PROTECTING THE CROWNS · sue both commercial and public policy objec-tives. In effect, they have a...

PROTECTING THECROWNS

The role and value of publicenterprises in BC

By Sylvia Fuller

November 2002

Canadian Centre forPolicy AlternativesBC Office

By Sylvia Fuller November 2002

About the author

Sylvia Fuller is a researcher with the Canadian Centre for Policy Alternatives–BC Office. Her areas of spe-cialization at the Centre are the public sector and public services in BC. She holds an MA in sociology fromDalhousie University and is a Ph.D. candidate in sociology at Rutgers University.

Acknowledgments

A number of people have helped with this project. Thanks first to Donna Vogel who initiated this projectand conducted much of the early research. The project also benefited from thoughtful feedback providedby John Calvert, Shannon Daub, Herschel Hardin, Seth Klein and Blair Redlin. Diana Hurford providedvaluable research assistance.

The CCPA would also like to thank the Columbia Foundation for its financial support of this work.

Report layout by Paul Dayson

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Protecting the CrownsThe role and value of public enterprises in BC

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Contents

Introduction..................................................................................................................... 5

Why do we have Crown Corporations? ...................................................................... 6The economic role of public enterprise ....................................................... 7

The social role of Crown corporations ...................................................... 10

Crown corporations and the environment ................................................ 11

Four Crown corporation profiles .............................................................................. 12BC Hydro .................................................................................................. 12

Insurance Corporation of British Columbia (ICBC) .................................. 14

BC Ferries ................................................................................................. 15

BC Liquor Distribution Branch ................................................................. 16

The many faces of privatization ............................................................................... 17

A solution for all ills? ................................................................................................... 19

Evaluating the claims: Is privatization the answer? ............................................. 21Debt reduction .......................................................................................... 21

Increased accountability and shareholder democracy? .............................. 22

Increased efficiency and lower costs? ........................................................ 24

Privatization and the Crowns: What are the costs? .............................................. 26Economic outcomes: The cost to consumers ............................................. 26

Social outcomes ........................................................................................ 29

Safety and the environment ...................................................................... 30

Privatization is a one-way street ................................................................ 31

Future prospects for public enterprise ................................................................... 32

Notes ................................................................................................................... 35

References ............................................................................................................ 37

4 PROTECTING THE CROWNS: The role and value of public enterprises in BC

Canadian Centre for Policy Alternatives, BC Office 5

GETTING GOVERNMENT “OUT OF BUSINESS” IS A KEY COMPONENT OF THE

neoliberal agenda. In many places throughout the world public corporations have

been sold to private shareholders or forced to compete in deregulated markets. In

British Columbia, privatization has been placed firmly on the public agenda with

a slate of recent announcements heralding significant changes for major Crown

corporations, including the sale of all government-run liquor stores and privati-

zation of large chunks of BC Hydro.

future of Crown corporations.It begins with a quick outline of the scope

of public enterprise in BC today, followed by ageneral discussion of the economic, social, andenvironmental objectives that distinguishCrown corporations from their private sectorcounterparts. While it is beyond the scope ofthis report to discuss all Crown corporationsin detail, short descriptions of BC Hydro,ICBC, BC Ferries, and the Liquor DistributionBranch illustrate the importance of these ob-jectives for four of the most important Crownsin BC.

The report then turns to the issue of priva-tization. After two decades of privatizationprograms around the world, we have a largepool of information about how privatizationtends to occur and its typical effects. This evi-dence should inform our thinking about therole and value of BC’s Crowns. The conclud-ing section of the report evaluates the futureprospects of public enterprise in British Co-lumbia and suggests ways to improve the per-formance of Crowns so that they best servethe interests of British Columbians.

Introduction

The privatization of Crown corporations isa serious step with far-reaching repercussions.Given the dictates of trade agreements, it isalso likely irreversible. Well-informed publicdebate is essential if we are to make the rightdecisions for the future of all citizens of BC.

Unfortunately, the information the generalpublic receives about Crown corporations isoften both limited and biased. Efficient opera-tions and reliable benefits do not make forsplashy news stories. Mainstream reports thusfocus on financial difficulties and so-called“scandals” related to the operation of Crowncorporations, fostering the impression thatprivatization is both necessary and inevitable.Missing from the news are the important eco-nomic, social, and environmental functionsserved by Crown corporations that would beseriously threatened by their transfer to theprivate sector.

This report tries to provide balance to someof the obvious biases and blind spots in main-stream coverage of Crown corporations. It pro-vides an overview of some of the key issues thatneed to be considered when contemplating the


PUBLIC OWNERSHIP OF LAND, RESOURCES, AND INFRASTRUCTURE HAS A LONG

history in all market economies. Historically, Canadian citizens have collectively

owned land and public facilities such as highways, schools, ports, airports, parks,

government buildings and other assets. Canadians have also shared ownership in

commercial enterprises, so-called “Crown corporations.” Crown corporations such

as the CN railroad, the CBC, and the provincial Hydro utilities played a key role

in the development of both national and regional economies. At a time of weak

private sector development and high foreign ownership, Crown corporations

undertook tasks that the private sector was either unable or unwilling to accom-

plish and provided a strong local entrepreneurial tradition that continues to be

important to this day.• Social and government service Crown

corporations and agencies generally re-ceive financial support from the govern-ment to deliver social programs and othergovernment services.1

Although Crown corporations are publiclyowned, they are operated at arm’s length fromgovernment. A Board of Directors, rather thanthe government, exercises control over day-to-day management activities. But while Crowncorporations are operated in a commercialmanner, their purpose remains markedly dif-ferent than that of private sector companies.While private enterprises are chiefly concernedwith private profit, Crown corporations pur-sue both commercial and public policy objec-tives. In effect, they have a “triple bottom line”,seeking to balance economic, social, and en-vironmental goals.

Why do we have CrownCorporations?

At a time of weak

private sector

development and high

foreign ownership,

Crown corporations

undertook tasks that the

private sector was either

unable or unwilling to

accomplish and provided

a strong local

entrepreneurial tradition

that continues to be

important to this day.

In British Columbia, Crown corporationsand agencies currently provide a wide array ofproducts and services to local governments,businesses and individuals, including energy,insurance, transportation, land managementand property assessment. Broadly speaking,BC’s Crown corporations can be grouped intothree main types:

• Commercial Crown corporations paytheir own expenses and generate revenuefor government by selling services suchas auto insurance and electricity at com-mercial rates.

• Economic development Crown corpora-tions also sell services to the public orundertake projects to provide economicbenefits to the province. These Crownsmay or may not break even, so they mayreceive financial assistance or revenuefrom the province.


The economic roleof public enterprise

Although it is fashionable in some quarters topromote unregulated markets as a cure-all,publicly owned corporations make economicsense in a number of areas. This is particularlytrue in cases where a single supplier model ismost efficient or where essential services mustbe provided. Crown corporations can also helpassure a fair and equitable distribution of ben-efits from shared resources and foster long-term economic development, community con-trol and accountability.

Sectors such as electricity transmission,water, and other utilities have traditionallycome under public ownership in various partsof the world. Often designated as “naturalmonopolies”, it is difficult for entrepreneursto enter such markets because operations tendto be highly capital-intensive and require spe-cialized skills and technology as well as a highdegree of co-ordination. Because of this, serv-ices in these sectors can often be provided more

efficiently and cost effectively through a singlecorporation than through competition (forexample, it makes no sense to have multipleelectricity grids).2 Government ownershiphelps ensure that corporations do not takeadvantage of their monopoly position to gougeconsumers and realize super-normal profits.3

Public utilities are also commonly placedunder public control through ownership orstrong regulation because they provide essen-tial services, making the maintenance of sta-ble supply and low rates extremely important.Writing in the context of power failures inAuckland, New Zealand following the privati-zation of electricity, journalist Will Huttonwrote:

Electricity is not a commodity like a de-signer dress where an interruption ofsupply poses no wider consequences; itis a precondition for successful modernlife. If the owner of the power and dis-tribution system fails to maintain sup-ply and so loses revenue, this is not justan issue for the shareholders of the

Commercial Crown corporationsBCIF Management Ltd.

British Columbia Hydro and Power

Authority (BC Hydro)

British Columbia Liquor Distribution Branch

British Columbia Lottery Corporation

British Columbia Railway Company

Columbia Power Corporation

Insurance Corporation of BC

Provincial Capital Commission

Economic DevelopmentCrown corporations

BC Pavilion Corporation

BC Transportation Financing Authority

British Columbia Ferry Corporation

British Columbia Securities Commission

British Columbia Transit

Okanagan Valley Tree Fruit Authority

Tourism British Columbia

Social and government services Crowncorporations and agencies

BC Assessment Authority

British Columbia Buildings Corporation

British Columbia Community Financial Services

Corporation (Four Corners Community Savings)

British Columbia Housing Management

Commission

Homeowner Protection Office

Land and Water British Columbia Inc. (formerly

British Columbia Assets and Land Corporation)

Provincial Rental Housing Corporation

BC’s major Crown corporations and agencies

Source: Office of the Comptroller General, Ministry of Finance and Corporate Relations 2002


enterprise. It is an issue for everyone. Ineconomic terms, electricity is a publicgood. This means electricity compa-nies—like water, gas and rail compa-nies—cannot be run on the same com-mercial terms as firms in markets wherethere are many suppliers and the conse-quences of poor decision-making are re-stricted to the firms themselves.4

Public ownership also makes sense wherelarge-scale investments in energy, transporta-tion, or communication infrastructure are nec-essary. Because the government enjoys a bettercredit rating than private corporations, Crowncorporations can borrow money at more favour-able rates and can thus finance such projectsmore cheaply than the private sector. Publicownership also shares the risks and equalizesthe costs of such important investments amongall those who benefit from them.

Citizens similarly share the benefits derivedfrom such investments. Rather than seekingto maximize shareholder profits, Crown cor-porations seek to guarantee access to their serv-ices at the lowest possible cost. When Crowncorporations have particularly profitable yearsthey may also provide rebates to customers,as BC Hydro and ICBC recently did.

Commercial Crown corporations also pro-vide an economic benefit to all British Colum-bians through the generation of surplus rev-enue. They not only pay their own costs butmay also pay dividends to the provincial gov-ernment that can be used to support govern-ment programs generally. Of the commercialCrowns, the three largest revenue generatorsare the BC Liquor Distribution Branch, the BCLottery Corporation, and BC Hydro. Together,all of BC’s commercial Crown corporationscontributed $1.4 billion in revenues to thegovernment in 2001/2002.

