Foreign Ownership of Canadian Industry, Third Edition by A.E. Safarian (review)

This is the third edition of Safarian’s classic analysis of foreign ownership of Canadian industry, a detailed study of firm performance based on interviews and questionnaires, which were completed in 1959. The study involved 280 companies, 227 of which were controlled in the United States. The remaining 53 were controlled in overseas countries.

The first edition was published in 1966 when Safarian was at the University of Saskatchewan. Seven years later a second edition appeared with a comprehensive 25 page preface. This third edition emerged nearly a half century after the first edition as a result of the demand for this out-of-print classic.

The first edition of the book began: “For over a decade there has been persistent criticism of the role of foreign investment in Canada” (Toronto: McGraw-Hill, 1966, v). In examining the validity of this criticism Safarian took a highly quantitative approach, primarily because there was a lack of data on the topic. Focus was limited to the commodity-producing sector. Safarian’s statistics showed that petroleum and natural gas and mining and smelting were the two sectors where non-resident ownership was highest, even higher than in manufacturing. In each sector there were massive amounts of capital invested, particularly in petroleum and natural gas.

In 1973, the second edition was published, by which time Safarian was at the University of Toronto. In the preface, Safarian again noted criticism of foreign investment – and particularly American corporate investment – in Canadian industry. This edition presented the author with the opportunity to write a comprehensive and thoughtful preface covering some “of the broader issues as they have been shaped in more recent years, particularly in terms of the effects of the growth of American-owned corporations in Canada.” (xx)

At that time, not only was 80% of foreign direct investment (fdi) in Canada from the United States, but nearly 30% of all US investment abroad was in Canada. In the early 1970s, a large and vocal community, including both the CBC and the Toronto Star, Canada’s largest circulation newspaper, offered frequent criticisms of the amount of fdi in Canada, implying that fdi was harmful to Canada in ways that domestic investment was not.

The second edition’s preface examined the economic cost/benefits of fdi, the effect it has on balance of payments, as well as dealing with some political and social issues, often overlooked by other economists. Safarian pointed out that there were strong attitudes against fdi within Canada in spite “of careful empirical studies which largely refute” (xxv) these concerns. He also argued that a protectionist environment “inhibits entrepreneurial skills leading to an inefficient structure of industry.” (xxx) Entering the slippery slope for economists of political and social issues, Safarian goes to “the heart of the Canadian dilemma – the ties through investment, trade, communications, military alliances, population transfer … to the powerful and restless giant to the south.” (xxxix) He concluded the preface by writing that “some of the evidence [against fdi] consists of foothills capable of being ascended by governments, and all too many of the alleged shortcomings amount to nothing more than molehills.” (xliv)

The body of the book begins with an explanation of the need for a study based on firm information using “careful statistical analysis.” (25) He notes that major legislative changes, including the 1957 provisions which resulted in the mutualization of the Canadian life insurance industry, had been based on a lack of such information. This is followed by a detailed chapter describing the rigorous statistical background to the study. Then there are chapters on such diverse topics as firm management, exports and imports, knowledge transfer, comparative costs of production, pattern of ownership and finance, and finally nationality of ownership and firm performance, but not of employment patterns. In addition, there are a multitude of tables, 73 in all. The appendix includes the questionnaires and letters that were sent to the non-resident owned and resident-owned companies.

Canada is a very different place today...