James Bagnall has quite a good article in The Ottawa Citizen this morning that provides a concise summary of the current state of the Canadian economy. One of the interesting observations made was how stubborn resistance over the years to foreign ownership of the financial sector has served as a “firewall” effectively insulating the Canadian economy from the great unraveling south of the border.
There are a number of explanations for this state of affairs, but a key one is that Canada’s bankers have resisted copying the more aggressive U.S. financial institutions.
This stance might have been much more difficult had Canadian trade negotiators not consistently opposed the idea of opening up our financial services industry to greater foreign ownership.
For instance, had Lehman Brothers acquired control of a major Canadian bank under relaxed ownership rules, the ripple effect of its demise yesterday would now be a scary thing.
As it is, less than a handful of Canadian firms with direct links to Lehman have been caught short by the investment bank’s troubles. These include: Sun Life Financial, which said yesterday it holds more than $300 million worth of Lehman’s bonds; and Canadian Imperial Bank of Commerce, which owns $25 million worth of Lehman securities.
This counts as relatively minor exposure, especially in relation to CIBC’s market capitalization of more than $23.3 billion.
No foreign individual or institution can acquire more than 10 per cent of a major Canadian bank, without the blessing of Canada’s minister of finance.
As of June, the single biggest investor in Canada’s big banks has been a mutual fund owned by one of the other banks — usually no more than five per cent of total equity.
It’s a family compact, in other words. And while this cozy reality has driven free traders to distraction, it also created a risk-averse culture.
While I would argue that free trade has been something of a necessary evil in the context of globalization, that’s benefited Canada on the whole, the way in which we’ve been spared the reckless shenanigans and speculative mismanagement of American lenders and investment houses, and the fallout resulting from that, perhaps offers a critically instructive lesson about the vital importance of exercising our sovereignty in key areas of the economy.
With attention now shifting more to the economy, maybe foreign ownership and economic sovereignty are the kind of emotionally-charged issues the Liberals should be raising and in the process casting doubt about the sort of key changes to our system that might be effected under a Harper “dynasty” (as imagined by some) most likely to be driven by the same sort of right-wing ideology that’s wreaked so much havoc south of the border.
Update: Ha! Elizabeth May just said almost exactly the same thing on CPAC while speaking with talk-show jock Tom Young at News 88.9.