Another reason for public ownership is tofoster regional entrepreneurial creativity andto enable the community as a whole to exer-cise some control over economic developmentand resources. Unlike private-sector corpora-tions, Crown corporations are accountable to

the public, not to particular share-holders. Thiscan be especially important in the context of aglobalized economy where ownership of andcontrol over most large corporations in BC islargely international. While regulations canprovide an alternative mechanism for somecommunity control, they may not be effective,particularly when money for enforcement isin short supply. Regulations also tend to beprohibitive in nature, specifying what cannotbe done, rather than what could be done, andare thus a limited vehicle for fostering broadergoals.

An orientation to community goals helpsCommercial Crown

corporations not only

pay their own costs but

may also pay dividends

to the provincial

government that can

be used to support

government programs

generally.

Contributions to the ConsolidatedRevenue Fund (the source of all programspending) from commercial Crowncorporations and agencies.

2001/02* $1.4 billion

2000/01 $1.5 billion

1999/00 $1.4 billion

In 2001/02, contributions from specificCrown corporations to the ConsolidatedRevenue Fund were as follows (inmillions of dollars):

COMMERCIAL CROWN CORPORATIONS

BC Hydro $332

Liquor Distribution Branch $636

BC Lottery Corporation $449

Other $2

Total commercial $1,419

TAXPAYER-SUPPORTED CROWN CORPORATIONS

AND AGENCIES

BC Buildings Corporation $15

Other $3

Total $18

Total net contribution of Crowncorporations and agencies $1,437

*Fiscal year ends March 31

Sources: Office of the Comptroller General, Ministryof Finance and Corporate Relations—PublicAccounts 2001/2002


ensure that important social and environmen-tal goals are met. It can also be advantageousfrom a business perspective insofar as it canallow greater scope for innovation and long-term planning. Private capital is highly mo-bile, and private corporations have faced in-creasing pressure in recent years to maximizeshort-term shareholder returns. Rather thanpursue long-term growth strategies, corpora-tions increasingly seek to invest capital andprofits where they will earn the highest imme-diate return and hence boost share prices. In-vesting in research or capital-intensive tech-nological improvements often suffers, andmuch of the profits derived from private cor-porations operating in BC are instead re-in-vested outside the province. Crown corpora-tions have greater freedom to pursue innova-tive entrepreneurial strategies as well as thosethat have a longer-term focus. Because Crownenterprise collectivizes the risks associated withinnovation, it can be a key stimulus for eco-nomic development and job creation. Indeed,Crown corporations have been at the forefrontof research and technological development ina number of areas including road safety andthe development of environmentally friendlyenergy sources.

Because they are accountable to the publicas a whole, Crown corporations’ economic fo-cus is also broader than that of corporationsbeholden to private owners. Crown corpora-tions consider the economic effects of theiroperations on local economies and the prov-ince as a whole when making strategic deci-sions. ICBC, for example, has a policy of pre-ferring BC investments when all other factorsare equal—it targeted 20 per cent of its invest-ment portfolio to BC-based investments un-der the last board of directors.5 A crown cor-poration may also follow policies to ensure thatlocal communities benefit from their economicactivities at various levels. The ColumbiaPower Corporation, for example, has a policyto ensure that 80 per cent of all hires for itsArrow Lakes Generating station live within a100 km radius. The corporation also acts as a

partner with the Columbia Basin Trust to en-courage social and economic development inthe region most affected by dam construction.

In addition, Crown corporations are morelikely to use local suppliers for the goods andservices they require than are multi-nationalcorporations, both because they are sensitiveto local political pressures and because deci-sions are made within the province rather thanas part of global or North American sourcingarrangements.

Because head offices and research and de-velopment are located in British Columbia,Crown corporations provide a set of highlyskilled local jobs that are usually located else-where in the case of large private enterprises.

Crown corporations may also play a directrole in the development of regional economies.In some cases (and with mixed results), Crowncorporations have been established as a solu-tion of last resort to take over the operationsof corporations central to local economies thatwere unwilling to continue the business suchas occurred in the case of Skeena Cellulose.

Finally, because political considerationshave often prevented Crown corporations from

Crown corporations are

more likely to use local

suppliers for the goods

and services they

require than are multi-

national corporations,

both because they are

sensitive to local

political pressures and

because decisions are

made within the

province rather than as

part of global or North

American sourcing

arrangements.

Economic benefits ofCrown corporations

• Provide most efficient use of resources in

cases of natural monopoly;

• Ensure stable supply and low prices for es-

sential services;

• Provide low-cost means of constructing

necessary and expensive infrastructure;

• Assure fair and equitable distribution of

benefits from shared resources;

• Invest in research and development;

• Pursue innovative entrepreneurial strate-

gies and long-term growth;

• Use local suppliers and provide local

highly skilled jobs;

• Foster regional development, local control

and accountability;


expanding the scope of their operations, ICBCand BC Hydro in particular have engaged innumerous partnerships with private sector en-terprises. While forcing Crowns to enter part-nerships rather than expand the scope of theiractivities is not always the best option for theCrowns themselves, these partnerships havehelped foster private sector business opportu-nities and have stimulated the private sectorthrough the transfer of knowledge andexpertise.

The social roleof Crown corporations

Although commercial Crown corporations pro-vide important economic benefits, they are notsolely concerned with economic matters. In-deed, one of the defining features of Crowncorporations is a broader social mandate. Thesocial role of Crown corporations can be seenmost directly in the subsidized rates they offerto those who could not otherwise afford theirservices, and in the way they equalize access.Indirectly, Crowns foster more desirable socialoutcomes than their private counterparts byproviding better employment conditions andby helping to pay for social services with theirprofits.

When it comes to basic human needs themarket often falls short. In recognition of theiroverall social value, Canadian governmentsdirectly subsidize some needs such as healthcare and education. Crown corporations are amechanism for subsidizing other importantbasic services such as transportation and hous-ing. Since Crown corporations operate withina framework of public accountability, they arethe best vehicle for ensuring that subsidies arenot abused.

Private corporations are often interested inserving only the most profitable customers, en-gaging in “cream skimming” or “cherry pick-ing”. Crown corporations, on the other hand,have a mandate to serve all British Columbi-ans. As a result, they equalize access to serv-ices among different socio-economic groups

and geographic regions, ensuring that it is notsimply the wealthy and urban who have ac-cess to necessary services. The profitable highvolume routes in the BC ferry system, for ex-ample, help subsidize ferry service to smallerpopulation centres, ensuring the maintenanceof reliable transportation links. Residentialelectricity rates are equalized so that areas thatare more expensive to serve can still access elec-tricity at reasonable rates.

Crown corporations also contribute to thesocial fabric by providing good jobs. BC’sCrown corporations provided 32,300 jobs toBritish Columbians in 1999, with BC Hydro,ICBC, and BC Ferries together accounting foralmost half of the total.6 Historically, Crowncorporations have been an important sourceof good jobs for women, aboriginal workers,and minorities. They continue to providemore equitable employment opportunitiesthan many of their private sector counter-parts, with active policies to promote payequity and equal employment opportunitiesfor historically disadvantaged groups. Crowncorporations are highly unionized and pro-vide most employees with both reasonablewages and higher job security than compara-ble private sector firms.

In addition, Crown corporations servebroader social concerns indirectly through thetransfer of surplus revenues to the provincialgovernment as well as through their invest-ments in various research and development,

One of the defining

features of Crown

corporations is a

broader social mandate.

The social role of

Crown corporations can

be seen most directly

in the subsidized rates

they offer to those

who could not

otherwise afford their

services, and in the

way they equalize

access.

Social benefits ofCrown corporations

• Subsidize important services for those who

could not otherwise afford them;

• Ensure equitable access to services;

• Provide good jobs and more equitable

employment opportunities for disadvan-

taged groups than the private sector;

• Provide dividends to government that help

pay for social programs;


conservation and prevention, and communitydevelopment initiatives.

Crown corporationsand the environment

The fact that Crown corporations are not tiedto an exclusively economic “bottom line” alsomeans that they can afford to give more weightto the environmental impacts of their deci-sions. This is particularly important for BCHydro, as electricity generation has the poten-tial for significant environmental damage. Ap-proximately 80 per cent of BC Hydro’s poweris generated through dams.7 We now knowthat the establishment of large-scale dams car-ries significant environmental (and social)costs. However, now that the dams are therethey provide a renewable source of energy thatis relatively “green”, particularly when com-pared with coal or natural gas-powered elec-tricity plants.8

Because BC Hydro has a mandate to bal-ance environmental with economic objectives,managers have an incentive to invest in theresearch and development of environmentallyfriendly technologies. Since these technologiesmay not initially provide high rates of return,

private corporations accountable to sharehold-ers and focused on short-term value have lit-tle incentive to follow this path.

BC Hydro also has an incentive to reduceconsumption insofar as it is obligated to pro-vide service to all and increased consumptionrequires the construction of (expensive) newpower plants. The corporation has thus de-veloped numerous programs to foster energyconservation. In a market-driven system, bycontrast, the pressure is to increase demandin order to maximize profits.

The establishment of public enterprise inthe natural resource sector has thus helpedto ensure not only that the wealth generatedby a region’s resources is distributed fairly, butalso that resources are more responsibly man-aged than they would likely be in the privatesector.

BC Hydro also has an

incentive to reduce

consumption insofar as

it is obligated to

provide service to all

and increased

consumption requires

the construction of

(expensive) new power

plants. In a market-

driven system, by

contrast, the pressure is

to increase demand in

order to maximize

profits.

Environmental benefitsof Crown corporations

• Incorporate environmental costs and ben-

efits in strategic decision-making;

• Invest in research and development of

environmentally responsible technologies;


BC Hydro

BC Hydro is one of the largest Crown corpo-rations in BC, employing approximately 6,144people.9 BC Hydro supplies power to approxi-mately 94 per cent of the province’s popula-tion, and it owns 80 per cent of the province’selectricity generation and distribution system.Its primary purpose is to ensure that all Brit-ish Columbians have a stable source of elec-tricity at a regulated price that is determinedby the cost of production. BC Hydro pioneered“triple bottom line” accounting in order toensure that the corporation operates in an eco-nomically, socially, and environmentally re-sponsible manner. BC Hydro’s Triple BottomLine Report allows the public to review detailedperformance data on economic, social, and en-vironmental performance indicators in orderto foster transparency and accountability on

all these fronts. In a benchmark study of cor-porate sustainability reports last year, the Ot-tawa environmental consulting firm, StratosInc. placed BC Hydro second among 57 com-panies producing such reports. Impressively,the investment advisory firm Innovest rankedBC Hydro first among North American elec-tricity companies in social and environmentalperformance last year.

