State Capitalism: Do We Need Controls?

Abstract:

In December, the government introduced new guidelines for the review of foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs) investing in Canada. Ottawa is in the middle of a major review of domestic competition and investment policies by an independent Competition Review Panel. But the government has pre-empted the Panel with its announcement on foreign SOE investment, and on April 10, went further when the Minister of Industry summarily blocked the proposed acquisition of Canadian icon MacDonald, Dettwiler and Associates Ltd. by US-based Alliant Techsystems, Inc. Part of the government’s motivation on SOEs is the rise in influence of foreign government investments through SOEs and SWFs around the world.

Additional guidelines for SOEs sends the wrong signal at a time when Canada needs capital to carry out the structural reforms required to remain competitive in the face of the major changes in the global economy. There are two paths the Canadian government can take. The first is to be a leader in the international movement toward the development of a code of conduct for SWFs and SOEs. The second is to take unilateral action against SOEs and SWFs under our own investment review regime, opening the government to domestic protectionist pressures.