Paying the price for Crown corporations

There has long been a public policy battle over government’s role in running enterprises. Strangely, that battle was not settled in the 1980s and ‘90s when many state-owned firms were ‘privatized,’ since Canadian governments still own many Crown corporations.

Air Canada, Canadian National Railway, Petro-Canada (now part of Suncor), PotashCorp of Saskatchewan (now part of Nutrien), Alberta Energy (now part of Encana) and Cameco are among those privatized.

Analysis shows divested firms perform far better as private sector than when state-held. In general, nations with low state ownership (United States, South Korea, Australia) surpass more statist ones (France, Canada) in total and per capita economic growth.

Nevertheless, hundreds of Crown corporations remain, at national and provincial levels. Some are in a mediocre, zombie-like state (e.g. Canadian Mortgage and Housing Corp., or CMHC, and Canada Post). Others are in serious financial distress (Manitoba Hydro, CBC).

Many are being subsidized by taxpayers. Supporters of a large, strong government sector doggedly encourage state ownership. Often these people try to block attempts to divest Crown corporations. They also defend the unfair tax, borrowing and regulatory treatment conferred on these corporations.

The most dubious statist claim is that it’s somehow crucial that some firms are publicly owned. Many such advocates even imply that there should be little private ownership.

With more than $1 trillion locked in underperforming assets and less than a quarter of that backed by equity, continued Crown ownership is a hugely important issue for public policy debate.

It strains credulity that for there to be electric utilities in BC., Saskatchewan or Manitoba, Crown involvement was needed. There are many private sector utilities. And all these Crown firms are over-indebted from ill-advised expansion projects pushed by politicians. Alberta and Nova Scotia are fine without Crown utilities. Why do other provinces need them?

The Canadian Broadcasting Corp. duplicates services provided by unsubsidized firms. Canada Post delivers items that could be delivered by FedEx, UPS or Purolator. CMHC provides home loans to over-extended or low-income borrowers otherwise unqualified for bank loans, fuelling excess demand and reducing affordability for everyone. Export Development Canada (EDC) guarantees loans for exporters who could not get loans from other lenders. EDC massively supports politically-favoured Bombardier.

Most of the essentials of life, in fact, come from private companies. Food, clothing, transport, telecommunications, fuel and housing are integral or vital for life in Canada, and yet provided by private firms. A key positive feature of private entrepreneurs, investors and lenders is that they compete to be the most efficient and profitable possible. In the process, they satisfy the needs of millions of Canadians without putting taxpayers at risk of bankruptcy, as Crown corporations do.

Government is critical in ensuring legal, security, administrative, regulatory and justice systems work well so that markets can deliver for citizens. Yet skepticism should prevail on Crown ownership of a multitude of corporations. Considerable evidence shows that most Crown corporations are actually a serious drag on countries and provinces.

For Canada to succeed, governments should be divesting many of the Crown corporations they now stubbornly sustain.