Economic benefits:

LOW RATES: BC Hydro’s rates continue tobe among the lowest in North America. BCHydro last had a rate increase in 1993. Afteradjusting for inflation, real electricity rates havedeclined by approximately 12 per cent in thelast decade. BC Hydro’s low rates are tied toits position as a regulated monopoly. It is alow cost energy provider because the public

Four Crown corporation profiles

Monthly billings on May 1, 2001 (in C$)

AMERICAN CITIES

Boston, MA 200.36

Chicago, IL 141.23

Detroit, MI 156.82

Houston,TX 166.40

Miami, FL 150.04

Nashville, TN 97.44

New York, NY 251.34

Portland, OR 102.60

San Francisco, CA 191.97

Seattle, WA 94.53

AVERAGE 122.01

Residential consumption costs per 1,000 kWh

Source: Hydro Quebec, “Comparisons of Electricity Prices in Major North American Cities.”

CANADIAN CITIES

Vancouver, BC 67.47

Charlottetown, PE 112.41

Edmonton, AB 108.42

Halifax, NS 108.00

Moncton, NB 105.10

Montreal, QC 69.39

Ottawa, ON 81.81

Regina, SK 101.42

St. John’s, NF 95.16

Toronto, ON 91.59

Winnipeg, MB 68.67


has maintained a long-term investment in anintegrated system of dams, transmission, anddistribution lines. As a result, BC Hydro’s costof generating electricity is consistently lowerthan that of other major Canadian utilities.10

This benefits residential consumers, and alsoprovides a key competitive advantage to BCbusinesses. BC Hydro also has one of the high-est levels of efficiency in North America asmeasured by its costs for operations, mainte-nance, and administration.11

RELIABILITY: BC Hydro provides a reliablesource of power, consistently outperformingthe Canadian Electrical Association (an organi-zation of 15 major Canadian electric utilities)average despite BC’s rough terrain and fierceweather.12

REVENUE FOR GOVERNMENT: While rateshave remained low in British Columbia, BCHydro’s integrated system allows it to buy elec-tricity from other jurisdictions when externalpower prices are low, and sell power whenprices are high, contributing to large profits inrecent years (in part because of the large in-creases in wholesale electricity prices that haveaccompanied deregulation in California). In2001/2002, profits were lower than in the pre-vious two years due to lower water levels anddeclines in market energy prices, but BC Hy-dro income remained high enough to allowthe following payments:

• $333 million paid to the province in theform of a dividend;

• $394 million to the province, municipali-ties and regional districts for water rentals(charges for water used in hydroelectricgeneration) and taxes;

Social benefits

ACCESSIBILITY: BC Hydro’s low rates andbroad geographic coverage mean that electric-ity is accessible and affordable for all who needit. The “postage stamp” pricing policy meansthat British Columbians pay the same rates re-gardless of where they live.

GOOD JOBS

INVESTMENT IN ARTS AND CULTURE,EDUCATION, AND ABORIGINAL DEVEL-OPMENT: In 2001/2002, corporate and re-gional donations contributed a total of $1.25million to over 500 initiatives in four mainproject areas: Aboriginal, arts and culture, edu-cation and the environment.

Environmental benefits

COMMITMENT TO RENEWABLE ENERGYSOURCES: BC Hydro has committed to 10per cent of new electricity generation from re-newable sources and has signed contracts for19 green energy projects with independentpower producers. BC Hydro has also investedsignificant resources in research into ecologi-cally friendly energy generation, includingdemonstration projects exploring wind, waveand micro-hydro generation.

RESEARCH IN ENERGY EFFICIENCY ANDPROGRAMS TO PROMOTE CONSERVA-TION: The “Power Smart” program adds upto a cumulative energy savings of 2,350 mil-lion kilowatt hours (kW-h) each year (enoughto power approximately 200,000 homes), andBC Hydro is currently building a high-techbusiness park in downtown Vancouver de-signed to showcase cutting-edge designs to en-hance energy efficiency.

PROGRAMS TO MINIMIZE ENVIRON-MENTAL DAMAGE: BC Hydro operates nu-merous programs and projects to enhance fishand wildlife habitat and minimize environmen-tal damage from its operations.

For more information see: BC Hydro, An-nual Report 2002; BC Hydro, Triple Bottom LineReport 2002; the 2002 CCPA report PublicPower and the Political Economy of ElectricityCompetition: The Case of BC Hydro by MarjorieGriffin Cohen; and the 2002 Sierra LegalDefense Fund report Power Grab: The Impactsof Power Market Deregulation on BC’s Environ-ment and Consumers by Greg Simmons.


Insurance Corporation ofBritish Columbia (ICBC)

Established in 1973, ICBC is one of the old-est publicly-owned enterprises in the prov-ince. It employs 5,800 British Columbiansand is affiliated with about 900 independentinsurance brokers. ICBC provides universal,basic auto insurance to all BC drivers andcompetes in the market for supplemental cov-erage. ICBC is also responsible for driver li-censing, vehicle registration, and commercialvehicle compliance.

Economic benefits:

LOW RATES: Operating as a regulated mo-nopoly, ICBC provides universal basic autoinsurance to BC drivers at rates that are amongthe lowest in the country. It does this in spiteof providing more generous benefit coveragethan is found in privatized jurisdictions suchas Ontario and Alberta.13 ICBC is able to pro-vide these low rates because of the economiesof scale inherent in its monopoly position.

PROFITS REMAIN IN PROVINCE: BecauseICBC’s financial mandate is to operate on abreak-even basis, when the corporation makesmoney, it gives it back to policyholders.

INVESTMENT IN LOCAL ECONOMIES:Under the previous Board of Directors, ICBCtargeted 20 per cent of its investment portfo-lio to BC-based investments.

Social benefits:

NONDISCRIMINATORY RATE SETTING:ICBC uses an individual’s driving record to setrates. Private insurers, by contrast, typicallyuse demographic profiling—a practice recog-nized as discriminatory by both the SupremeCourt of Canada and the Ontario HumanRights Commission.14 Because of this, young

drivers and families with young drivers in par-ticular face much higher insurance premiumsin jurisdictions with private auto insurance.

EXCELLENT COVERAGE: ICBC’s basic cov-erage is one of the best auto insurance pack-ages in Canada, with relatively generous cov-erage for medical and rehabilitation benefits.Because ICBC is the basic insurer for all BCdrivers, the corporation also takes responsibil-ity for damages caused by hit-and-run drivers.

GOOD JOBS THROUGHOUT BC: BecauseICBC is based here, and is not part of a largermultinational corporation, head office jobs,sales jobs, and call-centre jobs remain in BC.The ICBC system is also more favourable tosmall repair shops because it pays body shopsevery two weeks. The Automotive Retailers As-sociation estimates that almost half of all bodyshops in the province would go out of busi-ness if ICBC were to lose its monopoly posi-tion.15

FEWER UNINSURED DRIVERS: BecauseICBC handles licensing as well as insurance,fewer uninsured drivers are on the road in BCthan in jurisdictions with private auto insur-ance.16

SAFER ROADS: ICBC is internationally rec-ognized for its research and investment in roadsafety. Since 1997, ICBC has contributed be-tween $30 and $60 million annually towardsroad safety. Such programs make economicsense because they help lower claims. SinceICBC insures all motorists, they know that theywill capture the benefits of any investmentmade in road safety.

For more information see the CCPA studyDown the Road by John Young


BC Ferries

Marine transportation in BC used to be servedby private ship operators, including CanadianPacific and Black Ball Line.

When both private companies were para-lysed by labour disputes in mid-1958, PremierW.A.C. Bennett announced the creation of apublic ferry service. New ships and terminalswere built, and service between Vancouver(Tsawwassen) and Victoria (Swartz Bay) beganin June 1960.

Today, BC Ferries has grown to a fleet of 40vessels, serving more than 46 destinations.

While the safety and reliability of BC fer-ries cannot be questioned, the BC Ferry Cor-poration has experienced serious difficultiesin recent years, particularly in relation to thenotorious fast ferry program. While the goalof revitalizing the province’s ship building in-dustry through the export of aluminium fastferries was noble, it was also fundamentallymisconceived. A number of independent re-ports commissioned to study what went wrongwith the program have highlighted the fact thatthe decision in favour of fast ferries was madewith insufficient analysis. In particular, thebusiness case for the decision was never prop-erly made. While pursuing broader social andeconomic objectives in the course of businessis wholly appropriate for Crown corporations,it is important that these decisions be basedon rigorous analysis, not wishful thinking. Notonly did the fast ferries not meet the needs ofthe ferry corporation, but there was no realis-tic analysis of the costs and benefits of focus-ing British Columbia’s ship building industryon the export of aluminium fast ferries.17 Ul-timately, uninformed political considerationswere allowed to override the judgement of BCFerries management, with unfortunate effect.As the Auditor General concluded:

The idea of using Crown corporations todeliver publicly-provided services of acommercial nature is sound. Properlyapplied, such an administrative

mechanism can be more cost-effectivethan direct service by government be-cause if gives more room for the appli-cation of business practices. However, BCFerries has not been allowed to applythese practices in an organized and con-sistent way.18

The high profile failure of the Pacificat “fastferry” program dealt a serious blow to the cor-poration’s finances. In addition, the per cent-age of the operating expenses per passengerrecovered through tolls, catering, and otherincome declined from 91 per cent in 1996, to81 per cent in 2000. An aging fleet also meansthat capital expenses are likely to be high forthe coming years.

However, it should also be noted that incontrast to the very similar Washington stateferry system, BC Ferries operates with smalleroverall subsidies. BC Ferries also operates threesubstantially profitable routes while the Wash-ington state system does not break even on asingle route.19

In 1999/2000 the provincial governmenttook a number of actions to address what hadbecome a fiscal crisis for the ferry system, in-cluding removing $1.096 billion of the corpo-ration’s debt, transferring funds to cover thedeficit, and dedicating 1.25 cents of the mo-tor fuel tax to subsidize ferry service.

Economic benefits:

SAFE AND RELIABLE TRANSPORTATION:BC Ferries is an integral part of the overalltransportation system for coastal BC, linkingnot only the major population centres on Van-couver Island and the mainland, but also rela-tively isolated coastal communities. As such,it is part of the economic lifeblood of the is-lands of BC’s coast.

REASONABLE FARES: Fares on BC ferryroutes are competitive, and in many caseslower than on similar public and private ferrysystems in North America, and much lowerthan on the largely privatized ferries of Europe.


Social benefits:

ACCESSIBILITY: BC ferries provide vital trans-portation services to areas that could not beserviced profitably at equivalent service levelsby private providers. The heavily travelled BCferry routes are self-financed and subsidizefares on less profitable Gulf Island, SunshineCoast and North Island routes.

GOOD JOBS: BC Ferries employ more than4,500 British Columbians.

