Nortel No-No

The government of Canada should resist the temptation to intervene in the sale of wireless assets of bankrupt Nortel Networks Corporation (Nortel).

Nortel, with a history of government aid in the form of tax credits and other privileges, managed to make significant technological advances within the globally competitive field of cell-phone communication technologies. Unfortunately, as is often the case for businesses that could not survive without government privilege, Nortel found itself insolvent and in bankruptcy court or other insolvency proceedings in three national jurisdictions (the United States, Canada and the United Kingdom).

Bankruptcy laws were established in part to bring an orderly process to the distribution of a bankrupt’s assets to address the claims of various ranking classes of creditors, usually finding any tangible settlement to be a fraction of total claims. In recent weeks this process for Nortel was notably disrupted by the “late-to-the-table” bidding efforts of another Canadian company, Research In Motion Limited. Whether this highly publicized action stirred the now growing controversy over the bankruptcy court’s announcement of an acceptable bid from Swedish company Ericsson is not clear. What is clear is that the established bureaucracy in Canada must now review and approve the sale, or not.

There are calls from Liberal Leader Michael Ignatieff and others for the Canadian government to intervene and ensure that the ownership of Nortel assets remains in Canadian hands, for reasons ranging from “national security” to bald claims of “net benefit to Canada”. Such political intervention in economic matters is a recipe for future disaster in ways no one can predict, except for the inevitability of negative unintended consequences. Some lessons should be found in the fact that Nortel apparently could only go as far as it did with the mostly unwitting support of taxpayers.

In principle, one must try to understand that economic matters are advanced, and maximum benefits enjoyed when participants are free to pursue goals without the introduction of political concerns. Politics distorts and can even paralyze the free and voluntary exchange between economic participants. There is no doubt that costs are added. What politics does in fact is merely substitute the particular interests of certain politicians and bureaucrats for the legitimate interests and attempts of economic participants trying to maximize the benefits of economic decisions and exchange. And, this substitution is made by force. Why would anyone trust the wisdom of pedestrian political interventionists as superior to that of the individual economic players acting voluntarily on behalf of shareholders, to whom they are ultimately accountable? And, how could they morally justify it in facing the fact that still more funding would likely need to be extorted from those mostly unwitting taxpayers?

Copyright 2009 Edward Podritske, All rights reserved.

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