OTTAWA – Two Canadian economists told a Parliamentary committee studying foreign investment restrictions in telecommunications that relaxing the rules would have a beneficial impact across the entire Canadian economy.
Randall Morck, a professor in the department of finance and management science at the University of Alberta’s School of Business, told the House of Commons Standing Committee on Industry, Science and Technology last week that foreign investment restrictions have a negative impact on the entire Canadian economy.
“I still think and in fact I’d be willing to be bet several cases of Molson’s Canadian beer that if you wanted to retard the growth of every industry in Canada, there would be few more promising ways of doing that than imposing inefficiencies on telecoms,” he said.
University of Toronto associate professor of international business at the Rotman School of Management, Walid Hejazi, echoed the statement noting that not only would consumers of telecom services benefit from enhanced competition from foreign firms, so would all of the sectors of the Canadian economy.
“The general benefit that Canadians would get [from relaxing current foreign investment restrictions in telecommunications] is enhanced competitiveness, enhanced innovation across the entire economy, not just in telecom,” he said.
The two economists repeatedly told committee members that Canada isn’t doing itself any favours by maintaining current foreign investment restrictions in telecommunications. The rules, which prohibit non-Canadians from controlling telcos here, have forced Canadian telecom providers to seek economies of scale by growing into adjacent sectors such as cable companies buying TV channels, which according to Morck is “a less desirable way to get these economies of scale.”
He contends that this has not really helped the Canadian telecommunications sector because it has sapped industry players of their ability to hone a specialty. “What’s basically going on when we have this movement across industries is we’re losing the advantage of specialization,” he told committee members. “Our butchers are making bread and brewing beer, our bakers are making cold cuts. And they’re probably not necessarily as good at each of these things as they would be if they specialized.”
Hejazi said the productivity and prosperity gap that exists between Canada and its main trading partners can be attributed, at least in part, to Canada’s increasingly poor direct foreign investment (FDI) performance. In recent years, Canada’s share of inward FDI has fallen among the entire world, the developed world, the G-7 and North America.
“FDI into the Canadian economy has been shown to bring with it advanced technologies, management techniques, enhanced competition – which is critically important to innovation,” he said. “The slipping performance has resulted in the reduction in Canada’s prosperity and its relative productivity to our main trading partners.”
The U of T professor argued that Canada shouldn’t be protecting domestic companies from foreign competition, the government should be creating an environment that is conducive to innovation.
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Hejazi reiterated his point under questioning.
“The best way to protect domestic companies is not by putting up walls to protect them from foreign entry, it’s by giving them an environment where they can rise to the international challenge to be globally competitive,” he said. “So in the face of foreign competition they’re able to stand up, provide value, drive innovation and prosperity for Canadians.”
Committee members also raised the issue of protecting Canada’s cultural sovereignty in a converged distribution and content creation environment. But Morck suggested this could be ensured by other means.
“If we wanted to protect Canadian culture, I think that if we got rid of all our regulations, our Canadian content rules, our foreign ownership restrictions, I suspect that our economic growth and our productivity increase would support such an increase in tax revenue that you could probably increase the budgets of Radio-Canada, the CBC, the National Film Board, many times over and we would still come out way ahead,” Morck said.
Industry minister Tony Clement will be the last witness to appear on the foreign ownership file. The committee will begin deliberations on the draft report on May 25.
