March 10, 2010 - No. 51

Federal Budget

Hysteria over National Debt and Deficits

- Interview, K.C. Adams -

Federal Budget
• Hysteria over National Debt and Deficits - Interview, K.C. Adams
• Karl Marx on the National Debt and Primitive Accumulation

For Your Information
• Statistical Confirmation of Annexation of Canada's Manufacturing, Mining and Oil and Gas Sectors

Federal Budget

Hysteria over National Debt and Deficits

- Interview, K.C. Adams -

TML: We know that federal budgets do not lead government policies; they reflect objective and subjective pressures that emerge mostly spontaneously. The budget is clearly the result of what the ruling capitalist class wants. It has nothing to do with upholding public right even though it also has to take into account whatever the workers' opposition has been able to achieve in terms of social programs and its struggle against war and war preparations. Can you comment?

K.C. Adams: Mostly the noise around budgets, which fluctuates with changed conditions, is meant to prepare public opinion for decisions that have already been taken by the monopoly capitalist class and its party in power or to attack working class proposals for increased funding of social programs. Whenever an important social program is proposed, a great chatter erupts in the monopoly media how it is too expensive and the money will never be found unless individual taxes are raised. Whenever bailouts and subsidies for the monopolies, capital infusion into the financial enterprises or war funding are demanded the issue of finding revenue is not an issue as the government simply increases the national debt in the present and then more taxes on individuals down the road.

When it comes to the budget or anything of political importance, it is important for workers to grasp that what they hear and see in the monopoly media and from the mouths of capital-centred politicians and academics is to convince them not to have their own demands and views as a working class of, for and by itself. In the present circumstances of the federal budget, Canadians should dismiss all this chatter about deficits and debt and the need to reduce them. It is all canned nonsense to make the working class fall in line with what the capitalist class has already decided to do.

TML: Much of the clamour around this budget has been directed against older Canadians especially the boomers and their "negative" pressure on the budget. Also, defined benefit pensions are definitely in the gunsight of the monopolies.

KCA: From the egocentric perspective of owners of capital, seniors are a terrible cost to the society similar to their view of workers as a negative cost of production that must be reduced for the sake of profits and monopoly competition. Workers and their allies should reject this inhuman propaganda with contempt. It is socially reprehensible, an attempt to deny the modern reality that people are born to society and have rights by virtue of being human. Humane treatment of more vulnerable Canadians including seniors defines us as a modern socially just and responsible society that is determined to mobilize the collective resources of the economy to raise the cultural and material well-being of all.

The ruling elite are going after workers in the public service, to lower their standard of living, especially their defined benefit pensions and benefits. This campaign is also directed at other organized workers and their defined benefit pensions, wages and benefits. The spectre of deficits, debt and no money to pay for "expensive" social programs such as defined benefit pensions and decent seniors' care, which appears regularly in the monopoly media, is meant to soften up the working class to accept concessions and higher individual taxes. This chatter is all self-serving nonsense. The modern socialized economy, if it were organized and controlled by the actual producers for their own benefit and well-being, produces more than enough social product to meet the needs of the people on a modern self-reliant basis. What is lacking is the political will to do it and that political will can only come from an organized and effective Workers' Opposition.

Owners of capital at this time of crisis have both limited investment opportunities and limited amounts of capital. They see public education and healthcare as areas of investment and pension savings funds as a source of capital. By starving social programs of public funds, they hope that this will open up opportunities for large private investments. Owners of capital want to turn the retirement of boomers into an investment bonanza in private healthcare for seniors and private seniors' homes and nursing homes. Many owners of capital are salivating at the prospects of making big bucks in the private seniors' care industry. It will be one of the few growth sectors. They don't want increased public investments in seniors' care unless of course that money can be channelled into their private pockets. A similar situation exists with deficits and debt at all levels of government. They are places where owners of capital can park their money during this period of uncertainty and at least protect it from shrinking. Deficits and debt also provide money-capital for government that can be used in conjunction with private investments, similar to the way pension and mutual fund savings plans make money-capital available for private enterprise.

