Potash, Economic Nationalism, and National Champions

Harper did the unthinkable. It is only in the rarest of circumstances that the federal government actually uses its powers of review to quash foreign takeovers. Yet this is not really where the action is–that is, what caused the cons to deny BHP bid to take over Potash.

The action is just beginning. In less than 12 hours from now the major Canadian print media outlets–from the globe and mail through to the National post and Macleans, are going to be blitzed by a uniform message: the conservative government was wrong to kill BHP’s bid. The chief purveyors of this line are going to be, of course, Andrew Coyne and Stephan Gordon. And both are likely to riff off the same logic.

The argument will most likely be something like the following. Investment decisions that are made in the context of competitive private markets produce the most efficient outcomes. Public attempts to interfere with that outcome are most likely to be sub-optimal. Of course we could point to Canadian banking legislation which effectively guarantees an oligopolistic market structure and then point out that these same talking heads prattled on about our regulatory environment being responsible for avoiding the excesses of the GFC. But having a general comprehension problem in moving from point A to B they will of course celebrate the beauty of free markets.

But wait there is more. There is always, of course, more with talking head economists. Even if they grant that potash and the potash industry is far from a competitive industry–indeed BHP’s bid is largely about consolidating the market to guarantee price making capacity–they will pull out plan B.

Plan B is rather devious. Plan B says that even when the norms of perfect competition are violated government intervention is not necessarily warranted. The inspiration here is some pissy little paper written by Hayek. I won’t tangent. The cut and thrust; the pith and substance here is that even under imperfect competition private market structured are subject to outside scrutiny and competitive pressures such that we can proceed as though the results of perfect competition nearly apply. The government on the other hand when picking a national Champion will have no such information and might as well be flipping a nickel to make its choice.

This is a stupid argument. The very fact that BHP is making an offer gives the state an indication that Potash is a viable national Champion. But wait here is more. Potash is strategic: there is every good reason to believe that in a world of increasing consumption fertilizer, like oil, is going up.

So between the market structure and future path of potash prices it should be incredibly hard to paint a picture of government interference causing a net loss.

But both the abstract science and the empirical reality be damned because the real action here is about precedent. The last thing the Coyne’s and Gordon’s of this world want is a positive example of the public interest trumping private profits with the math on the side of the public.

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