Why Governments Should not Interfere in the Sale of Publicly Traded Companies

This is an issue mostly in countries with abundant natural resources and governments bent on economic nationalism, but it nevertheless poses an interesting ethical dilemma. Canada’s economy is dominated by resource companies: in oil and gas, minerals, the forest sector, hydro power. Often those companies become attractive takeover targets to foreign-owned firms, at which point the Canadian Foreign Investment Review Agency steps in to assess the potential takeover and to determine whether the proposed deal is in the best interest of Canada. For example, two years ago the Canadian government prevented the sale of the shares of Potash Corporation of Saskatchewan by its shareholders to the Australia-based multinational mining company BHP Billiton because the deal was not deemed to yield “a net benefit” to Canada. Presumably, the government feared for Canadian job losses and perhaps for  Canadian companies’ and farmers’ compromised access to potash and the end product fertilizer. (Why would a seller of a commodity such as potash or of fertilizers limit anyone’s access to their products—even if it could dictate prices—when its goal is to sell or refine potash for profit, not to hoard it, is not clear).

The latest of these cases is the proposed takeover by  CNOOC (Chinese National Offshore Oil Company) Ltd. of Nexen Inc., a large Canadian independent, publicly traded oil company. CNOOC is owned by China’s communist government, and a lot of the commentary in the media has been based on economic nationalism: that China will gobble up Canada’s resources, and “hollow out” Canada.  One columnist went as far as arguing that CNOOC’s proposed takeover of Nexen is China’s Trojan horse: once the Chinese government “gets in” and buys the assets of one Canadian-based company, the floodgates will be opened and China will take all the oil out, leaving Canadians with less or no access to it.

Economic nationalism is wrong: the oil and gas assets of Nexen do not belong to Canadians collectively (despite the provincial governments claiming subsurface rights) but are owned by the company’s shareholders. (A side note: although Nexen’s headquarters are located in Canada, its hydrocarbon assets are around the world in places such as the UK offshore, Yemen, and the Gulf of Mexico. If probable reserves are included, about half of Nexen’s assets today are in the Canadian oil sands.)

The argument that foreign ownership of natural resources will prevent Canadian companies’ access to them is also illogical. Oil and natural gas are commodities sold at world markets; it is irrelevant where they are produced as the prices are world prices. And even if foreign companies such as BHP Billiton, CNOOC Ltd., and others bought all of Canada’s oil and gas assets, their Canadian shareholders would gain vast amounts of capital that they could invest in other industries. There is no rational argument for domestic companies producing the natural resources in any given country, except in war situations where independent production may make a difference for the life and freedom of citizens.

China is a communist country, and as a dictatorship it poses a potential national security threat to Canada or any country; therefore, one can think of it as an “unsavory” suitor to any company. However, the only proper role of the government is to protect its citizens against the initiation of physical force or the threat of it—by foreign governments, by criminals, or by anyone else. Despite of China being a dictatorship, it is not at war with Canada (or any other country), there is no reason for the Canadian government to interfere with the decision of the private shareholders’ decision to sell, or to not sell, their shares to China or to anyone else. The shares they own are their property, and as per property rights, they have the right to hold or dispose of them as they wish. Individual shareholders may deem it immoral to sell shares to a company owned by a dictatorship and decide not to do it, but the decision is theirs, not the government’s.

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