Thursday, July 14, 2011

Politics and Potash

There was been a hue and cry over a recent bid by Australian-based company, BHP Billiton, for the Potash Corporation of Saskatchewan.  Saskatchewan Premier Brad Wall, Ottawa investment guru and CFRA radio personality John Budden and National Post columnist Diane Francis have typified this and said the Government of Canada should step in and prevent foreign companies from buying a majority share in certain Canadian companies they refer to as assets of “strategic national interest”.  While this is all too typical thinking, it is in fact a violation of the rights of all Canadians – those who own Potash shares and those who do not – and of non-Canadians who would like to invest in Potash shares.

People who push for interference in the sale of Potash shares are asking for government to use force against its citizens who own Potash shares by forbidding them to sell to the buyer of their choice.  In a free market, transactions only take place with the mutually beneficial agreement of both the buyer and seller.  Unless the price is high enough for you as a seller to judge you are getting full value, you do not sell.  Unless it is low enough for you as a buyer to judge you are getting a bargain you do not buy.  When governments protect individual rights neither buyers nor sellers are unhappy with their transactions.  By forbidding the sale/purchase of certain shares the state is forcing some people to own them and forcing others not to own them.  The rights of both sellers and buyers are violated by such initiation of force.

Exactly what companies represent a “strategic national interest”?  Typically, companies that are resource-based such as the former cases of Inco and Stelco and the current Potash Corp. are identified.  The argument is that resources must be controlled only by Canadians so “we” can decide on employment policies, extraction methods, etc. because “we” care more about Canada than “they” do.  The belief is that “we” protect our access to these resources by having a controlling interest in the company.  Such arguments are invalidated by at least three important reasons.

First, we must identify who is meant by “we” and “national”.  The unstated assumption is that these words refer to Canadians, but then that should mean all Canadians, not just those in Saskatchewan, Ontario or anywhere else.  It should certainly not divide Canadians according to who does or does not own shares of Potash Corp.  Is it possible for any business decision to be agreed upon by all Canadians and would it matter?  Those advocating government interference in a transaction want the wishes of those who DO NOT own shares to override the free choices of those who DO own them, a perverse perspective.  If the share owners believe it is in their best interest to hold, they can certainly do so.  Regardless of whether they judge it is in their best interest to sell, they are the most affected “we” part of the “national” population.  If they sell shares no one else’s rights are violated.

If someone from Vermont or Illinois buys your shares, he can only do so if you agree with his price.  As a willing seller, by definition you have a better, more strategic interest in selling than holding. You may wish to buy a different company, spend it, donate it, deposit it in a bank or anything else with YOUR money. It is immoral for a government or anyone else to prevent you from selling YOUR shares. If I wish to buy your shares, I only need to put my money on the table and outbid others. Second, we must identify what is meant by the “interest” portion of “strategic national interest”.  The potential list is all Canadian-based companies.  Of course, there are many foreign companies more important to Canadians than many Canadian companies.  Microsoft has an important role in the functioning of most businesses and all governments in Canada.  Canadians certainly have a tremendous interest in seeing that Microsoft continues and improves its business, yet Canadians don’t control the company unless they own voting shares.  If you have an interest in selling your Potash shares because you have another use for your money, nothing prevents you from buying them back at a later date after you have made more money.  The unstated fact is that people who advocate for the “national interest” advocate for the violation of the rights of those actually involved in the decision, the buyers and sellers.  The market is a place where people like you use their own rational judgement for their own purposes. It should not be a place where interest groups tell you what you have to do or not do. Third, who is to decide which companies are “strategic” and will see the rights of shareholders violated and which companies will be free to determine their own path?  The government decided two bankrupt auto companies (GM and Chrysler) were of strategic interest in 2008 and took possession of the entire companies. What about companies that are not so poorly run as to go bankrupt but instead are highly successful such as Potash Corp. or Research in Motion in Canada or General Electric, Wal-Mart or Microsoft in the United States?  If such rules can be made about share ownership of terrible businesses can they also be made for excellent ones?  Since we have such rules already, the question is rhetorical.  What about companies that are privately owned instead of traded on a stock exchange?  Can they be controlled by government too?  Since there can be no objective definition of a thrice-flawed term like “strategic national interest”, it has whatever definition the party in political power gives it - and it changes all the time.  It is a meaningless anti-concept designed to camouflage the violation of rights using a nice-sounding term.

Who is to decide which individual shareholder rights will be violated by blocking a sale? Who decides which companies are strategic and overrides the opinions of others.  Who decides what is of national interest?  The people best suited and the only people morally correct to decide these questions are the ones who have put their decision-making ability on the line and risked their own capital by investing in the company, the people who own or wish to own the shares.  Who can say with certainty that you will not make more money elsewhere and bring better "strategic value" to Canada by selling instead of holding, although the question itself shows the absence of a proper morality based on individual rights.  Even if someone else is proven correct with time, it is your life, your money and your right to choose how you use it.  Those who would stop you are anti-rights, anti-freedom and anti-life.

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