In the wake of the government's decision last week to not allow the sale of 40% of Auckland Airport to a foreign buyer, I've been reflecting on the topic a wee bit. Plus, it rained today and there was nothing on TV. What do I care? I don't watch TV anyway.
What prompted my thoughts was the Canadian government deciding this week to block the sale of a high-tech satellite / robotics company to a US buyer.
Canada (where I grew up) began enjoying the "benefits" of foreign investment decades prior to the rage for it seriously took hold in New Zealand political circles. The inverted comments around "benefits" should indicate that this experience has not always been a good one and that foreign investment is far from problem free.
In the NZ Herald last year, investment analyst Brian Gaynor looked at the serious problems that poor foreign investment has caused in New Zealand in recent years. Air New Zealand, NZ Rail, Telecom and more are cited.
Judging by the comments of many business and political commentators in New Zealand, there appears to be inadequate awareness of the potential downsides of foreign investment. At the very least, they are reluctant to acknowledge there are any downsides.
Is all foreign investment good? No.
Is all foreign investment bad? No.
Absolutely and without question any investor, domestic or foreign, who can invest capital in new businesses or industries to generate wealth and value and/or employment and/or a skills base for enabling other economic endeavour is to be encouraged and perhaps even supported in doing so. No country can have too many good citizens - individual or corporate.
But the picture isn't all rosey. In the Canadian experience, foreign investment often meant that a company, or an industry as a whole, was converted into a "branch plant" of a foreign owner. The economies of scale thus achieved often meant that domestic Canadian competitors became uncompetitive and were then either bought up and closed down or they simply shut up shop. Later, when the North American Free Trade Agreement (NAFTA) was introduced, and tariffs on imports were reduced or removed, these branch plants were often allowed to run down and declared too expensive to re-invest in. The activity that had taken place there ceased. The skills base associated with these industries rapidly dissipates and in the end no one knows how to do that thing any more. This is one of the main reasons the Canadian government gave for blocking the sale of MDA this week.
Where the investment was in purchasing existing companies rather than building new ones, the effect was often ultimately hostile to the creation of wealth in Canada. Instead, it actually degraded and finally destroyed what wealth had been there by removing domestic competitors from the scene, then closing down local branches entirely. No longer even a branch plant economy, you import all of whatever it was that used to be made here and employed people here.
We can see this today as we wander the aisles of our local supermarkets. Basic, everyday products that used to be made here, from deodorants to tomato sauce, are now imported. Businesses that employed large numbers of unskilled or low-skilled people are now gone or greatly reduced and always under threat of being closd entirely.
The assumption seems to be that "resources will be shifted to new industries" as one letter writer to the North Shore Times asserted this week (objecting to the blocking of the airport sale). But that doesn't make any sense to a 45 years old woman who may have spent the last 20 or more years making carpets at Feltex in Foxton. Who is going to fund her retraining and re-allocation to a new knowledge industry - even assuming she was up to it? She can't. She's out of work. Wages were low anyway. Maybe she didn't even finish secondary school. Textiles have been part of the Foxton economy for most of 150 years thanks initially to the abundant supply of flax in the area. Now it's all gone. Soon the skills will be gone as well.
Canada had also found that its sovereignty can be directly undermined by foreign investment. At one point in the early 1970's more than 99% of the booming Canadian petroleum industry was foreign-owned. The Canadian arm of US companies have shown themselves unwilling to follow Canadian laws when they conflicted with US laws. In particular, they often refused to deal with countries the US had embargoed, but Canada had not.
Famously, in the early 1970s, the Trudeau government in Ottawa had to threaten to order a US-owned Canadian locomotive manufacturer to ship locos to US-embargoed Cuba. The US parent risked being prosecuted by the government there and was in a no-win situation. The US government relented in 1975. Similarly, the Canadian arm of IBM found itself under constant pressure to follow US law.
Canadians went through all this years before New Zealand started down this road. I came to New Zealand in the early 1980s knowing a great deal more, from personal experience, about the downside of foreign investment than even the most senior politicians here seemed aware of. I recall being amazed that they were so uncritical of virtually all foreign investment. People who knew better did try to warn them, but listening wasn't a talent demonstrated by most Kiwi governments elected under the old First Past the Post voting system. Being deaf was supposed to mean you were strong instead of being determinedly deaf and blind or worse - stupid.
The government here (and the government in Canada) has been criticised for playing politics with foreign investment. That could only be possible if large numbers of voters understood foreign investment to not always be a good thing while their political masters most often like to pretend otherwise. In Canada that's a given. In 1970 the "Committee for an Independent Canada" (CIC) was founded to publicise the damaging side of foreign investment. At age 13, already curious, I attended their founding national conference in Thunder Bay, where I happened to live. The CIC later morphed into the "Council of Canadians".
In New Zealand, more and more people seem to be coming to the conclusion that being prudent about what you sell to people who don't live here is prudent and careful economic management and not "xenophobia" as some have attempted to label it.
Not all foreign investment is bad. We should insist our governments at least attempt to tell the good from the bad and reject the latter and thank them for doing so. The Canadian Pension Plan Investment Board clearly thought they would make a lot of money out of Auckland Airport's monopoly to aid in funding the pensions of Canadians. Maybe now Kiwi pensioners will get a look into extracting the monopoly rents the Canadians were seeking through the fund administered by our own government?
Daily review 15/09/2025
6 hours ago
