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Like many of you I am eagerly awaiting the new James Bond film Skyfall, especially Javier Bardem’s star turn as Raoul Silva, the classic Bond villain with his outlandish plot to pay 60% over market price for a Canadian oil company.
No, wait, that’s from the business pages, isn’t it? You’ll forgive me: the stories sound so similar — or at any rate they’ve been made to sound similar. The casual reader would be convinced the $15.2-billion bid from China’s CNOOC for Canada’s Nexen, far from enriching Nexen’s shareholders and indirectly other Canadians, posed some dire threat to the country, if not the planet: part of some fiendish Chinese plan for world domination, possibly involving lasers.
Indeed, one of the oddities of the controversy is to see opposition to foreign takeovers, traditionally a hobbyhorse of the left, being taken up with such enthusiasm by the right. The reason: not just foreign-owned, CNOOC is also government-owned, one of a growing number of such “state-owned enterprises” (SOEs) around the world, particularly in the natural resources sector. (Malaysia’s Petronas, whose bid for Calgary’s Progress Energy was recently put on hold, is another.)
Wary of the potential these imply for government meddling in the economy, free marketers have responded by demanding … government meddling in the economy. They want federal regulators to block, not only the CNOOC or Petronas bids, but all such state-sponsored takeovers. Even the NDP, perhaps in a nod to its newfound bedfellows, has taken to railing against this “nationalization” of our energy industry, with only a hint of irony.
The subtlety is apparently lost on their conservative friends. As Terence Corcoran writes in the National Post, “if Canadians have sound economic and political reasons for rejecting Canadian SOEs, how can we embrace foreign SOEs?” Lacking the discipline of a bottom line and vulnerable to political manipulation, companies in the public sector are notoriously inefficient. They destroy value for their owners and, inasmuch as their activities are explicitly or implicitly subsidized, distort markets for others.
All of which may be true. It’s just hard to see why it matters. No, we wouldn’t want the government of Canada to buy an oil company (cough, PetroCanada, cough) for the reasons stated. But that’s because it would be our government that owned it. The waste and inefficiency would be to our cost, as taxpayers. And yes, we wouldn’t want to see our taxes used to distort private market decisions, in the same way as we would — or should — oppose most subsidies.
But CNOOC isn’t owned by our government — it’s owned by the government of China. The minute Nexen changes hands, from its present Canadian (and foreign) shareholders to CNOOC, the potential for mismanagement and value destruction ceases to be a concern for us, and instead becomes a concern for them: the taxpayers of China. Indeed, so far as the newly nationalized company did indulge in wasteful behaviour, Canadians would be the beneficiaries.
For the rest of this article, please go to the National Post website: http://fullcomment.nationalpost.com/2012/10/26/andrew-coyne-state-owned-enterprises-not-the-villains-weve-been-told-they-are/