For more information see: BC Ferries, “OurHistory—A 40 Year Heritage of Service”, BC Fer-ries Annual Reports 1999 – 2000, 2000 –2001,2001 –2002

BC LiquorDistribution Branch

In BC, the Liquor Distribution Branch (LDB)regulates the distribution, importation, and re-tailing of beverage alcohol under the mandateof the Liquor Distribution Act. The LDB oper-ates 224 liquor stores, and oversees the oper-ating agreements of special beverage alcoholretailing programs such as private beer andwine outlets. The LDB’s centralized distribu-tion system is responsible for distributing prod-uct not only to LDB retail outlets, but also toprivately owned cold beer and wine stores andto licensed establishments throughout BC. Therole of the LDB is set to fundamentally change,however, as the provincial government hasdeclared its intention to privatise liquor storesin the next two years.

Economic benefits:

GOVERNMENT REVENUE: The Liquor Dis-tribution Branch is a significant source of rev-enue for the province. For fiscal year April2001 to March 2002, sales reached a total of$1.8 billion. Net revenue for the same fiscalyear was $637 million, which was remitted tothe provincial government. When various taxes

are added to this total, we see that the LDBcontributed $974 million to local, provincial,and national governments in 2001/2002.20

PROMOTES BC WINERIES: The liquor dis-tribution branch promotes quality BC winesthrough special “Vintner’s Quality Alliance”(VQA) sections.

Social Benefits:

PROMOTES RESPONSIBLE DRINKING:Although the LDB is a highly profitable Crowncorporation, it differs from private liquor re-tailers in balancing the drive for profits with asocial mandate. The misuse of alcohol can leadto a variety of social problems, and the LDBpromotes programs designed to mitigate these.Sponsorship of “dry grads”, programs to pro-mote moderate consumption, and anti-drink-ing and driving campaigns are just some ofthe examples. Internal programs, such as vio-lence prevention training, also ensure that em-ployees are capable of responding appropri-ately to problem customers.

LIMITS SALES TO MINORS: The LDB’s so-cial mandate and well-trained staff also sug-gest that liquor sales to minors are less likelyto occur than in a privatized environment.

GOOD JOBS: The LDB employs approxi-mately 3,500 British Columbians. Liquor dis-tribution employees are paid fair wages thatare significantly higher than they could expectin the regular retail sector. Higher wages re-duces turnover in the stores, and this coupledwith in-house training ensures knowledgeablestaff.

PRICE AND SELECTION: The centralizedliquor distribution system provides for equalpricing of liquor products throughout the prov-ince, and government liquor stores providegreater variety and selection than would oth-erwise be available in many areas.

For more information see: LDB Annual Re-port 2001/2002


Different forms of privatization may be pur-sued in isolation or combination. Public cor-porations have been sold to the private sectorwithout introducing competitive forcesthrough deregulation (as in the case of BritishTelecom and BC Gas) just as it is possible toderegulate the marketplace and open publiccorporations to competition without disband-ing or selling the Crowns altogether.21

Symbolically and ideologically, however, thedifferent forms of privatization are part of anintegrated neoliberal agenda that first took holdin Margaret Thatcher’s Britain. Pioneering thenotion that government should “get out ofbusiness,” Thatcher’s key strategists oversaw awide-ranging program of privatization athome. They also travelled around the worldextolling the virtues of privatization, provid-ing advice on how to “sell” privatization to apublic that was generally pleased with the per-formance of their public enterprises.

On a global level, privatization of state-owned enterprises has also been pushed by theWorld Bank and the IMF, and has been a ma-jor element of structural adjustment policies

DESPITE THE MANY ECONOMIC, SOCIAL, AND ENVIRONMENTAL BENEFITS PROVIDED

by Crown corporations, it is an article of faith for many on the right that privati-

zation of public enterprise is desirable. Privatization can be broadly defined as

the transfer of services and functions from the public to the private sector. In

terms of Crown corporations, the main forms of privatization are:

The many facesof privatization

• Selling public assets or corporations tothe private sector (e.g., Air Canada, Al-berta liquor stores).

• Contracting out some of the Crown cor-poration’s work to commercial firms(known as “outsourcing”)

• Paying the private sector to finance and/or run public projects (“public-privatepartnerships” or “P3s”).

• Reducing or eliminating governmentrules about the number of companiesallowed to enter a particular market, theprices paid by consumers, the kinds ofservices provided and how much profitcan be taken. This is known as “deregu-lation” and can mean forcing Crown cor-porations to operate as if they were pri-vate corporations. Deregulation takesregulatory authority away from govern-ments (i.e., the public) and increases theinfluence of the market. Because it lim-its the role of government and increasesthe size of the private sector, deregula-tion is, in effect, another form of privati-zation.


imposed on developing nations.22

In BC, some of the specific suggestions forprivatizing crowns have included the govern-ment’s recent move to eliminate government-run liquor stores, the promise to introduce full“competition” in automobile insurance, andcalls by the Canadian Taxpayers’ Federationto privatize ferry routes. BC Hydro is also atarget for re-organization aimed at increasingthe role of private enterprise in the energy sec-tor. BC Hydro has entered into a partnershipwith Accenture corporation in which the lat-ter will take over the corporation’s CustomerServices, IT Services, HR Services, Financial

Systems, Purchasing, Disbursement Services,Property Services, Business and Office Serv-ices. In addition, the government appointed aTask Force on Energy Policy which recom-mended in its interim report that BC Hydrobe broken into separate entities for generation,transmission, and distribution in order to fa-cilitate the development of privately financedand run power plants. Reorganization alongthese lines is already taking place. The taskforce also recommends allowing energy pricesto be set competitively via a North Americanmarket, again, in order to attract private capi-tal to the electricity industry.


A solution for all ills?

THOSE WHO ADVOCATE PRIVATIZATION GENERALLY MAKE A NUMBER OF CLAIMS

about its benefits. Most commonly, privatization is held out as a mechanism for

lowering public debt, increasing accountability and extending the benefits of share

ownership to the people, and increasing efficiency and lowering costs. More gen-

erally, privatization appeals to those who wish to reduce the size of government

and expand opportunities for private profit.

A primary thrust of privatization is the saleof assets from the public sector to the privatesector. One of the leading justifications for sell-ing public corporations in the 1970s and 1980swas deficits and growing public debt.

Typical of this argument is the position takenby the BC Business Council. In its 2000 pre-budget submission, the Council called for athorough review of all Crown corporations. Itrecommended establishing a multi-year proc-ess through which to sell provincial Crowncorporations and other assets in an attempt toreduce the province’s debt. To support thisposition, the Council estimated that the saleof Crown corporations in BC could yield one-time revenues of between $7 and $10 billionin addition to future corporate income tax rev-enues. The Business Council also estimatedthat by reducing the public debt the provincewould lower its interest charges by more than$600 million a year.23

Recent tax cuts have produced a huge pro-vincial deficit, and since the provincial gov-ernment has promised to balance the budgetby 2004/2005, pressure to recoup some of theshortfall through the sale of Crown corpora-tions is likely to increase.

Proponents of privatization have also arguedthat selling public assets is desirable becauseit will bring about greater citizen involvement

in the economy. “Shareholder democracy” willpurportedly increase public participation andthus increase the accountability of (previously)public corporations.

Privatization is also held to improve serviceand increase accountability to customers.

Another claim that is frequently made is thatselling Crown corporations to private sectorfirms will increase efficiency, allowing bothimproved service and reduced cost. Purport-edly, the overarching concern with profit ex-hibited by private sector firms leaves less roomfor inefficiency and waste. Government own-ership, by contrast, is held to lead to ineffi-ciencies because managers are shielded fromthe effects of the stock market. Fiscal account-ability is supposedly a low priority in publicenterprise because subsidies cushion the ef-fects of inefficiency, because the risk-rewardstructure is revenue neutral, and because man-agers have to satisfy multiple objectives. Theimplication is that public enterprise is inher-ently less efficient than private enterprise.

Service provision by a single public provideroperating under a system of regulated pricesin particular is likened to being “held hostage.”Proponents of deregulation believe that thecompetitive market is the best mechanism forestablishing “optimum” price and service lev-els. They thus advocate replacing public


expanded opportunities for business itpresents. An examination of the available evi-dence suggests that opening new investmentopportunities for business has been a key goalfor those advocating privatization.25 The in-dustry lobby group the Insurance Bureau ofCanada, for example, which includes largenational and multinational insurance compa-nies, has been a major player pushing to dis-mantle ICBC’s monopoly position.26 The pres-sure for privatization is especially intense in“natural monopoly” sectors, such as electric-ity, where public ownership has been the normuntil recently and where private, mainly US-based energy corporations are eager to gainaccess to a profitable new market.

sector monopolies with private sector compe-tition and allowing supply and demand con-ditions in the market to set prices.24

A more underlying rationale for privatiza-tion is the largely ideological belief that gov-ernment simply should not be involved incommercial enterprise. Typical of this senti-ment is the statement made by Alberta’s pre-mier, Ralph Klein upon privatizing Alberta’sliquor stores that the whole purpose of theexercise was to “get government out of thebusiness of being in business.”

While the belief that government should notbe “in the business of business” is a fundamen-tal ideological tenet for many on the right, pri-vatization also undoubtedly serves the practi-cal interests of those who would benefit by the


Evaluating the claimsIs privatization the answer?

ALTHOUGH EXPANDING THE SCOPE FOR CORPORATE PROFITS MAY NOT BE AN

attractive argument for privatization per se, lower costs, increased efficiency, and

better service are important goals. So does privatization really deliver on these

promises? The following section evaluates these claims in turn, describing the

most relevant evidence, and suggesting the likely outcomes for BC Crowns.

Debt reduction

As previously discussed, the BC BusinessCouncil estimated that the sale of Crown cor-porations in BC could yield one-time revenuesof between $7 and $10 billion in addition tofuture corporate income tax revenues. Whilethis figure seems attractive, when it is balancedagainst future revenue opportunities the ben-efits quickly disappear.

Take the argument that selling Crowns willprovide future income in the form of corpo-rate income taxes that are currently forgone.In the case of BC Hydro, last year the corpora-tion would have owed the province $35 mil-lion in corporate income tax were it in the pri-vate sector (i.e., net income, not includingtransfers from the Rate Stabilization Accountand customer profit sharing in 2002 of $258million taxed at the corporate income tax rateof 13.5 per cent). This sounds good until weremember that the province received $332million via dividends from the publicly-ownedcorporation in the same time period.27 For theLiquor Distribution Branch, the governmentwould have foregone approximately $616 mil-lion in revenues in 2001/2002 had it only

earned tax revenues and not dividends fromthe corporation.28 Given the determinationwith which private corporations pursue tax-avoidance through such mechanisms as shift-ing profits to lower-tax jurisdictions and otherdeductions, it is also unlikely that the full taxamount would be collected.

