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Tuesday, November 09, 2010

Sell Out

So here is your genial correspondent, shaking off the jet lag in a hotel in Southern California. At my door a complimentary copy of the Wall Street Journal. Glancing over the headlines two words jump out: Canada and Potash.

There can be nothing less sexy in the world of international business than Canada and fertilizer. Boring sensible Canadians making a boring and sensible product. So, why the front page treatment? In the American business newspaper of record, no less?

Well Tony Clement, you may remember him as an ex-member of the Mike Harris Common Sense posse, is now the federal Minister of Industry. Last week Mr Clement, who this past summer saved Canada from the authoritarian scourge of the long-form census, decided to violate the property rights of thousands of his fellow Canadians, as well as many assorted foreigners.

Hell. I leave the country for a few days and we've become a maple syruped Venezuela.


The players in our drama:

Potash denotes a group of potassium compounds, the most well known being potassium oxide, which is extensively used to make fertilizers. Historically, commercial potash was obtained from the ashes of burnt trees and other vegetation. Today, it is usually derived from underground salt deposits. Canada is the world's leading producer and, as you can guess from Brad Wall's agitated behaviour in recent months, Saskatchewan is where most of the potashing is done in our fair Dominion.

The Potash Corporation of Saskatchewan was set up in 1975 as a Crown corporation from the remnants of the private, but heavily subsidized and American owned, potash industry. In the late 1980s the firm was privatized and is now a widely held, publicly traded producer of fertilizer. It is the world's largest potash producer.

BHP Billiton is an Anglo-Australian mining giant. Seeing rapid global population growth, and urbanization, over the next few decades, the Melborne based firm wanted to increase its exposure to the agricultural sector. Being a resources kind of company, it made sense for them to purchase a potash purveyor. Since potash is mined, and BHP is a mining company, there was a strong likelihood of that much loved B-School term: synergy.

Stephen Harper, leader of the Conservative Party and Prime Minister of Canada, former President of the National Citizens Coalition, a "conservative" think-tank. Mr Harper is widely regarded - by the editorial board of the Toronto Star - as a right-wing demagogue plotting to transform Canada into a snow-bound version of Texas, or at least the dystopian view of Texas many Canadians have.

A staunch advocate of small government, unless it threatens his chances of obtaining a long dreamed for majority government, Mr Harper joined the conservative movement when Pierre Trudeau crippled the Canadian oil industry via the National Energy Program (NEP). Despite the word "national" the program's real intent was to subsidize oil consumption in Ontario, by shafting oil producers in Alberta (pardon the pun). This horrible act of statist injustice spurred Stephen of Leaside to become a free market version of Batman. Until the whole free market stuff began to test poorly with focus groups.

Last week Canada's two leading producers of fertilizer, the Potash Corporation and our political class, intersected in the wake of BHP Billiton's attempted takeover. Despite offering $38.6 billions dollars, the bid was rejected by the Potash board in August. BHP pushed ahead, making a direct offer to shareholders - a hostile bid in effect. The whole thing landed on Minister Clement's desk in October. Last Thursday the honourable member for Parry Sound-Muskoka told BHP that its bid provided "no net benefit" to Canada.

Well, that's the minister's opinion. Unfortunately his opinions, indeed even his whims, are the law of the land. In the national interest, of course. There is certainly a nation called Canada, there is no person or being called Canada. It is a political abstraction. There are thirty-four million Canadians, each with his or her own interests and beliefs.

What Tony Clement has done is violate the private property rights of those Canadians who own shares in Potash Corp, to benefit other Canadians who, in his belief, would not benefit from the sale of Potash Corp to BHP. In other words, Tony has decided that selected Peter is to have his property partially nationalized, in order to help out collectivist Paul. It's not theft exactly, since the shares have not been expropriated, it's instead something akin to vandalism. Just as a vandal reduces the value of a property by damaging it, so Tony Clement, with his economic nationalist spray paint can, has reduced the value of Potash shares. 

Patriotism, as Dr Johnson observed, is the last refuge of scoundrels. Since most politicians are scoundrels, or for practical purposes should be assumed as such, we find them frequently wrapping themselves in the flag. No matter how craven the methods, the goal is always the "national interest." There is such a thing as a national interest. A free nation losing a war to a dictatorship would not be in the former's national interest. Beyond that sort of big and obvious stuff, the "national interest" is just a pretty bow, too often tied to some very ugly things.

As is abundantly clear to most political observers, Mr Harper and Mr Clement ejected their political principles, such as yet remained, because they were afraid of Brad Wall, the Premier of Saskatchewan. Why? Because Mr Wall is quite popular at the moment. This is in part because he has proven to be more competent as Premier than his immediate predecessor, Lorne Calvert. More recently Mr Wall's popularity has grown because of his energetic opposition to the BHP buyout.

