Academic journal article Canadian Journal of Sociology

Hollowing out Corporate Canada? Changes in the Corporate Network since the 1990s

Academic journal article Canadian Journal of Sociology

Hollowing out Corporate Canada? Changes in the Corporate Network since the 1990s

Article excerpt

From Silent Surrender to Hollowing Out

The issue of hollowing out has preoccupied Canadian social scientists--since Kari Levitt's Silent Surrender: The Multinational Corporation in Canada--arguably the founding text of the New Canadian Political Economy (NCPE). Writing at the height of postwar American hegemony, Levitt argued that Canada's capitalist class was being converted, via foreign takeovers, into "an emasculated, if comfortable, business elite" lacking in entrepreneurship (1970:77). As American-based transnational corporations (TNCs) came to control more of the Canadian economy, the national corporate elite was transformed into a dependent class of branch plant managers, who administered units of transnational enterprise lacking in R&D capacity. Moreover, the tendency for TNCs to serve only the domestic market (the "miniature replica" effect, Levitt 1970:135-7) and to export profits to foreign parents set Canadian capitalism on a course of regression to the status of a "rich hinterland"--a metaphor that subsequently became the touchstone of scholarship in the NCPE (Laxer 1973; Williams 1983).

Writing three decades later, Harry Arthurs (2000) presented a remarkably similar analysis, predicated on claims about the nature of transnational enterprise and the implications for Canada's capitalist class. Arthurs, however, noticed that, at the close of the 20th century, TNCs embraced a more complex international division of labour, according to which subsidiaries were often assigned world product mandates while parent firms exerted more direct control over them, in order to coordinate profit maximization for the entire enterprise. This development is the basis for his introduction of the term "hollowing out" of corporate Canada. From a study of 115 foreign-owned subsidiaries in Canada, compared at 1985 and 1995, Arthurs adduced several consequences of foreign control of large corporations, which add up to a process of hollowing out:

* A tendency, as foreign parents tighten control over subsidiaries, for the size of the board of directors to shrink and for the percentage of nonresident directors, chairs, and CEOs to increase;

* Diminishing autonomy for subsidiaries and less leverage for local management vis-a-vis the head office--as subsidiaries are subjected to closer oversight by relevant divisions of parent firms;

* A declining market for specialized producer services such as industrial R&D and legal services, as core functions are relocated to head offices.

As parent companies assume tighter control of subsidiaries,

'Corporate Canada'--the community of directors and senior executives of Canadian domestic corporations and foreign-owned subsidiaries--is being 'hollowed out.' (Arthurs 2000:44)

Much like Levitt, Arthurs perceives a threat not only to the viability of Canada's capitalist class, but to the welfare of all Canadians:

... each time a transnational corporation rejigs its organization chart, each time the role and structure of its subsidiaries is [sic] redefined, not just an enfeebled and vulnerable Corporate Canada but all Canadians are put at risk. (Arthurs 2000:45-6)

More recently, several high-profile foreign takeovers of large Canadian corporations have sharpened public concerns about this phenomenon, leading the federal government to establish a Competition Policy Review Panel to review investment and competition policies. In the midst of the debate, Mel Watkins, a longstanding proponent of Levitt's thesis, captured the transition in public sensibilities from the political economy of branch-plant capitalism to the political economy of hollowing out:

   Once upon a time, Canadians had worried about being reduced to a
   branch-plant economy. Now we worry that the flight of head offices
   is leading to a "hollowing out" of corporate Canada and the
   Canadian economy. (2008: 14)

There is, however, a range of dissenting voices on this issue, just as there was concerning the original thesis of Silent Surrender (cf. …

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