How to prevent us heading for a world of scarce resources, unfair competition, and geopolitical battles? U.S. and Canada should join forces, says Diane Francis, author of the new book Merger of the Century.
What is your big idea?
The United States and Canada should merge. Unfortunately, the reverse is happening. They share geography, values, and a gigantic border, but the two countries are on a slow-motion collision course—with each other and with the rest of the world.
Since they signed a free trade agreement in 1987, the U.S.-Canada border has become more clogged than ever, hurting trade and tourism. While both countries wrestle with their internal and border problems, emerging economies, using a state capitalism model of development, flourish. By 2018, China’s economy will be bigger than that of the United States, and Asian economies will be bigger than the U.S., Canada, Germany, Britain, Italy, France, and Russia.
A merged United States and Canada would have an economy larger than the European Union’s. The two would be an economic superpower, bigger than South America in size, with more energy, metals, minerals, water, arable land, resource potential, and technology than any other jurisdiction, all under U.S. military protection.
How would a merger help?
By joining forces, the U.S. would improve national security, guarantee energy and resource independence, and create millions of jobs in helping develop Canada’s North; and Canada would be able to defend and develop its huge landmass, overcoming lack of capital, workers, technology, and military might.
Size matters. A merged, or more economically and politically integrated, U.S.-Canada would counterbalance the fact that state-owned or controlled companies are on their way to dominating trade and access to resources. In 2000, seven of the world’s 10 largest oil companies were American or European multinationals. By 2010, 28 of the 50 biggest were government-owned or controlled, led by gigantic Saudi Arabia’s Aramco.
China has targeted Canada’s resources and Russia has declared that all of the Arctic is Russian. Water, oil, and metals shortages will become issues going forward in these regions. For instance, China has 20 percent of the world’s population and only 7 percent of its water. The Middle East has 5 percent of the world’s population and 1 percent of its water. The U.S. and Canada have 15.5 percent of the world’s population and more than 25 percent of its water.
State capitalists tip the playing field in their favor.
China is now the largest owner of farmland in Africa, and this fall bought 5 percent of Ukraine’s arable land. South Koreans unsuccessfully attempted to take over half of Madagascar’s food lands and Arab monarchies have been buying huge tracts of farmland and gaining political influence by doing so.
State capitalists tip the playing field in their favor. They have access to subsidized capital, exploration opportunities, and oil fields because their governments are partners or owners. These countries are, in essence, gigantic holding companies with “soft” weapons—unavailable to private sector companies—such as diplomatic pressure, foreign aid, market tradeoffs, cheap customer loans, weapons, or bribes.
They impose non-tariff barriers against exports and buy foreign companies while denying foreign ownership in their own economies. In September, a Chinese government company bought Smithfield Foods, the world’s biggest pork producer, but is protected from any foreign takeover.
The World Trade Organization is toothless, unable to prevent China from hoarding rare earths, Russia from driving out western investors or China from manipulating its currency downward. The United Nations’ Security Council is held hostage by Russia and China, who protect dictators and thugs from sanctions or interventions. Securities laws are unable to force gigantic sovereign wealth funds to disclose their holdings, ownership or trading activity.
How would a merger work?
Any merger, as the Germans and Europeans discovered, can be difficult. The U.S. and Canada have unique cultures, governments, healthcare, taxes, gun laws, and legal systems. But there are many ways to merge. One model would be a full-on merger as Germany accomplished in 1990, or a European Union-style merger involving the elimination of borders but not of governments.
There are also other ways to integrate to realize synergies and keep the state capitalist “wolves” away from the door. Some nations create customs and monetary unions to allow the free flow of workers, capital, goods, and services. These two nations could create a bi-national energy strategy or sign a joint venture to develop Canada’s staggering, neglected, and untapped resources in the North, an area three times bigger than Alaska. They could also adopt strategies like the state capitalists use such as blocking foreign buyouts or getting tough on non-tariff barriers or trade cheating.
Arguably, the two launched a merger process in 1987, but there’s slippage and there are more compelling reasons to accelerate integration. Both need to host national conversations about the benefits and challenges of becoming full-fledged partners. Clearly, the status quo is not an option.