TML: In this budget, deficits and debt have played a significant role in the propaganda similar to the 1980s and '90s.

KCA: Yes, we have seen some pretty funny "man in the street interviews" where people all of a sudden are highly emotional about "bringing down the debt and deficits," and all the academic and think-tank hacks are wringing their collective hands about the demographic changes and crying that something has to be done before a terrible financial apocalypse comes crashing down. Workers should steel themselves in the face of this propaganda storm. It is similar to war hysteria to get people all excited for some action the ruling elite want to take. Debt and deficits are not the cause of economic crises; they are inherent features of the capitalist system. Causes of recurring economic crises are found in the basic contradictions of the system of which the most basic is the one between the socialized forces of production and private ownership of those socialized means of production and distribution. Only by resolving the systems' contradictions can crises be avoided. However, policies favouring the working class such as increased funding for social programs and public enterprise can mitigate the bad consequences of the crisis for the people while those policies favouring the rich, such as the stimulus program to pay the rich and cutbacks in social programs make life worse for the people.

National debts and deficits are as capitalist as maple syrup is Canadian. In fact, usually the most powerful capitalist countries have the biggest national debt. Look around the world. Which countries have the biggest national debt? The U.S. and Japan. For the U.S. the national debt of trillions is serviced mainly by issuing new debt. This can go on indefinitely as long as other countries keep buying U.S. debt. With Japan, the debt is mostly held internally, but even that portion held by others has been issued at interest rates only slightly above zero percent and Japan still has tremendous amounts of tribute pouring into its economy from holdings abroad. Canada's national debt of slightly more than half a trillion dollars is far less than the savings held in the country's registered company and government pension plans at $2.2 trillion. As long as there is not a significant outflow of added-value from the economy, owners of capital are not worried. The outflow of tribute from oppressed or weaker countries into the centres of imperialism, the United States, Japan and Europe, is one of the most pressing problems facing the world. The outflow of social product is a remnant of colonialism made worse under imperialism. The most powerful countries within the imperialist system of states receive tribute from the weaker countries. One of the rare occurrences of this happening with a powerful imperialist country was the significant outflow of social product from Germany after WWI because of the war reparations demanded by the victorious imperialist powers Britain, France and the U.S.

Today, we have the case of Greece, Ireland and Iceland who are faced with demands for tribute from the international financial oligarchy. The same criminals, such as the New York investment bank Goldman Sachs and the issuers of credit-default swaps, who caused such trouble with their Ponzi schemes and big scores at the expense of the peoples everywhere, now want to drain their victims dry of social product to pay for the economic crisis. They are going after the people to make them pay for the crimes of the international financial oligarchy and are organizing a forced outflow of social product to London, New York, Berlin, Amsterdam and Paris. In Greece, the country's ruling elite are too docile and scared to thumb their nose at the global hucksters and simply declare a moratorium on debt servicing and a fresh start bankruptcy like the monopolies do all the time. The people of Greece are in a rebellious mood and refuse to go along with their traitorous leaders. Meanwhile, a referendum in Iceland by 93 percent has rejected sending $5.43 billion demanded by the governments of Britain and Holland as compensation for bank losses. Imagine, 370 years after the modern world's first ridiculous spike in commodity prices well beyond their intrinsic value, in that case tulips, Holland is once again at the centre of another storm of egocentric greed. Workers should not accept one more day of this backward nonsense let alone another three hundred years. Canadian workers should stand with the peoples of Greece, Iceland and Ireland and all others who are refusing to pay the criminals from the financial capitals of the world who have caused such havoc and insecurity. Workers should finally put behind us this economic insanity by elbowing their way into the centre of political and economic life and assert control over their destiny. They are the actual producers after all.

Mass demonstration in Athens, Greece, March 4, 2010 (Athens Indymedia)

TML: As you say, the hysteria in the past and present over Canada's national debt and deficits is hypocritical and diversionary as those features of capitalism have always been part of the country's economic life. The public debt following the collapse of private financing of the railways in the nineteenth century, the cost of the world wars of the twentieth century and the pay-the-rich schemes and predatory wars of today, illustrate this.