The assumption that the sale of Crown cor-porations will produce windfall one-time in-come also needs to be put into perspective.Governments have certainly gained some im-mediate revenues from the sale of public en-terprises. However, we need to remember thatif the sale price is right the benefit gained fromthe amount received should be the same asthe value of the dividends lost. In fact, the his-torical record shows that the sale of publiccorporations has all too often involved fire-saleprices.29 Estimates of the revenues to be gen-erated have generally fallen far short of expec-tations, and public enterprises have typicallysold for a fraction of their real value. The saleof Alberta liquor stores, for example, gener-ated profits that were much less than what theassets originally cost.30

Privatization has also often included “sweet-eners” that further reduce the value citizens


In the case of ICBC, the government wouldhave to absorb $60 million in annual roadsafety investments and approximately $75million in annual operating costs for the Mo-tor Vehicle Branch, as well as the costs associ-ated with regulating and supervising the op-erations of private insurance companies.34

Given such factors, it is not surprising thatin Britain, one of the forerunners in privatiz-ing public enterprises, the overall effect of theprivatizations on the public sector accounts hasbeen found to be negative.35

Increased accountability andshareholder democracy?

The expectation that the sale of public assetswill bring about greater citizen involvementin the economy through share ownership isalso not borne out by the evidence.

In some cases, the privatization processstarts with an initial public share offering thatgives individuals the “opportunity” to purchaseshares in enterprises they already own as citi-zens, often at artificially low prices. What tendsto happen, however, is that individuals thenquickly sell their shares at a profit to large pri-vate investors who end up with control of theenterprise.

In the 1980s, Saskatchewan’s Conservativegovernment undertook a Thatcherite programof privatization, arguing that privatizationwould facilitate “public participation” in theeconomy. In the end, however, unloading in-come-earning assets at a discount price en-riched only a small group of private sharehold-ers without bringing the promised improve-ments to the government’s books. Based on thisrecord, Saskatchewan professors James Pitsulaand Ken Rasmussen conclude that, far fromencouraging broader public participation,“privatization led to the loss of ownership andcontrol of significant portions of the Saskatch-ewan economy to central Canadian and for-eign interests.”36

Of course even in the unlikely situation that

receive for public assets. When Canadian Na-tional was privatized, the government ab-sorbed $900 million of CN’s debt just beforethe sale. Although the company went from aloss of $1.09 billion to a profit of $142 mil-lion after it was privatized, the previous debtwrite-off suggests that this should not be at-tributed to the superiority of private manage-ment. As Stewart explains, this increase was:

…not a miracle of private management,but of debt erasure; it was an act of gov-ernment. A lot of people, but not the peo-ple of Canada, made huge profits. Ca-nadian National is now 70 per centAmerican-owned, and doing very wellindeed. So the effect of this privatizationwas to take $900 million from the Ca-nadian taxpayer and make a lot ofAmericans rich.31

While selling a public corporation that re-quires deficit financing may seem to reducethe need for new borrowing, selling assets withlong-term value in order to reduce currentoperating expenses is short-sighted. In effect,one is “selling the house to reduce the mort-gage payments.” As political economist DuncanCameron32 notes:

public ownership procures long-standingbenefits to citizens, similar to home own-ership for individuals, in that the statecompany allows for lower cost operationand the build-up of equity value, ratherthan higher costs to “rent” the servicefrom a private provider, and no equityappreciation.33

Moreover, selling a public corporation thatrequires public subsidy rarely eliminates gov-ernment costs. Private corporations are gener-ally unwilling to take on unprofitable serviceswithout considerable continuing subsidies.This in turn necessitates costly governmentmonitoring and oversight.

Crown corporations also currently providesome costly services that the governmentwould have to provide if the Crowns were soldor forced to compete with private corporations.


most shares of public corporations remainedin the hands of small investors, the notion of“shareholder democracy” implies a much morelimited vision of democracy and accountabil-ity than is encompassed by public corporationsin the first place. Shareholder democracy is notone citizen, one vote, but one dollar, one vote.Small shareholders have no real say, and non-shareholders are completely excluded.

By way of contrast, all citizens are effectivelyalready “shareholders” in public corporations.While the fact that private corporations do notneed to serve everyone may make them moreresponsive to some of the consumer desires ofthose they do serve, those with more purchas-ing power are often catered to at the expenseof those with less.

Crown corporations are monitored and keptaccountable to the public in a variety of ways.On a day-to-day basis, appointed Boards ofGovernors are responsible for directing andcontrolling the affairs of the corporation, butit is the government which sets its general di-rection and mandate, and the government hasa number of central agencies that help overseethe activities of Crown corporations. Under theFinancial Information Act, BC’sCrown corpora-tions must provide strategic plans, businessplans, capital and operating budgets, and anyother information requested by the govern-ment minister responsible.37

Crown corporations also produce publiclyaccessible annual reports and other documen-tation that enable citizens to keep track of theiractivities. The public reports include informa-tion on the results of customer surveys andother measures of customer satisfaction andservice goals, as well as information on finan-cial and environmental performance. In addi-tion, crown corporations often consult withadvisory groups that include interested mem-bers of the public, such as people with dis-abilities or regular ferry users when makingservice or policy decisions.

Such public scrutiny helps keep the Crowns

accountable. Indeed, the very fact of publicownership encourages people to have higherexpectations of the Crowns’ conduct. AsHerschel Harden notes, “public enterprises areexpected to be better corporate citizens and toavoid sharp practices. When they don’t shapeup, elements of the public, including legisla-tors, get after them.”38

Such public concern can help disciplineCrown corporations if they make poor finan-cial decisions. Equally important, it has playeda central role in encouraging Crown corpora-tions to become more socially and environ-mentally responsible than their private sectorcounterparts. Democratic politics pushes par-ticipants to be explicit about their preferencesand beliefs, to adapt them in response to criti-cism and to make a case for interests largerthan their own.39 Privatization, in contrast, re-duces the scope of public information anddeliberation. Private corporations may need tobe accountable to shareholders’ desire to makea profit, but they are not obliged to conductopen proceedings or to publicize the reasonsbehind their decisions.40 Deregulation can alsodiminish public accountability, as demon-strated by the case of BC Rail. Because BC Railoperates in full competition with the privatesector, it is the only public body exempted from“Freedom of Information” legislation. The ra-tionale for this exclusion is that the publicavailability of operational performance statis-tics or financial data could undermine BCR’scompetitive position..41

In New Zealand, Jane Kelsey has conductedextensive research into the consequences of“aggressive” privatization. In a complete de-bunking of the “shareholders’ democracy”myth, she finds that the real purpose of priva-tization has been to transfer economic andpolitical power into the hands of private cor-porations seeking maximum profits. Moreo-ver, she argues that, “with no effective protec-tion of consumer interests or guaranteed rightsof access, private sector owners have become

In the 1980s,

Saskatchewan’s

Conservative

government undertook

a Thatcherite program

of privatization, arguing

that privatization would

facilitate “public

participation” in the

economy. In the end,

however, unloading

income-earning assets

at a discount price

enriched only a small

group of private

shareholders without

bringing the promised

improvements to the

government’s books.


able to determine the quantity, quality andprice of New Zealanders’ access to basic goodsand services, and hence their quality of life.”42

Increased efficiencyand lower costs?

While reducing government debt and enhanc-ing “shareholder democracy” are importantjustifications for privatization, it is the prom-ise of increased efficiency that is often treatedas the most important argument for privatiza-tion, linked as it is to claims about decreasedcosts (both to governments and individuals)and better service.

Not surprisingly, the question of the rela-tive efficiency of private and public enterprisehas sparked a great deal of research. If privateownership is necessarily more efficient thanpublic, we should see improvements in effi-ciency with privatization, as well as declinesin efficiency when private corporations aremade public. We should also expect that pri-vate corporations should outperform publiccorporations in the same sector.

On the first count, it is worth noting thatthe history of public corporations worldwideincludes many “hospitalization” projects inwhich failing private corporations were takenover and nursed back to health by public own-ership. Indeed, many of the public corpora-tions in Europe and Canada that were priva-tized in the last couple of decades were origi-nally nationalized because they were so badlymanaged by the private sector.43 While not allhospitalizations were successful, the recordshows many cases in which public ownershiprescued firms that were failing miserably un-der private directorship.44

Of course there are also cases where privati-zation appears to have improved the perform-ance of (formerly) public corporations. Afterreviewing numerous empirical studies of pri-vatization, economists William Megginson andJeffrey Netter conclude that there is at least lim-ited support for the notion that privatization

improves the operating and financial perform-ance of privatized firms, although they note thatthis is not a universal finding.45

The findings in regard to private versuspublic ownership more generally are alsomixed. While numerous studies find that pri-vate corporations outperform public ones, thisis not always the case. For example, a Univer-sity of Greenwich study of the privatization ofpublic utilities in Europe found that on bal-ance, privatized energy and water companieswere no more efficient than public ones, not-ing “There is no empirical reason to expect thata private utility will be more efficient than apublic one. Publicly-owned companies are ableto compete internationally in energy, at leastas efficiently as private companies.”46

In fact, fairly comparing the performanceof private and public enterprise is notoriouslydifficult, and complicating factors often biasresults in favour of privatization. To mentionjust a few of the problems with creating trulyequivalent comparisons:

• Factors that determine whether corpo-rations are publicly or privately owned,such as the need to ensure universal ac-cess to services, also tend to affect per-formance. This makes it difficult to de-termine the degree to which it is thestructure of ownership per se that affectsperformance.47

• Input prices vary over time, which canconfound comparisons of pre- and post-privatization performance. For example,a study of the UK electricity industry haspointed out that the industry has enjoyedlower coal prices since privatisation.48

• Selection of the time frame for compari-son can affect results. In particular, pri-vatization may lead to the entry of nu-merous competitors and substantialprice reductions in the short-term, onlyto have competitors bail out and pricesreturn to pre-privatization levels in thelong-term, as happened with bus serv-ices in the UK.49

Privatization reduces

the scope of public

information and

deliberation. Private

corporations may need

to be accountable to

shareholders’ desire to

make a profit, but they

are not obliged to

conduct open

proceedings or to

publicize the reasons

behind their decisions.


• Privatization may be more likely to oc-cur when technological advances heraldthe possibility of improved efficiency. Forexample, in Britain, the wholesale priva-tization of utilities may have enhancedefficiency in some cases, but much of thiswas due to technological advances thatlikely would have been applied to thepublic corporations had they not beensold.

• Public corporations often have social andenvironmental obligations not shared bytheir private counterparts, and this canput them at a disadvantage in terms ofcosts.50

Ultimately, blanket statements about thebenefits or costs of privatization are inherentlyproblematic given the diversity of privatiza-tion initiatives.51

Accurate prediction of the effects of priva-tization in any particular case requires specificand targeted comparisons that consider differ-ences in contextual factors and service param-eters and quality as well as cost.

