David Prosser: The biggest loser from the LSE's Canadian débâcle: Free trade

Is this a backlash to the most dominant economic trend of recent years – the move towards globalisation and trade liberalisation?


Outlook For every winner, there must be a loser. In the story of the London Stock Exchange's aborted merger with Canada's TMX, the principals are not difficult to identify. In the loser's corner stands an embattled Xavier Rolet, whose failure to pull off this deal could cost the LSE its independence (and thus lose him his job). The winner, meanwhile, is Dwight Duncan, the finance minister of Ontario, who made his opposition to the merger of TMX and the LSE clear from the moment the deal was announced. Mr Duncan has got his way, even though he was powerless to intervene.

It is now clear the LSE played its cards pretty ineptly. Although the deal was portrayed as a merger, it was always very obvious who would be the senior partner. That left many Canadians feeling uncomfortable about the deal even before a rival proposal emerged. Worse, Maple's arrival on the scene appeared to catch the LSE by surprise and its subsequent efforts to explain away its opponent's more valuable bid as not properly funded were not convincing. The sweetener announced last week was too little, too late and smacked of desperation.

All that said, the embarrassment of the LSE over this episode is a parochial concern relative to the weighty questions it prompts about free trade and protectionism. This is the second major international transaction involving a Canadian company that has been derailed this year. The collapse of the LSE's merger with TMX follows the reverse suffered by BHP Billiton in its pursuit of the Potash Corporation. The former deal was scuppered by private shareholders, while the latter was killed off by the government, but in both cases, it was Canadian concern about losing control of domestic assets that motivated opponents of the transactions.

Nor is Canada alone in acting on such anxieties. Australia, for example, has just vetoed a merger between its stock exchange and the bourse in Singapore.

Are we seeing a backlash to what has been the dominant economic trend of recent years – the move towards globalisation and trade liberalisation? If so, the danger is of a spiral, in which countries aggrieved by the actions of the likes of Canada and Australia resurrect their own trade barriers.

Many of the world's leading economies, particularly in the West, are enduring a loss of confidence as they try to bounce back from the worst financial crisis since the Great Depression. In that context, the temptation to put up the shutters is understandable.

It is still a mistake, however. All the evidence is that free trade and economic growth go hand in hand: look, for example, at the growth rates achieved by China and – to a lesser extent – India as they have opened their economies to the world over the past two decades.

Is it fair to expect Mr Duncan – who described Maple Group as "Canadian patriots" – to see the bigger picture as he juggles the demands of domestic politics? Maybe not, but in the long run, Canadians will be losers too if the world succumbs to protectionism.



Why employers really dumped final salary

Can we just nail one myth in the row over public-sector pensions? Contrary to what you will have heard almost everywhere during the debate about yesterday's strikes, the private sector has not closed down defined benefit pension schemes because of their expense. The overriding factor for the majority of companies has been the unpredictability and volatility of the cost of guaranteed pensions, for which they have recently been required to account much more openly.

Final-salary pension scheme costs are volatile because they provide benefits by investing in assets with volatile returns. In a good year for the pension fund, the company may be able to report that its scheme has a surplus of assets put aside compared with its liabilities. In a bad year, the scheme's funding deficit may look horrendous, putting huge pressure on the sponsoring employer to increase contributions or to make special payments.

In the private sector, employers have understandably become very uncomfortable with the risk that a pension funding problem might blow up in their faces at any moment. But in the public sector, with some notable exceptions, this is not how schemes operate. Rather, they are pay-as-you-go operations, with the contributions made by today's workers financing the pensions of those who have not retired. And in the absence of a pension fund, volatility simply ceases to be an issue.

Does this negate the case for public-sector reform? Not necessarily, in an age of improving mortality rates. But the idea that guaranteed pensions are too expensive for the public sector because they were too expensive for the private sector is based on a misunderstanding of what has happened in the latter over the past decade.



More action, less talk on ETFs please

In warning of his concerns about exchange-traded funds yesterday, the Bank of England's Paul Fisher is just the latest in a series of luminaries to flag up such dangers.

The problem is that what began as a straightforward, low-cost vehicle for tracking the performance of an asset has, with the introduction of "synthetic ETFs" – where the manager does not buy the assets in question but a derivatives contract instead – become much more risky. Suddenly, counter-party risk has entered the equation.

The question now is what we propose to do about ETFs, to which, by the way, retail investors have a growing exposure. In the US, the Securities and Exchange Commission has already introduced more stringent regulation of these vehicles. In Europe, however, they continue to sit within the regulatory framework that governs collective investments, which is less demanding.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness