I am not a fan of fast food or medium-roast coffee and doughnuts, but the principle of companies trading freely should be defended (see a previous post on defending free markets here). Therefore, unlike many Americans and Canadians, I cheer the takeover of the iconic Canadian coffee and doughnut chain Tim Hortons by the (mostly Brazilian-owned) fast food chain Burger King.
There has been a lot of nationalist hang-wringing over this proposed takeover on both sides of the border. President Obama has called Burger King’s planned move of its headquarters to Canada—due to the 26% corporate tax rate here vs. 40% in the United States—“unpatriotic.” Democratic Senator Sherrod Brown is trying to organize a campaign to boycott Burger King and to favor fast-food chains that haven’t “abandoned their country.” The Canadian government’s take has been decidedly more favorable. Commenting on the proposed deal, Finance Minister Joe Oliver said, “Canada has become a very attractive place for capital and growing businesses.” However, the opposition politicians in Canada have been occupying their nationalist soapbox, arguing that foreign companies such as Burger King taking over Canadian businesses such as Tim Hortons is of no “net benefit” to Canadians.
But the nationalist argument is all wrong. It is based on the idea that we would somehow be better off if we bought products and services from companies that were owned by and employed our countrymen as opposed to by foreigners, or if government collected higher corporate taxes. That idea is mistaken. Americans and Canadians and everybody else are better off when most wealth is being created—in other words, when capital moves wherever it can earn the best possible return (for example, where the corporate tax rates and other costs are the lowest) and where goods and services are produced most efficiently. More wealth creation means better returns to owners, such as the American (and Brazilian) shareholders of Burger King and the Canadian shareholders of Tim Hortons. More wealth creation also means more investment—in the current business or in others—which leads to economic growth and job opportunities. More wealth creation also leads to better products or lower prices, or both. To argue that foreign takeovers of Canadian companies are of “no net benefit” is nonsensical.
Most wealth is being created when markets are free, not when nationalism creates barriers to free trade and governments hamstring companies with high taxes. Governments do not create wealth; they merely spend the wealth created by producers (no matter how much politicians pretend otherwise). If we want to benefit from business, we should defend free trade against government intervention.
To those Canadians who are worried about their beloved Tim Hortons changing under the ownership of Burger King (if the deal is approved by shareholders and regulators)—the patriotic advertising, Timbits, the medium and light-roast coffees—I would say this: the owner of a business has the right to make any changes it wishes to create a better financial return for the shareholders. However, it is highly unlikely that Burger King would make any drastic changes: 80% of the 4,500 Tim Hortons locations are in Canada where it is doing well, not because of outstanding products but rather because of the very Canadian brand it has built here. And if Burger King were to make drastic changes to the Tim Hortons brand and products here and undermine the Canadian stores’ success that would create market opportunities for other companies. Competition and free trade are good for us!