In particular, it is crucial that we considerthe effects of privatization from the perspective

of citizens. Most economic studies that purportto show the “success” of privatization are basedon accounting data and it is notable that fewprovide any evidence as to how privatizationaffects consumers52, surely one of the mostimportant questions from the perspective ofordinary citizens.

In fact, it is by no means certain that thebenefits of increased efficiency will accrue toconsumers. This was made clear in the case ofutility privatization in the UK. The electricityindustry became more efficient in some re-spects, but prices for residential consumersrose sharply, leading to windfall profits forshareholders.53 After water services were trans-ferred to private firms, Britons not only faceddecreases in service, but also deterioration ofinfrastructure, and chronic violation of envi-ronmental protection laws. Those who couldnot afford the higher fees were cut off, andBritish papers reported stories of parents cart-ing kids to public washrooms to give them abath.54 The outcomes of the privatization ofCanadian public corporations such as BC Gasand Air Canada also belie the claims of betterservice and lower prices.

In the case of utility

privatization in the UK.

the electricity industry

became more efficient

in some respects, but

prices for residential

consumers rose sharply,

leading to windfall

profits for shareholders.


Privatization and the CrownsWhat are the costs?

Ontario.57 This is precisely because a marketmonopoly provides a more efficient structurein this case. Moreover, private auto insurancegenerally provides far less generous benefitcoverage. In Alberta, at fault crash victims arecommonly limited to $10,000 a year for medi-cal and rehabilitation benefits as compared tothe $150,000 limit in BC offered with “basic”coverage.

BC Hydro also provides electricity rates thatare among the lowest in North America. In-deed, electricity is a particularly clear exam-ple of the often perverse economic effects ofprivatization and deregulation. When whole-sale power prices were deregulated and set bymarket forces in Alberta and California, theyskyrocketed far beyond what could be ex-plained in terms of rising production costs.58

While consumers have suffered brownouts asa result of this debacle, they have been some-what shielded from the effect on their pocket-books. Residential price caps are, however, dueto be lifted soon, at which point consumerswill likely to see huge increases in their bills.Albertans already pay more for power thanresidents of BC, and if the residential subsi-dies are removed and the Alberta market pricesare used, they will pay 2.3 times as much asBritish Columbians.59 The Interim Report ofthe Task Force on Energy Policy acknowledgesthat moving to market pricing of electricity will

Economic outcomes:The cost to consumers

A recent Canadian Taxpayer’s Federation studyhas advocated privatizing all liquor sales in BC,arguing that most liquor products are cheaperin Alberta, which has a fully privatized salesand distribution system for alcohol. However,as their own report clearly demonstrates, theAlberta “price advantage” is largely attribut-able to differences in the taxation of liquor, notthe system of sales.55 In fact, LDB’s economiesof scale help keep prices down. If taxationpolicies remain the same and liquor distribu-tion and sales are privatized, prices are likelyto rise rather than fall.

Despite the well-publicized financial prob-lems of the BC Ferry Corporation, fares remainlow in international terms. It is notable that inWashington state, which runs a very similarsystem to BC Ferries, the Legislature’s JointTask Force on Ferries did not receive any in-terest from private companies to take over itsauto ferry routes, and the proposals for priva-tized passenger service were less cost effectivethan the public alternative.56

In auto insurance, rates for most drivers(and younger drivers in particular) are lowerin jurisdictions with public monopolies, suchas BC and Manitoba, than in those governedby market competition such as Alberta and

WHILE A DETAILED ANALYSIS OF EVERY CROWN CORPORATION IS BEYOND THE

scope of this report, the evidence most germane to BC’s major commercial Crown

corporations strongly suggests that privatization is unlikely to prove of benefit to

ordinary British Columbians. In fact, the reverse is likely true.


substantially increase prices, recommending aminimum 30 per cent increase. However, ifBC prices harmonize with those of the west-ern U.S., a likely outcome of moving to mar-ket pricing,60 the task force’s figures suggestincreases of 100 per cent for residential usersand up to 200 per cent for industrial users.61

Such price increases would have a devas-tating impact on BC’s economy. Representinglarge power users in BC, the Joint IndustryElectricity Steering Committee has argued thatraising electricity rates to “market rates” wouldhave dramatic effects on its members:

If prices in BC mirrored mid-C prices inlate 2000 and early 2001, massive plantclosings would have been the result. Withelectric power prices exceeding $200 permegawatt hour, shutdowns would includethe three electro- chemical plants, thethree BCTMP mills, most to the news-print manufacturing capacity, and all ofthe remaining metal mines except thosewith their own generation. Employeelayoffs would exceed 6,000 persons. BCwas able to avoid this type of disruptionto employees, employers, communitiesand government because of the existingstructure of cost-based, regulated rates.This is an advantage that should bemaintained.62

It is not only large power users that wouldbe hit hard by increased power prices—allbusinesses large and small would suffer (aswould residential consumers both directly andbecause businesses will pass increased costson to the consumer). All in all, the increasedpower prices that would accompany a moveaway from a regulated Crown corporation to amarket system would take money out of theBC economy, placing it instead in the hands ofU.S. energy corporations.63

The large gap between claims about theeconomic benefits of privatization and thereality highlights the essentially ideologicalnature of privatization rhetoric. The under-lying assumption that public enterprise is

necessarily unresponsive and inefficient, andthat the profit motive and markets promoteoptimum efficiency and allocation, takes asimplistic view of both human nature andbusiness practice.

Numerous commentators have pointed outthe theoretical shortcomings of argumentsabout the inevitable superiority of private own-ership.64 While personal financial gain may bea strong motivating factor, it is not the onlysource of entrepreneurial energy. As Hardinnotes, public enterprise may be motivated bya variety of impulses:

the impulse to do things in a better wayfor the community; to build somethingin one’s own country or region; to showwhat one’s people can do; to develop in-digenous entrepreneurship and innova-tion; to eliminate gouging of the publicby exploitative companies; to keep aliveor resuscitate a vital industry and give itthe technological and capital base to con-tend; to meet an important strategicneed; to create enterprise sensitive toworkers, the environment and other el-ements of one’s community; to keep one’sregion or country abreast of others, with-out which it falls behind and, if it growsdependent on others, even loses some ofits decision-making powers. Not least isthe impulse to do things as part of one’scommunity. Individual pride as a mem-ber of the community—sharing its ob-jectives and ideals—comes into it.65

The presumption that the profit motive pro-duces thrift and competence conveniently ig-nores the many examples of waste, corruption,fraud, and incompetence within the privatesector, as well as the actions private corpora-tions routinely take to limit competition. Thereis ample evidence that private sector monopo-lies and oligopolies that have resulted fromprivatization have abused their marketpower.66

Replacing the regulatory barriers that tra-ditionally kept utility prices in check with

The underlying

assumption that public

enterprise is necessarily

unresponsive and

inefficient, and that the

profit motive and

markets promote

optimum efficiency and

allocation, takes a

simplistic view of both

human nature and

business practice.


market mechanisms has been problematic pre-cisely because privatization does not necessar-ily lead to a properly competitive market. InBritain, the sale of public corporations oftensimply replaced public monopolies with pri-vate monopolies.67 Even when the market hasbeen opened to more than one private firm,the evidence shows that the promise of com-petition is more myth than reality. In the autoinsurance, airline and energy cases, deregula-tion has meant a quick concentration of theindustry in the hands of a few large multina-tional firms, forcing competition among con-sumers instead of between providers for serv-ice, while sending jobs and profits outside thelocal economy.

The theoretical underpinnings of the com-petitive market model on which privatizationclaims rest quite simply bear little resemblanceto the realities of public service provision. Theoptimum efficiency of truly “free” markets restson a number of unrealistic criteria, notably thatall market actors have perfect information andare able to enter and exit the market at willwithout transaction costs. In the real world,information imbalances generally exist that cangive some actors advantages over others andlimit true competition. Gathering the informa-tion necessary to monitor private providers ofpublic services can also be costly. In addition,significant barriers such as the necessity fortechnical expertise or costly equipment candrastically limit the number of firms that canenter a market to replace public corporations.This is particularly true for BC Hydro. Whileit may be relatively straight forward to open aliquor shop, building and running a large elec-tricity generator is not.

In the case of the deregulation of “naturalmonopolies” in particular, truly “free” marketsjust aren’t possible. Commenting on the Cali-fornia debacle, journalist Gregory Palast68

notes that “Electricity isn’t like a dozen bagels;it can’t be frozen, stored or trucked whereneeded. And while you can skip your dailybagel, homes and industry will not do with-out their daily electricity.” Attempts to replace

regulated prices in electricity with marketmechanisms have led to huge problems as aresult, including evidence of market manipu-lation to produce higher prices in Alberta, Brit-ain, and California.69

Competition and the profit motive may alsohave perverse effects in the longer term inso-far as they encourage a focus on short-termprofits at the expense of long-range planning.Prior to energy deregulation in California,power utilities were guaranteed a profit evenif their industry had excess capacity. Theytherefore built more capacity than needed soas to be able to meet spikes in demand. Excesscapacity became costly after deregulation, how-ever, and companies became reluctant to in-vest in new plants. In fact, companies had anincentive to withhold energy from the marketin order to drive up prices—which is exactlywhat happened in California and Alberta—leading to soaring prices and blackouts.70

Moreover, free market competition is notthe only mechanism for lowering costs or im-proving service. The presumption that the “dis-cipline of the market” is necessary to optimizeperformance not only overstates the link be-tween poor management performance andcorporate takeovers (corporations may be ac-quired because they have built up large poolsof cash, and corporations with large cash flowbut poor performance routinely buy up moreefficient competitors), but also ignores othermechanisms that spur accountability and per-formance in public corporations. The moni-toring capacities of the government, publicscrutiny, and the press play important roles inthis respect.71 Those who argue that publiccorporations face no competitive pressures alsoconveniently ignore the fact that public mo-nopolies face intense “benchmark” or “emula-tive” competition in which rates and servicesare compared with other jurisdictions. Finally,it should be noted that public corporations inBC have already been reorganized in ways thataddress many of the major criticisms made ofpublic corporations generally. Because thecrowns are structured along commercial lines,

In the auto insurance,

airline and energy

cases, deregulation has

meant a quick

concentration of the

industry in the hands

of a few large

multinational firms,

forcing competition

among consumers

instead of between

providers for service,

while sending jobs and

profits outside the local

economy.


they already enjoy greater managerial au-tonomy, clarity of objectives, and strict per-formance monitoring and assessment of out-comes.

