Crown Corporations and Government Divestment

Canada, Crown Corporations, Jan Pavel, Publications, Uncategorized

Executive Summary

In 2011, the Organization for Economic Cooperation and Development (OECD) conducted a study of 27 member countries to assess the size of the national government-run enterprise sector. The study examined the number, employment and economic value of enterprises. Canada placed in the middle among the examined countries with 33 GBEs, 105,296 employees and a US$21.6-billion in market value. OECD’s data however completely omitted to include government–run businesses at the provincial and municipal levels. In fact, the size of the government business sector in Canada is much larger than expected and some of these businesses may be suitable candidates for divestment.

This paper is a precursor to a series of case-studies on Crown corporations and divestment in Canada. The main objective is to provide the reader the necessary information to allow improved understanding of the two subjects. Terminology and theory are discussed. The paper elaborates on reasons that lead governments to establish Crown corporations as well as what makes them withdraw from business activities. This is followed by an overview of methods used for privatization.

The paper continues by presenting additional information on the size of the provincial government-run business and compares it with the federal data. The point is made that there are still sizable parts of the government that could benefit from disposition.

In order to complete the picture, data on past Canadian privatizations is provided. The paper reviews the discussion about the effects past depositions had on former government businesses as well as how it impacted social welfare. A large majority of researchers agree that privatizations are positive both for the businesses and the society at large. Finally, suggestions are made where future divestment efforts could take place.

Introduction

Governments have historically been using various tools to achieve their goals in the economy. Laws and regulations, money supply, interest rates, taxes, trade tariffs, anti-trust policies, price controls, government spending, and for example the creation of Crown corporations are just some, among many such tools. Some are generally accepted as necessary for the proper functioning of the markets. Some are more controversial and, in fact, are designed to suppress or eliminate the market forces for political and social reasons. As such, Crown corporations are the ultimate government tool for achieving goals in the economy. As this paper will show, Crowns are created to help overcome perceived market gaps. Simply said, governments create Crowns where they think private sector would be otherwise unable or unwilling to deliver specific services for a “reasonable price.”

In free market economies, governments sometimes overregulate and in order to achieve the proper balance legislation must be changed. Similarly, governments often tend to stay directly engaged in business longer than the markets require. A philosopher of ancient China Lao Tzu once said: “Govern a great nation as you cook a small fish. Do not overdo it.” This is also the main theme of this paper. The focus is thus on the divestment of government-run businesses. It is argued that it has proven itself as an effective tool in revitalizing numerous businesses, encouraging economic growth and helping governments withdraw from business sectors where the assistance of the state is no longer needed or is even detrimental.

This paper is first in the series of papers on government divestment in Canada. One of the objectives is to provide the reader the necessary overview of subjects related to the study of Crown corporations and divestment. First, terminology and theory are reviewed. Subsequently, an overview of the past divestment programs in Canada is presented. This is followed by a summary of the discourse and data on the state of the government business at the present time. Finally, the paper examines the research on the results of the past divestment efforts in Canada and suggests candidates for future government dispositions. The overall goal is to supply the reader with information useful for further study of divestment, which will be discussed in more detail in the case studies that will follow.

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