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From the editors: Canada's strategic defence initiative

Concern over the TMX–LSE merger is a misappropriation of the term "strategic asset."

Twenty years ago, the Toronto Star published an editorial fussing over the prospect of relaxed foreign-ownership rules in Canada’s energy sector. If Brian Mulroney’s government pushed forward with the plan, the paper warned, “Ottawa will have made a tragic mistake by selling off a strategic asset.” This was not the first time that pundits and politicians resorted to the “strategic asset” rhetoric to make their case for protectionism, but it illustrates the strange longevity of this bit of bafflegab. Over the years, folks eager to score populist points used the words “strategic asset” to describe everything from long-forgotten artificial intelligence projects (which proved neither strategic nor assets) to Nortel (a spent asset with a muddled strategy).

But it was the debate over BHP Billiton’s ill-fated attempt to acquire Potash Corp. that took “strategic asset” from an occasional buzzword to a full-on verbal tic for some politicians. In discussing the proposed merger of TMX, owner of the Toronto Stock Exchange, with the London Stock Exchange, Ontario Finance Minister Dwight Duncan said the deal had political implications. “All we’re saying is that this is a strategic asset in a strategic industry,” he told reporters. Duncan suddenly made the TMX-LSE merger seem twice as critical as the Potash imbroglio — if judged solely on the number of times the word “strategic” is used. Rather than challenge Duncan’s assertion, Ontario Progressive Conservative leader Tim Hudak agreed the exchange was “in many ways” a strategic asset. It was a disappointing concession from a leader who should be challenging the very notion of strategic assets, rather than helping extend the phrase’s growing ubiquity.

The idea of a strategic asset is frequently invoked but rarely defined. Those who are fond of the phrase seem to suggest that the asset offers an advantage to Canada and that benefit would be lost if ownership was transferred to foreigners. But if one considers the companies labelled as strategic assets, this is not the case. It’s true that our country benefits from having scarce commodities like oil and potash. But there was no risk the new owners would fold the mine onto the back of a flatbed truck and ship it back to their native Australia. If BHP had purchased Potash Corp., Canadians would have still benefited from jobs, tax revenues and royalties, and would have still enjoyed sovereignty over the resource itself — just not the company mining it.

The strategic-asset label seems even more ill-founded when applied to the TMX-LSE merger. Applying the label to something as ephemeral as a stock exchange is foolhardy. You are no longer even speaking about a finite resource that Canada has and other countries want. Canada enjoys no natural bounty of stock exchanges; the TSX has counterparts in every major industrialized nation. Investors and companies choose the exchange that best suits their business. And not following the current trend toward global consolidation would be the worst strategy for managing that asset.

To his credit, Industry Minister Tony Clement avoided the words “strategic asset” in describing the TMX. He’s still evaluating whether the deal presents a “net benefit,” another buzzword but at least one with grounding in law. The greatest net benefit that could come from this deal would be the death of the vacuous idea of a strategic asset.

James Cowan is deputy editor of Canadian Business magazine.