KCA: A national debt is synonymous with the capitalist system. No such institution existed prior to capitalism. National debts marked the beginning of a capitalist nation-building process but in today's world they are associated not with nation-building but with being captured within the imperialist system of states.

A national debt is necessary to accumulate capital for big projects such as war, expand empires, build modern infrastructure and pay the rich or as the media more politely say, "bail out companies too big to fail," "subsidize companies so that they will invest in Canada" or "provide government stimulus funds to create employment." People should not forget as well that right from the beginning of capitalism, it was the trading in the national debt that served as the basis for what Marx called the "bankocracy," which has now become finance capital, the all-powerful and ubiquitous force that dominates every aspect of global and national economic life. Owners of capital love the national debt for all the benefits it brings to them and as propaganda to attack the claims of workers, preparing public opinion either directly to take money from workers' with higher individual taxation, user fees for public services such as mass transit or indirectly by providing less public services and social programs. The trick for the ruling elite is to make the national debt part of their one-nation propaganda, which means spreading the fraud that the debt is not based in class interests but belongs to all the people. In England right from the beginning of capitalism, the national debt was the only public institution not called "Royal." The benefits to owners of capital coming from the national debt were deliberately obscured right from the beginning by calling the debt made by government as "national debt" and not "royal debt." Monopoly capitalism has carried this to the extreme by privatizing the profits and socializing the losses.

TML: Can you elaborate on this?

KCA: Like all things capitalist, there is a history, a tradition, one that changes with time and the needs of the owners of capital. This practice of national budgets dates from a period of capitalist rule when men of property would select their representatives to the national government who would plan what expenditures were needed, mostly military and infrastructure costs, and how the government would raise revenue to meet those costs. The budget would not change much from year to year unless an emergency arose, usually a war. This is still the case today in Canada. (See the tables below comparing federal budgets since the year 2000.) To finance the costs of the emergency the national debt would be increased through selling government paper, such as bonds, followed by higher taxes usually excise or similar forms of taxation that would end up as higher commodity prices. None of this was considered the people's business, especially the working class, because the state and its budgets were viewed in practice as institutions serving the capitalist class. Profits belong to the owners of capital; the national debt and war belong to the people; that is why unlike other institutions the national debt has never been called the "royal" debt and war has always been organized under the banner of one-nation politics. Social programs under nascent capitalism existed mainly as private charities and almost no public money was allocated for them.

TML: How has this changed?

KCA: This changed objectively according to the development of the capitalist system and subjectively from the demands of an increasingly organized and conscious working class. The biggest change in budgets arose from the transition of the nascent capitalist state into a monopoly capitalist state around the end of the nineteenth century in the developed capitalist countries. This new state requires an enormous standing army, a huge government bureaucracy and large outlays to finance directly those monopolies operating in a particular state. Those outlays or state expenditures for monopolies are now called "stimulus measures" and bailouts, which the working class calls schemes to pay the rich.

Also on the expenditure side, the development of modern science and the application of technology to production soon outstripped the capacity of the capitalist class to supply from its own families enough educated people to fill the demand of business. Also, literacy and technical skills became a necessity for ordinary workers as bookkeeping, mechanics, electronics and other tasks became more complicated and widespread. This meant public education became a requirement at all levels. The necessity of public education soon found its way into the federal budget.

A subjective pressure on state expenditures came from the working class itself as it increasingly organized itself as a class with its own demands. This working class subjective pressure for healthcare, pensions, assistance while unemployed, sick or injured eventually found its way into the budget in the form of expenditures for social programs.

