Governments in business – it never works

While there may be no political or public appetite for the sale of Manitoba Hydro, we need to think very hard about the inefficiencies of Crown corporations and other quasi businesses run by governments.

Dorothy Dobbie
Issues in the News

Throughout Canada’s history, government has often turned over part of its responsibility to quasi enterprises called Crown corporations or Crown agencies. This is done for a number of reasons, often to find short-term efficiencies, sometimes for political reasons. Other times to do something that industry is not prepared to tackle alone.

At Confederation, Canada inherited some state-owned rail lines, but it wasn’t until 1918 that the Canadian National Railway was formed to marry these Eastern enterprises with a ragtag of privately owned but failing companies in the sparsely populated West. Canadian National Railway became our first federal Crown corporation. At the provincial level, a number of Crowns had already been established, including Ontario Hydro and Alberta Telephones in 1906 and Saskatchewan Hydro in 1908, followed by a number of provincial liquor distribution Crowns created at the end of Prohibition.

There was another wave of Crown development in the forties: the federal Business Development Bank, Hydro Quebec and Saskatchewan Power all in 1944, followed by Saskatchewan Government Insurance in 1945. Manitoba Hydro and B.C. Hydro were created in 1961, among the first in a decade of increased Crown operation activity.

In the 1980s and nineties, a number of Crown corporations were privatized, including Air Canada, Petro Canada and, at the local level, Manitoba Telephones. This trend has continued into the 2000s as publicly owned enterprises collapsed under their own weight. Literally hundreds of Crowns have been privatized worldwide.

Due to a lack of ownership motivation, these taxpayer-supported enterprises tend to swell year over year. They also tend to compound mistakes rather than admitting them and changing course when necessary or – as in the case of Manitoba Hydro in the face of the United States energy market collapse – when circumstances dictate.

As William Niskanen in his book, Bureaucracy – servant or master? Lessons from America, pointed out, “Public choice theory suggests that managers of government-owned enterprises (and bureaucracies more generally) endeavour to maximize budgets, rather than efficiency, in order to promote their own income, power and prestige.”

“Income, power and prestige” are by no means minor motivators. Indeed, these three causes have undoubtedly contributed to such failure of enterprise as the electrical utility disasters across Canada (including Manitoba Hydro, Ontario Hydro and Newfoundland Hydro), the current Canada Revenue Agency harassment of small business to cover its inability to tax the mobile assets of the very rich, and the inefficiencies, high cost of service and lack of customer care at Crowns such as Canada Post.

Crown enterprises have a momentum that seems unstoppable. Citizens have the perception that they “own” the enterprise and that this is a matter for pride. Provincial Crowns pay no taxes, so the business may appear to have an advantage in profitability. (Looked at another way, however, government is actually losing tax revenue that could be gained through privatization.) Support for the agencies is further bolstered by the perception that taxpayers have already invested a great deal and that these assets would be lost should they be sold or shut down.

Why does all this matter to you?

  • Because we are currently faced with massive debt and unending losses at Manitoba Hydro.
  • Because the three provincial health authorities are in a state of total disarray and cannot reorganize effectively to reduce the high cost of operation without reducing services.
  • Because our Crown corporations have bloated administrations, inefficient operations and no effective oversight.
  • Because Crowns are often in unfair competition with the private sector.

The current government has begun to tackle this problem, quietly shutting down Green Manitoba, for example. But there is still much to be done. They have scrapped the Crown Corporations Council, which was previously mandated, but unable, to effectively oversee the activity of these agencies, and they have attempted to create a new system to improve accountability.

While this is commendable, the government might be better off appointing a body to examine the utility and necessity of each of the provincial Crowns and their subsidiaries, with a view to selling or otherwise disposing of them. At the same time, they should think very hard about adding any new such entities. Once the direct scrutiny of the legislature is removed, Crowns have a tendency to empire build, spending money on themselves rather than on the purpose for which they are formed.

These empires are costing us mightily with little return.

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