Canadian energy doesn’t need foreign capital – by Jim Stanford (Globe and Mail – December 10, 2012)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Jim Stanford is an economist with the Canadian Auto Workers union.

A common undercurrent in debates over foreign ownership is the near-universal assumption that Canada “needs” foreign capital to develop its vast energy resources. Friday’s Globe and Mail, for example, quoted an Alberta professor who put it unequivocally: “There’s no doubt we need capital to develop our resources, and the biggest single available pool is in China.” If the analysis starts with that assumption, then it’s no wonder policy-makers will bend over backward to attract this essential, precious substance called “capital,” as witnessed by Ottawa’s approval of two takeovers by state-owned foreign firms.

In popular discourse, capital is a synonym for “money.” In economics, however, it means something more specific: It’s production saved from current output, to be reinvested in the expansion of future output. Corn seed that’s saved and replanted next year, rather than being eaten this year, is the simplest example.

To qualify as capital in this sense, the value in question must be produced but not consumed, then used to produce something else. Complementing the tangible product that’s actually reinvested (physical capital), we also need the know-how (“human capital”) to use ever-more-sophisticated capital goods to enhance future production.

With this distinction in mind, it’s worth revisiting the questions that most observers have breezed past. What exactly is “foreign capital,” anyway? And why do we need it, to extract the resource wealth buried beneath our feet?

In the case of the Nexen and Progress Energy takeovers that Ottawa approved on Friday, we certainly aren’t getting human capital from the foreign investors. To the contrary, it’s our human capital that they, in part, are after (especially in the Nexen case). Bitumen is a unique Canadian resource, and no one knows how to extract it and process it better than Canadians. Canadian technology is a key asset – and with these takeovers, the human capital will flow out (from Canada to Asia), not in.

The actual capital goods purchased and put to work in energy developments often come from foreign suppliers. Most investment goods bought in Canada are imported, and we’ve missed many opportunities to leverage our own resource investments to enhance Canadian content in the resource supply chain.

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