To sum up this portion, workers must remember that government budgets are not meant to solve problems; that is not their role. Budgets reflect decisions that have already been made. Workers have to fight for their own agenda and program and concentrate on discussing how they are going to accomplish their goals, and not get caught up in merely reacting to the agenda and program of the owners of capital in a pro or con manner. Once a victory has been won on a working class issue such as a needed social program like day care, it will have to find its way into the budget just as Medicare found its way into the budget once the political victory had been won in the 1960s. It is especially important for workers and their allies to get out of this bad habit of taking sides either for or against an issue presented by owners of capital such as, "Should we pay down the deficit and debt or increase it?" Workers organized into their own movement of, for and by themselves are striving to force governments to take up their social responsibilities to defend the rights of the people and their socialized economy or get out of the way and stop blocking workers and their allies from solving problems. Workers are fighting against state institutions being used in alliance with the monopolies to block the people from solving problems. Our issues at this time are to increase funding for social programs, to stop paying the rich and the wrecking of manufacturing and to build up the socialized economy through investments in public enterprise. Workers stand behind their slogans: Manufacturing yes! Nation wrecking no! Restrict monopoly right! Whose economy? Our economy! Who controls? We control! The way forward is to organize an effective Workers' Opposition and to get it elected to Canada's political institutions.

As far as the debts of governments are concerned, they should be investigated to ascertain their legitimacy and in the meantime a moratorium on servicing them should be instituted except for those Canadians who can prove that they rely on debt service payments for retirement or some other issue. These are important concrete ways the working class can demand the socialized economy be geared to serve the public good and nation-building and not the private narrow interests of the rich and their monopolies.

Reference

Budget Revenues Last Ten Years in Billions of Dollars (Source: Globe and Mail, March 4, 2010)

	Personal	Corporate	EI	GST, other duties	Other revenues	Other income tax	TOTAL
2000-01	75.9	23.9	18.2	33.5	7.2	2.5	162.2
2001-02	80.5	24.5	17.6	37.3	9.8	1.8	171.5
2002-03	81.7	22.2	17.8	41.3	11.1	3.2	177.2
2003-04	84.8	27.4	17.5	41.3	11.8	3.1	185.9
2004-05	98.5	29.9	17.3	42.9	19.7	3.6	211.9
2005-06	104.0	31.7	16.5	46.2	19.6	4.5	222.4
2006-07	110.0	37.7	16.8	45.3	20.7	4.9	235.4
2007-08	113.0	40.6	16.5	44.2	22.2	5.6	242.1
2008-09	117.0	31.7	16.6	40.8	24.0	5.9	235.9
2009-10	108.2	22.3	16.6	39.3	22.6	4.9	213.8
2010-11	117.0	25.5	17.6	41.0	24.8	5.5	231.4

Budget Revenues Last Ten Years, % Total (Calculations by TML)

	Personal Income Tax %	Corporate Tax %	EI %	GST, other duties %	Other revenues %	Other income tax %	TOTAL $$$
2000-01	46.8 %	14.7	11.2	20.7	4.4	1.5	162.2
2001-02	46.9 %	14.3	10.3	21.7	5.7	1.0	171.5
2002-03	46.1 %	12.9	10.0	23.3	6.2	1.8	177.2
2003-04	45.6 %	14.7	9.4	22.2	6.3	1.7	185.9
2004-05	46.5 %	14.1	8.2	20.2	9.3	1.7	211.9
2005-06	46.8 %	14.3	7.4	20.8	8.8	2.0	222.4
2006-07	46.7 %	16.0	7.1	19.2	8.8	2.1	235.4
2007-08	46.7 %	16.8	6.8	18.3	9.2	2.3	242.1
2008-09	49.6 %	13.4	7.0	17.3	10.2	2.5	235.9
2009-10	50.6 %	10.4	7.8	18.4	10.6	2.3	213.8
2010-11	50.6 %	11.0	7.6	17.7	10.7	2.4	231.4

Personal Tax:  Paid by individuals

Corporate Tax:  Paid by corporations

EI: Paid by employers and workers; employers contribute 1.4 times worker contributions so employer contributes 58.3% of EI total and workers 41.7%.

GST, other duties:  Paid by individuals; GST was 7%, then became 6% July 1, 2006, then 5% January 1, 2008; other duties include gasoline tax, cigarette tax, customs duties

Other revenues: Include profits from Crown corporations, foreign exchange revenues, sales of goods and services, etc.