The reality is that public corporations pos-sess important advantages that lower the costof their services even in the absence of com-petition. Most obviously, public corporationsdo not need to make a profit. In addition,Crown corporations have access to lower in-terest rates than do private corporations. Be-cause the cost of borrowing is lower, costs forcapital projects undertaken by Crowns are alsolower. Privatizing services also does not meanthat the government externalizes all costs ofproducing the service. Indeed, monitoring andenforcing contracts can be more costly thandoing things in-house, particularly when theservices provided are complex and quality isdifficult to measure. Finally, a single publiccorporation operating as a monopoly can al-low for important economies of scale and in-tegration in purchasing, distribution, and ad-ministration that increase efficiency beyondwhat is possible in a fragmented competitivemodel.

Most of the efficiency advantages enjoyedby large Crown corporations are predicated ontheir monopoly position in the marketplace.Those who believe that allowing private com-panies to compete with Crown corporationssuch as ICBC or BC Hydro will lower the ratescharged by Crown corporations fail to ac-knowledge this basic fact. It also places theCrowns at an unfair disadvantage to the ex-tent that they must provide universal serviceswhile private corporations are free to “cream”the most profitable clients, reducing both theefficiency and the revenue base of the Crowns.

Social outcomes

Because Crown corporations do not set ratesfor their services strictly on a market basis, amove to spot market pricing for governmentservices will benefit some at the expense ofothers. In the case of BC Hydro, a few large

power customers may be able to negotiate bet-ter deals, although the huge price spikes inother places that have deregulated energy mar-kets have now made even the largest indus-trial users fearful of the consequences of pur-suing a similar policy here.72 Smaller busi-nesses are even more vulnerable to the eco-nomic impact of price spikes, and have no realopportunity to negotiate special deals. Indi-vidual residential customers are also likely tosee their rates go up, especially as they areharmonized with a larger North Americanmarket.

While higher residential rates hurt every-one, they are particularly devastating for thepoor, and privatization in general risks furtherharming the least advantaged. One of the hall-marks of public corporations is universal serv-ice on equitable terms. Private service provid-ers, on the other hand, often attempt to pro-vide only the most profitable services. Priva-tizing ferries might lower fares on the mostprofitable routes if numerous companies com-peted for traveller business. However, fareswould rise and services would be downgradedor eliminated on unprofitable routes. If we viewthe ferries simply from a market-based per-spective, this isn’t a problem (indeed, the Ca-nadian Taxpayers Federation sees this as a fa-vourable outcome). If we think of the ferriesin terms of transportation infrastructure, how-ever, it clearly is. Privatizing liquor stores willalso have uneven effects. Selection and priceswill suffer for those buying liquor in smallercentres, but Lower Mainland residents mayenjoy lower prices in some instances. Equityof access will be sacrificed.

Moving to a privatized auto insurance sys-tem will also likely create clear losers. BecauseICBC provides basic coverage to all motorists,the corporation works with a single risk pool.If properly managed this should result in lowerrates for all motorists. The single risk pool alsoallows ICBC to extend affordable protectionto youth and families with young drivers whosuffer under discriminatory rate setting.

Privatizing Crown corporations will also


harm workers. In North America, much ofthe cost savings from the privatization ofservices has come from service reductionsand/or at the expense of workers’ salaries.Often, one of the first things that happensin a privatization is that whatever union wasprotecting workers’ rights is cast off. Indeed,a primary motivation behind the neoliberalattack on government is a desire to dimin-ish the power of public sector unions. Thisis because, in many cases, the only reduc-tion in operating costs made by the transferof a public function to the private sectorcomes in the form of lower wages and ben-efits for workers. The privatization of the Al-berta Liquor Control Board, for example, re-sulted in the loss of more than 1,000 full-time public sector jobs. Those workers whomanaged to find jobs with private liquorstores saw their incomes decline by 20 to40 per cent and, in most cases, their ben-efits reduced to nothing.73 For women work-ers as a whole, leaving the public sector(broadly defined) for the private is associ-ated with substantial wage losses.74

Safety and the environment

Experience in other jurisdictions suggests thatsafety is also a potential casualty of the priva-tization/deregulation process. The privatizationof British Rail created an incentive system thatdiscouraged diligent maintenance. Not onlydid this ultimately result in the death of fourpeople in a rail-crash last October, it also para-lysed the entire transportation system formonths afterward as poorly maintained railswere finally repaired. While the organizationof the privatized British Rail system was par-ticularly perverse, a competitive, profit-ori-ented system has an inherently greater incen-tive to cut corners on safety than a publicmonopoly for whom profitability is not the solecriterion of value.

The potential environmental impacts of theprivatization/deregulation of BC Hydro areparticularly worrisome from a public safetystandpoint. As noted earlier, using existingdams to produce electricity provides a sourceof relatively “green” energy. Building large newdams, however, is both environmentally andeconomically problematic. If private powerproducers are allowed to generate and sell elec-tricity, the most likely source would be fromcoal or natural gas fired plants because suchdirty production technology is relatively“cheap” and cost is the primary concern forproducers in an electricity market.75 But thistechnology is only cheap because of the ex-tensive subsidization of fossil fuel productionand the fact that energy producers do not paythe costs of the climate change, acid rain, can-cer, neurological impairment, respiratory dis-ease and crop damage that it creates76. Anypolicy that encourages an increase in this kindof production is environmentally backward tosay the least. As noted earlier, private compa-nies also have less incentive to invest in alter-native, environmentally sound technologiesthat are not immediately cost-efficient, as wellas less incentive to promote conservation gen-erally.

Privatization of ICBC might also affect pub-lic safety. As it stands, ICBC spends consider-able money to improve road safety. This is asmart investment–reducing crashes and mini-mizing injuries and deaths improves the cor-poration’s bottom line. Were ICBC to be pri-vatized or open to full competition, responsi-bility for road safety would likely be allocatedto an independent government agency thatmight lack the resources available to ICBC.

While privatizing liquor stores may notcompromise public safety in such immediateways, private liquor outlets may be more laxin their enforcement of liquor laws given theirprimary incentive to maximize profit.


Privatization is a one-waystreet

Privatization and/or deregulation would alsomake services currently provided by Crowncorporations open to challenges under theNorth American Free Trade Agreement(NAFTA) and the General Agreement on Tradein Services (GATS). Once these industries areopened up to for-profit competitors, the rulesof free trade kick in. BC Hydro, for example,would not be able to charge BC consumersmore favourable rates, or guarantee a stablesupply of electricity to BC consumers.

NAFTA also means that prices are set bysupply and demand conditions internationallyrather than in BC. The fact that BC producesmore natural gas than it consumes domesti-cally has not prevented skyrocketing naturalgas prices because prices are set in large part

by demand conditions in the United States,particularly California. Trade agreements donot allow a two-price system, so British Co-lumbians cannot maintain preferred prices forour resources.

International trade agreements may alsoundermine the province’s ability to tie socialand/or environmental objectives to the provi-sion of services in a privatized environment.

Under the terms of NAFTA, foreign corpo-rations whose business is adversely affected bygovernment policy are entitled to compensa-tion for lost future profits. Privatization is thuseffectively a one-way street. The costs of com-pensating the foreign corporations who wouldenter our insurance, transportation, or energymarkets if we privatized Crown corporationswould likely prohibit ever bringing these serv-ices under the umbrella of public enterpriseagain.


Hydro, the Liquor Distribution Board, and BCFerries would, on balance, risk more than itwould gain.

This is not to say, however, that things couldnot be improved. Mistakes have clearly beenmade in Crown management (such as the fastferries), and we should not simply be satisfiedwith the status quo. Moreover, while privati-zation has clearly not lived up to its promise,this is not to say that public provision of allservices is always inherently preferable. Thereal question is not whether public or privateprovision is better per se, but which public/private mix is best in particular circumstances.In some cases, it may make sense to provideprivate alternatives to public provision. By thesame token, expanding public services mayhelp ameliorate market shortcomings in largelyprivate sectors such as housing, long-term careand childcare. Crown corporations should alsobe free to expand their areas of business andmove into new markets where this makessense, rather than being artificially limited bythe political fear of stepping on private sectortoes.

Alternative methods of improving Crowncorporations must also be considered. In sodoing, the “best” outcome should not always

While it is impossible to predict the conse-quences of privatization with perfect accuracy,a proper accounting of its likely costs and ben-efits should not contrast the current status quowith an idealized version of what “should”happen in perfect competitive market. Rather,the comparison needs to be between Crowncorporations as they currently exist, privatiza-tion as it is likely to exist given the nature ofthe public service in question, and Crown cor-porations as they can realistically be improved.

As things stand, Crown corporations clearlyperform a number of important roles in BC.Public investment and regulation in these keyindustries has provided cheap and reliable ac-cess to service regardless of where people liveor how much money they have. The Crownshave also given us more control over economicdevelopment in the province and made surethat a portion of the wealth generated in BCstays in BC. Privatizing and/or deregulatingCrown corporations might provide some ben-efits to some people, but it would also riskhigher prices, decreased equity and accessibil-ity, declining employment conditions, andlower safety and environmental standards. Theevidence suggests that privatizing the majorcommercial Crown corporations of ICBC, BC

Future prospectsfor public enterprise

IT WOULD BE EASY TO START DOWN THE ROAD TO PRIVATIZATION, BUT VERY

difficult to turn back. We therefore need to think seriously about the pros and

cons of privatization before embarking on a course from which it is impossible to

return. Indeed, the Auditor General of BC has argued that no Crown corporation

should be sold or dissolved without a thorough public review that would include

the opportunity for stakeholder input.77


be assumed to be that which is cheapest ormost efficient in the short run, but that whichalso weighs considerations of equity, justice,safety, and citizenship. At present, the Crownssuffer from an environment that tends to de-value these goals. The media strongly encour-ages Crowns to model themselves on narrowlydefined private sector business practices, man-agement training is now provided exclusivelyby business schools that are geared towardprivate sector models, and Crowns tend to hiresenior executives with private sector back-grounds. Consequently, many managers arestrongly resistant to government pressures touse Crowns for social and economic develop-ment purposes or local procurement and jobcreation.

While having better environmental recordsthan their private sector counterparts, theCrowns could also go a lot further in pursuingenvironmental goals. BC Hydro, for example,has adopted an impressive array of good envi-ronmental programs, but at a basic level thedirection in which the corporation is headingdoes not adequately address the big issue ofemissions that contribute to global warming.So far, emissions from BC Hydro are relativelysmall, particularly when compared to otherenergy companies, because of the reliance onhydro-electricity. But as demand increases, BCHydro is looking to gas-fired plants to createnew capacity. It is also planning to build a gaspipeline across the Georgia Straight, which willensure that gas is a “cheap” alternative far intothe future. The corporation has only commit-ted to 10 per cent of all new power capacityfrom renewable sources. We can do better.

