Should we be skeptical of the benefits of Crown Corporations?

Commentary, Crown Corporations, Ian Madsen

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

Air Canada, Canadian National Railway, Petro-Canada (now part of Suncor), Potash Corp 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 (USA, South Korea, Australia) surpass more statist ones (France, Canada) both 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 (eg. Canadian Mortgage and Housing Corporation, ‘CMHC’; and Canada Post), others in serious financial distress (e.g. Manitoba Hydro, CBC). Many Crowns 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 Crowns. They also defend Crowns’ unfair tax, borrowing and regulatory treatment.

The most dubious statist claim is that it is somehow ‘crucial’ that some firms must be ‘publicly’ owned. Many such advocates even imply that there should be little private ownership at all. With over a trillion dollars locked in underperforming assets and less than a quarter of that backed by equity, continued Crown ownership is an important, and huge issue for public policy debate.

As for ‘crucial’, 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. All these Crown firms are even 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?

Utilities are not all. The Canadian Broadcasting Corporation duplicates services provided by unsubsidized firms. Canada Post delivers items which could be delivered by Fedex, UPS, or Purolator. CMHC provides home loans to overextended or low-income borrowers otherwise unqualified for bank loans, fuelling excess demand and reducing affordability for everyone. The Export Development Corporation (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 Crowns do.  

Government is critical in ensuring legal, security, administrative, regulatory, and justice systems work well so that markets 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.