Other income tax: Consist mainly of withholding taxes levied on non-residents

Karl Marx on the National Debt and
Primitive Accumulation

- Excerpt from Capital, Volume One, Chapter Thirty-One:
Genesis of the Industrial Capitalist -

[...]

The money capital formed by means of usury and commerce was prevented from turning into industrial capital, in the country by the feudal constitution, in the towns by the guild organisation. These fetters vanished with the dissolution of feudal society, with the expropriation and partial eviction of the country population. The new manufactures were established at points beyond the control of the old municipalities and their guilds. Hence in England an embittered struggle of the corporate towns against these new industrial nurseries.

The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the aboriginal population, the beginning of the conquest and looting of the East Indies, the turning of Africa into a warren for the commercial hunting of black-skins, signalised the rosy dawn of the era of capitalist production. These idyllic proceedings are the chief momenta of primitive accumulation. On their heels treads the commercial war of the European nations, with the globe for a theatre. It begins with the revolt of the Netherlands from Spain, assumes giant dimensions in England's Anti-Jacobin War, and is still going on in the opium wars against China, &c.

The different momenta of primitive accumulation distribute themselves now, more or less in chronological order, particularly over Spain, Portugal, Holland, France, and England. In England at the end of the 17th century, they arrive at a systematic combination, embracing the colonies, the national debt, the modern mode of taxation, and the protectionist system. These methods depend in part on brute force, e.g., the colonial system. But, they all employ the power of the State, the concentrated and organised force of society, to hasten, hot-house fashion, the process of transformation of the feudal mode of production into the capitalist mode, and to shorten the transition. Force is the midwife of every old society pregnant with a new one. It is itself an economic power....

The colonial system ripened, like a hot-house, trade and navigation. The "societies Monopolia" of Luther were powerful levers for concentration of capital. The colonies secured a market for the budding manufactures, and, through the monopoly of the market, an increased accumulation. The treasures captured outside Europe by undisguised looting, enslavement, and murder, floated back to the mother-country and were there turned into capital....

The system of public credit, i.e., of national debts, whose origin we discover in Genoa and Venice as early as the middle ages, took possession of Europe generally during the manufacturing period. The colonial system with its maritime trade and commercial wars served as a forcing-house for it. Thus it first took root in Holland. National debts, i.e., the alienation of the state -- whether despotic, constitutional or republican -- marked with its stamp the capitalistic era. The only part of the so-called national wealth that actually enters into the collective possessions of modern peoples is their national debt. Hence, as a necessary consequence, the modern doctrine that a nation becomes the richer the more deeply it is in debt. Public credit becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of the blasphemy against the Holy Ghost, which may not be forgiven.

The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter's wand, it endows barren money with the power of breeding and thus turns it into capital, without the necessity of exposing itself to the troubles and risks inseparable from its employment in industry or even in usury. The state-creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would. But further, apart from the class of lazy annuitants thus created, and from the improvised wealth of the financiers and middlemen between the government and the nation -- and also apart from the tax-collectors, merchants, private manufacturers, to whom a good part of every national loan renders the service of a capital fallen from heaven -- the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy.

At their birth the great banks, decorated with national titles, were only associations of private speculators, who placed themselves by the side of governments, and, thanks to the privileges they received, were in a position to advance money to the State. Hence the accumulation of the national debt has no more infallible measure than the successive rise in the stock of these banks, whose full development dates from the founding of the Bank of England in 1694. The Bank of England began with lending its money to the Government at 8%; at the same time it was empowered by Parliament to coin money out of the same capital, by lending it again to the public in the form of banknotes. It was allowed to use these notes for discounting bills, making advances on commodities, and for buying the precious metals. It was not long ere this credit-money, made by the bank itself, became the coin in which the Bank of England made its loans to the State, and paid, on the account of the State, the interest on the public debt. It was not enough that the bank gave with one hand and took back more with the other; it remained, even whilst receiving, the eternal creditor of the nation down to the last shilling advanced. Gradually it became inevitably the receptacle of the metallic hoard of the country, and the centre of gravity of all commercial credit. What effect was produced on their contemporaries by the sudden uprising of this brood of bankocrats, financiers, rentiers, brokers, stock-jobbers, &c., is proved by the writings of that time, e.g., by Bolingbroke's.

