Northeastern Ontario, might just as well be a million miles away from the national capital.

What's happening throughout the vast region doesn't jibe at all with the happy talk in last week's budget. True, the regional development agency, FedNor, and the government's economic stimulus package are spreading money throughout the region. Without them, things would be much worse.

But this region, like so many others across Canada, depends on trees and rocks; that is, forestry and mining. Both are struggling. Part of the struggle, at least in the mining sector, relates to an issue no one wants to discuss in the discourse about competition: branch plants. This region's mining assets in large part have fallen into foreign hands. Gone are the nameplate Canadian companies — Inco and Falconbridge — replaced by Anglo-Swiss Xstrata and Brazil's Vale.

It was once possible to imagine Inco and/or Falconbridge being very big world players, especially if their merger had gone through in 2005-2006. Canada would then have had a serious world-scale nickel company. But the federal government, under both Paul Martin's Liberals and Stephen Harper's Conservatives, did nothing to help the merger, despite entreaties from company executives. Inco's then-president Scott Hand's prediction has come true: We have a series of "branch-plant operations."

In a global economy, a country needs global companies, headquartered at home. Canada doesn't have enough of them. Yes, foreign investment is necessary, especially if it imports know-how, creates jobs and spurs innovation. But a lot of big corporate takeovers, like these in Northeastern Ontario, did none of the above. They were about a worldwide frenzy of getting bigger, and a government in Ottawa that seemed nonchalant about the outcome.

Decisions get made where head offices are located; research tends to be concentrated, world outlooks shaped there. Ask Microsoft why it does almost all its research in Redmond, Wash., and so little in Canada, despite selling so much product here.

Other countries know this. In Brazil, Vale is shielded from unwanted takeover by the government's "golden shares," which give authorities veto power. No Brazilian government would dream of allowing Vale to fall into foreign hands, whereas Ottawa waves takeovers through like a cop trying to speed traffic along.

Worse, governments often get bamboozled by "commitments" from foreign companies to make takeovers look good. Ministers also say stupid things, such as Tony Clement's welcome of Vale's takeover of Inco, without which he said the Sudbury basin would become a "valley of death."

The foreign companies gave assurances against layoffs within three years. Instead, Xstrata has closed mines and cut more than 600 jobs; Vale has laid off hundreds of workers and closed mines. Both overpaid for Inco and Falconbridge assets because that often happens in a takeover frenzy. Nickel prices were sky high then (reaching $51,000-a-tonne in 2007); now, they're much lower ($16,000-a-tonne).

Workers at Vale's Sudbury operations have been on strike since July, 2009. What Vale executives at the time described as fabulous assets to be added to the company empire are now deemed too costly.

In fairness, the United Steelworkers Union had been on strike in 2003 in Sudbury and was hardly the easiest group to deal with when Inco and Falconbridge ran the show. The union should shoulder some of the blame for what's happened.

As if these blows were not enough, Xstrata is closing its copper and zinc plants in Timmins, with the loss of about 700 jobs. Production is being shifted to Quebec, where hydro rates are much lower, in part because the Quebec government uses lower hydro rates to lure companies. Mr. Clement says he is monitoring the situation. Sure. He's going to lecture Quebec about poaching?

Domestic ownership doesn't axiomatically make for labour-management harmony. But domestic ownership can create large-scale companies that, if properly led, can conquer foreign markets, in a way no foreign owners would allow their branch plants to try. Does anyone think Canadian companies such as RIM or SNC-Lavalin would be doing what they do around the world (RIM is making an announcement in Brazil this week) if they were branch plants?

9 March 2010 — Return to cover.