Why is Mr Wall opposed? Because it is possible, perhaps likely, that a foreign owned Potash Corp would close down certain operations in Saskatchewan. This has caused great anxiety among those afraid of losing their jobs. Which is understandable. There is also a very strong likelihood that a foreign owned Potash would pay less taxes into the provincial coffers. It's a nice piece of the action, and the political-bureaucratic class in Regina isn't going to give it up without a fight.

The national interest here is really the interest of those in Saskatchewan who would stand to lose by this deal. Most of the opponents of the deal stand on no great principle. It is not quite self-interest either. By signalling to the world's capital markets that Brad Wall and Tony Clement have hired Hugo Chavez as their economic advisor, those money men are now going to steer a wide berth from the Canadian Prairies. Blocking the BHP bid is short-term pandering for long-term pain. After campaigning for election on the theme that Saskatchewan is open for business, Brad Wall has now clarified how business is to operate in the Canadian heartland.

Tony Clement has made a popular decision. Brad Wall has lead a popular crusade. They have, for the moment, won a political victory. The electorate of Saskatchewan may reward them for their pandering. Politicians pander for a very simple reason, it works very well most of the time. 

We can dream of an electorate well-read on their Hayek, Smith and Rand, but such a thing has not yet come to pass. What is shown by this Potash protectionism is more than economic illiteracy, heck that's par for the political course. Wall and Clement have been craven, but no more so than their voters. The politicians have been great hypocrites, but that is to be expected. The people have shown themselves to be hypocrites just as great, which is far more tragic and dangerous.

Globalization showed itself in the BHP bid; the possible downside of living in a global economy. One day you are the buyer, the next day you are being bought out. The Wheel of Fortune sometimes turns against you, sometimes for you. Most of those who opposed the Potash deal have benefited from globalization. They have purchased cheap Chinese goods from Wal-Mart, that were once made in Quebec. They have phoned into Indian call centres, that were once located in Toronto or Mississauga. They have sold their wheat, their oil and their potash to China and India, markets which scarcely existed twenty years ago.

When the voters of Saskatchewan were faced with the risks of globalization - seeing their jobs shipped overseas and their tax base reduced - they ran to government to protect them. Thirty years ago a young Stephen Harper quit the Liberal Party because Pierre Trudeau, for political reasons, favoured Ontario over Alberta. Last week Stephen Harper and Tony Clement showed themselves every bit as politically craven as Pierre Trudeau and Marc Lalonde. Becoming what you hate is an old cliche, like most old cliches it has the strong ring of truth.


Posted by Richard Anderson on November 9, 2010 | Permalink


A kind of collective purity exists in how people in a place like Canada perceive themselves. This perception has political and economic value and its existence supports the survival of the people. Without this perception, the people would be a pushover for just about any current fad or 'ism' that came along. The people of Canada need not lie down on a bed of nails as the business of globalization steamrolls over them. They can and will make their own decisions.

Posted by: Agha Ali Arkhan | 2010-11-09 10:28:51 AM

Globalization is a process that has been going on since Homo Sapiens wandered out of Africa. All that's different today is the scope and scale. By what standard is freer trade to be compared to lying on a bed of nails? And what the hell is "collective purity" anyway?

Posted by: Dennis | 2010-11-09 11:50:12 AM

There is certainly a government of Canada. There is no nation of Canada. Oherwise, I'm not inclined to argue with you.

Posted by: ebt | 2010-11-09 1:35:38 PM

Agha, I believe collective purity more likely results from the state interfering with culture. This makes them more of a push over and less able to make their own decisions.

Posted by: TM | 2010-11-09 2:54:35 PM

To Dennis and ebt: Reference freer trade and "a bed of nails", some trades can place one between a rock and a hard place, in a simile way of explanation. Canada is a nation! Make no mistake about that.

Posted by: Agha Ali Arkhan | 2010-11-09 3:05:20 PM

Unless I'm mistaken minerals rights in Canada are actually owned by the Crown. Extraction rights are given to a company but ultimately the Crown owns what's under the ground. And lets not get too excited about the Australians being so hard done to. They recently barred Shell Oil from buying up one of their main oil company's, Woodside Petroleum.

Posted by: The Stig | 2010-11-09 7:33:51 PM

I live on Vancouver Island. Lucky me. According to my title document, my undersurface rights are, pursuant to the mineral land tax act, all minerals except coal, coal oil, iron, fireclay, gold and silver forfeited and vested in the crown. So, I get diamonds, uranium, quartz, molybdenum. I make soup from any bones.

Posted by: Agha Ali Arkhan | 2010-11-09 9:21:07 PM

I make soup from any bones.

Posted by: Agha Ali Arkhan | 2010-11-09 9:21:07 PM

If any of those bones happen to be human, then just keep your culinary treats below radar or you will learn how little command you have over your own domain. (:

Posted by: peterj | 2010-11-09 11:44:00 PM

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