With the national debt arose an international credit system, which often conceals one of the sources of primitive accumulation in this or that people. Thus the villainies of the Venetian thieving system formed one of the secret bases of the capital-wealth of Holland to whom Venice in her decadence lent large sums of money. So also was it with Holland and England. By the beginning of the 18th century the Dutch manufactures were far outstripped. Holland had ceased to be the nation preponderant in commerce and industry. One of its main lines of business, therefore, from 1701-1776, is the lending out of enormous amounts of capital, especially to its great rival England. The same thing is going on to-day between England and the United States. A great deal of capital, which appears to-day in the United States without any certificate of birth, was yesterday, in England, the capitalised blood of children.

As the national debt finds its support in the public revenue, which must cover the yearly payments for interest, &c., the modern system of taxation was the necessary complement of the system of national loans. The loans enable the government to meet extraordinary expenses, without the tax-payers feeling it immediately, but they necessitate, as a consequence, increased taxes. On the other hand, the raising of taxation caused by the accumulation of debts contracted one after another, compels the government always to have recourse to new loans for new extraordinary expenses. Modern fiscality, whose pivot is formed by taxes on the most necessary means of subsistence (thereby increasing their price), thus contains within itself the germ of automatic progression. Over-taxation is not an incident, but rather a principle. In Holland, therefore, where this system was first inaugurated, the great patriot, DeWitt, has in his "Maxims" extolled it as the best system for making the wage-labourer submissive, frugal, industrious, and overburdened with labour....

The great part that the public debt, and the fiscal system corresponding with it, has played in the capitalisation of wealth and the expropriation of the masses, has led many writers, like Cobbett, Doubleday and others, to seek in this, incorrectly, the fundamental cause of the misery of the modern peoples.

The system of protection was an artificial means of manufacturing manufacturers, of expropriating independent labourers, of capitalising the national means of production and subsistence, of forcibly abbreviating the transition from the medieval to the modern mode of production. The European states tore one another to pieces about the patent of this invention, and, once entered into the service of the surplus-value makers, did not merely lay under contribution in the pursuit of this purpose their own people, indirectly through protective duties, directly through export premiums. They also forcibly rooted out, in their dependent countries, all industry, as, e.g., England did with the Irish woollen manufacture....

Colonial system, public debts, heavy taxes, protection, commercial wars, &c., these children of the true manufacturing period, increase gigantically during the infancy of Modern Industry. The birth of the latter is heralded by a great slaughter of the innocents. Like the royal navy, the factories were recruited by means of the press-gang. Blasé as Sir F. M. Eden is as to the horrors of the expropriation of the agricultural population from the soil, from the last third of the 15th century to his own time; with all the self-satisfaction with which he rejoices in this process, "essential" for establishing capitalistic agriculture and "the due proportion between arable and pasture land" -- he does not show, however, the same economic insight in respect to the necessity of child-stealing and child-slavery for the transformation of manufacturing exploitation into factory exploitation, and the establishment of the "true relation" between capital and labour- power....

With the development of capitalist production during the manufacturing period, the public opinion of Europe had lost the last remnant of shame and conscience. The nations bragged cynically of every infamy that served them as a means to capitalistic accumulation.... Here it is trumpeted forth as a triumph of English statecraft that at the Peace of Utrecht, England extorted from the Spaniards by the Asiento Treaty the privilege of being allowed to ply the negro-trade, until then only carried on between Africa and the English West Indies, between Africa and Spanish America as well. England thereby acquired the right of supplying Spanish America until 1743 with 4,800 negroes yearly. This threw, at the same time, an official cloak over British smuggling. Liverpool waxed fat on the slave-trade. This was its method of primitive accumulation....

Whilst the cotton industry introduced child-slavery in England, it gave in the United States a stimulus to the transformation of the earlier, more or less patriarchal slavery, into a system of commercial exploitation. In fact, the veiled slavery of the wage-workers in Europe needed, for its pedestal, slavery pure and simple in the new world.

Tantae molis erat, to establish the "eternal laws of Nature" of the capitalist mode of production, to complete the process of separation between labourers and conditions of labour, to transform, at one pole, the social means of production and subsistence into capital, at the opposite pole, the mass of the population into wage-labourers, into "free labouring poor," that artificial product of modern society. If money, According to Augier, "comes into the world with a congenital blood-stain on one cheek," capital comes dripping from head to foot, from every pore, with blood and dirt.

For Your Information

Statistical Confirmation of Annexation of Canada's Manufacturing, Mining and Oil and Gas Sectors

Foreign Control in the Canadian Economy 2007
- Statistics Canada, March 8, 2010 (excerpts) -

Foreign acquisitions of Canadian-controlled firms, particularly in manufacturing and oil and gas, drove a 10.6% increase in Canadian assets under foreign control in 2007.

In the manufacturing sector, assets under foreign control increased 16.4% in 2007, while those under Canadian control declined 8.2%. In the oil and gas industry, assets under foreign control rose 24.1%, more than double the 10.1% increase in assets under domestic control.

Manufacturing: Foreign-Controlled Firms Now Represent over One-half of Assets, Revenues and Profits

In 2007, foreign-controlled companies operating in Canada held more than half (52.8%) of assets in manufacturing, the first time since 1999. This share was up from 46.8% in 2006. The increase was due largely to foreign acquisitions of Canadian-controlled firms, especially in the primary metals and the wood and paper industries.

Firms under foreign control also accounted for 53.8% of manufacturing revenues and 51.4% of manufacturing profits. Both shares were higher than those in 2006.

Oil and Gas: Foreign-Controlled Shares Get Boost from Acquisitions

In the oil and gas industry, Canadian-controlled firms lost some share of assets, revenues and profits to foreign-controlled firms in 2007.

The share of assets for domestic-controlled firms in oil and gas fell from 64.3% to 61.5%. While these firms generated 51.2% of operating revenues and 55.4% of profits, both shares were down from their levels in 2006.

***

In 2007, foreign-controlled firms accounted for 21.3% of all corporate assets in Canada, up slightly from 21.1% the year before. In the finance and insurance sector, the depository credit intermediation industry, which includes banks, posted the smallest shares under foreign control, at 8.3% of assets, 7.8% of revenues and 6.7% of profits. These shares have remained relatively stable since 1999, reflecting regulations governing foreign control.

United States and United Kingdom firms increased their share of corporate assets in 2007 on the strength of acquisitions.

The United States continued to be the dominant player among foreign-controlled enterprises operating in Canada.

In 2007, U.S.-controlled firms accounted for 54.7% of assets under foreign control as well as 59.3% of operating revenues, and 54.4% of profits. These proportions were all up slightly from the year before.

The increase in these shares was driven by acquisitions of firms that were formerly under the control of companies based in the European Union and Canada. This was especially the case in three manufacturing industries: motor vehicles and parts; wood and paper; and primary metals.

The shares of foreign-controlled assets and revenues under the control of firms in the United Kingdom expanded, while those under German control contracted.

The increase in shares controlled by firms in the United Kingdom reflected acquisitions of manufacturing firms formerly under Canadian control.

Germany was the only major foreign country of control whose shares declined significantly. They fell 2.0 percentage points for assets, 2.6 points for revenues and 2.1 points for profits.

This decline in German-controlled shares resulted from takeovers by US-controlled firms in manufacturing.

Statscan Note to Readers

Under the authority of the Minister of Industry, Statistics Canada administers the Corporations Returns Act, which requires the collection of financial and ownership information on corporations conducting business in Canada. This information is used to evaluate the extent of non-resident control of the Canadian corporate economy.

The Corporations Returns Act requires that an annual report be submitted to Parliament summarizing the extent to which foreign control is prevalent in Canada. The document being released today is the report for the reference year 2007.

Three components are used to measure foreign control: assets, operating revenues and operating profits.

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