Unfortunately, the core review of Crown cor-porations and government agencies under-taken by the new BC government seems likelyto exacerbate these pressures. The core reviewis supposed to determine which Crown cor-porations (and other government entities)

should remain in the “core” of government.Ostensibly neutral, its guidelines are clearlybiased towards privatization. The scenariosthat are explicitly envisioned for programs,activities, and government enterprises includeelimination, reduction, consolidation, or trans-fer to the voluntary or private sector. Notably,the possibility that the public interest mightbe best served by expanding or adding pro-grams is entirely absent.

A balanced approach to Crown enterprisewould not start from the presumption of re-stricting government activity to an ideologi-cally driven notion of the “core”. Rather, itwould ask how best to use Crown corpora-tions to enhance the well being of all BritishColumbians. This might involve changes toincrease efficiency and cost-effectiveness insome cases, and some private sector practicesmight contribute to this effort. But it wouldalso focus on capitalizing on the unique charac-teristics of Crown corporations.

Instead, the criteria by which Crown cor-porations are to be evaluated are slanted to-wards narrowly defined economic efficiency,affordability, and accountability. While thosereviewing Crown corporations are required toask whether the corporation continues to servea “compelling public interest,” these interestsare undefined. With no explicit mention ofprinciples of social equity or environmentalresponsibility anywhere in the documentationfor the core services review or the Liberals’guiding New Era document, it seems likely thatthese considerations will receive short shriftwhen compared with the explicit commitmentto “sound fiscal management,” a “competitivebusiness climate,” and “competition”. The fo-cus on measurable performance standards andtargets also suggests that easily quantified eco-nomic outputs will take precedence over moredifficult to measure service quality and acces-sibility or environmental prudence. Any

Privatizing and/or

deregulating Crown

corporations might

provide some benefits

to some people, but it

would also risk higher

prices, decreased equity

and accessibility,

declining employment

conditions, and lower

safety and

environmental

standards.


evaluation and re-organization process thatfails to adequately account for these broadervalues that define the unique contributions ofCrown enterprise is ultimately destined to domore harm than good.

It is also ironic that while one of the goalsof the core review is to ensure that govern-ment practices are accountable to the public,the review itself has been exclusionary andsecretive. Community input has been con-spicuously absent. If the government was se-rious about organizing services to best reflectthe public interest, it would consult with thosewho have an intimate knowledge of thestrengths and weaknesses of government pro-grams: those actually using government serv-ices, and front-line workers. Instead, withstakeholder consultation at the discretion ofMinisters, community input has been avoidedand the entire process has taken place behindclosed doors.

In thinking about how to improve Crowncorporations, we need to take public account-ability seriously. Part of this means improved

This is not to say that

things could not be

improved. The real

question is not whether

public or private

provision is better per

se, but which public/

private mix is best in

particular

circumstances.

Crown corporations

should also be free to

expand their areas of

business and move into

new markets where

this makes sense,

rather than being

artificially limited by

the political fear of

stepping on private

sector toes.

reporting, but accountability also means be-ing open to information flows in the oppositedirection. Performance measures could be auseful part of this, but they need to be derivedin consultation with the public and with front-line workers in order to be meaningful, andthey should go far beyond narrow questionsof economic profitability. ALL of the Crowns,not just BC Hydro, should be thinking in termsof “triple bottom lines,” and explicitly includ-ing social and environmental issues in theirplanning.

On the economic level, more focus shouldbe placed on fostering local economic devel-opment, particularly in resource-dependentcommunities. A good model might be that ofthe relationship between BC Hydro and theColumbia Basin Trust.

As things currently stand, BC’s Crown cor-porations are valuable assets. We need to capi-talize on their unique character and contribu-tions, not throw them away or “reform” themin ways that undermine their real value.


Notes1 Auditor General of BC 1996/97: 1415.2 Cameron 1997: 29.3 Malbon 1998.4 Hutton 1998.5 The newly appointed Chair of ICBC’s board of

directors, Nicholas Geer, has indicated that“social investments” will be abandoned in anattempt to make ICBC more like a privateenterprise.

6 BC Stats 1999: 1, BC Hydro 2000, ICBC 2000, BCFerries 2000.

7 BC Hydro 2002.8 Griffin Cohen 2002.9 BC Hydro 2002.10 Griffin-Cohen 1998, 2002.11 Griffin-Cohen 1998, 2002.12 Griffin Cohen 2002.13 Young 2001; Consumer Association of Canada –

BC 2001.14 Ontario Human Rights Commission 1999.15 Young 2001.16 Young 2001.17 Auditor General of British Columbia 2000.18 Auditor General of British Columbia 2000.19 Cutt 2000.20 Total includes customs duties and excise tax,

GST, net income, social services tax, andproperty tax. It does not include taxes paiddirectly by external parties, namely: e xciseduty taxes paid by domestic brewers, wineriesand distilleries, and GST and Social Services taxcollected by licensees, agency stores and otherlicensed establishments.

21 Starr 1990.22 Cameron 1997.23 The Business Council of British Columbia 2000:

14 –15.24 Martin 1993: 193.25 Cameron 1997.

26 Young 2001.27 This figure does not include the water rental fees,

taxes, and rents in lieu of taxes that thecorporation also paid to the province andmunicipalities.

28 Office of the Comptroller General 2002.29 Samson 1994, Cameron 1997, Hardin 1988.30 Laxer et al. 1994: viii.31 Stewart 1988: 254.32 1997.33 Cameron 1997: 32.34 Young 2001.35 Bishop and Kay 1994.36 Pitsula and Rasmussen 1990: 283 – 4.37 Auditor General of British Columbia 1997.38 Harden 1989: 59.39 Starr 1990.40 Starr 1990.41 BC Rail 2000: 1.42 Kelsey 1995: 137.43 Hardin 1989.44 see Hardin 1989.45 Megginson and Netter 2000.46 Hall 1997.47 Megginson and Netter 2001.48 Pollitt 1995: 102.49 Malbon 1998: 23.50 Brown 1998: 76.51 Those researching contracting-out have tended

to find more clear evidence of cost-savings (seee.g. Siegel 1999). There are also, however, manycases in which the reverse is true, withgovernment savings found when services werebrought back in-house. Hodge’s synthesis ofresearch on contracted services from a number ofcountries revealed that while contracting outservices tended to result in some cost savings(although not service improvements), there wasno difference in the cost savings betweencontracting with the private or the public sector.

Moreover, closer examination cautions againstmaking assumptions about the likely impacts of


privatizing Crown corporations based on anuncritical reading of this literature. First of all,much of the literature is methodologicallyproblematic (not surprising given thepreponderance of studies that are journalistic innature and/or reported by the privatizersthemselves). Differences in the accountingpractices of the public and private sector oftenmean that savings from privatization areoverstated (Sclar 2000). The transaction coststhat occur with privatization (such as the costs ofmonitoring and enforcing contracts) are often notincluded in the bill, although they increase thecost of private contracting considerably. Forexample, a study of contracting in the city ofSurrey, found that in most instances the City didnot have accurate estimates of the actual cost ofin-house service delivery. Statements aboutpotential savings were therefore based more onwishful thinking than concrete evidence.Moreover, city managers consistently failed toadequately factor in the costs of contractdevelopment, supervision, administration, andthe correction of problems with contracted work,thus significantly understating the costs ofcontracting services. A detailed analysis of 23contracted cases in Surrey found that in manycases contracting actually resulted in increasedcosts to municipal taxpayers. (Fairey and Klein1997)

In addition, studies of the benefits of contracting-out often fail to account for important differencesin the services provided by public and privateorganizations. One of the hallmarks of publiccorporations is that they must serve everybody.Private corporations, by contrast, prefer to“cream” the most profitable clients. Where thereare differences in the clientele or servicesprovided, straight comparisons are misleading(Starr 1990, Fernandez 2000, Sclar 2000). Moststudies comparing the costs of public and privateservices also fail to measure the quality of service.Those that do, such as the study of contractingout in Surrey, often find that service levelsdeclined considerably under contracting-out. Ifcost savings are achieved as a result of servicereductions, this is not evidence of greaterefficiency per se.

The cases in which privatization is most likely tolead to cost savings tend to involve simple

services such as housekeeping or garbagecollection at the local government level (Bendick1989). But even in relatively simple cases, costsavings don’t necessarily materialize, as theSurrey study demonstrates, and studies ofprivatization also reveal significant problems withaccountability and control (Fairey and Klein1997; Sclar 2000). The more complex work ofmany Crown corporations means that theseproblems would be magnified, raising the costsof oversight and monitoring.

The results of privatization processes will vary inpart according to differences in the operation ofparticular public enterprises (some may alreadybe very efficient while others are havingdifficulty), as well as industry and country-specific issues (Domah and Pollitt 2001).

52 Megginson and Netter 2001.53 Domah and Pollitt 2001.54 Stewart 1998: 260 –1.55 Canadian Taxpayers Federation 2001.56 Joint Task Force on Ferries 2001.57 Consumer’s Association of Canada 2001,

Canadian Automobile Association 1999, Young2001.

58 Wallace 2001, Borenstein et al. 2000.59 Wallace 2001.60 Griffin Cohen 2002.61 Simmons et.al. 2002. Figures are derived from

comparisons of rates for residential andindustrial users in Vancouver with those ofSeattle and Los Angeles.

62 Mulgrew 2002.63 Simmons et.al. 2002.64 Brown 1998, Martin and Parker 1997,

Tittenbrun 1996.65 Hardin 1989: 110-111.66 See Carpenter and Lapuerta 1999 for the case of

British Gas, Hauter and Slocum 2001 andBorenstein et al 2000 for energy in California.

67 Samson 1994.68 Cited in Wallace 2001.69 Borenstein et al 2000, Wolak 1999, Ward 2000.


70 Simmons et.al. 2002.71 Starr 1989.72 Griffin Cohen 2002.73 Laxer et al 1999: 20 – 21.74 Mueller 2000.75 Simmons et.al.2002.76 Simmons et.al. 2002.77 Auditor General of BC 1996/97.

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Martin, S. and D. Parker (1997). The Impact ofPrivatization:Ownership and CorporatePerformance in the UK. New York: Routledge.

Mueller, R. (2000). “Public and Private-Sector WageDifferentials in Canada Revisited”, IndustrialRelations Vol. 39( 3).

Mulgrew, I. (2002) “Energy task force report ‘adangerous piece of work’”. The Vancouver Sun,January 14:B3.

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Office of the Comptroller General, Ministry of Financeand Corporate Relations (2002) ConsolidatedRevenue Fund Extracts, Public Accounts 2001/2002

Ontario Human Rights Commission (1999), HumanRights Issues in Insurance Discussion Paper. Toronto

Pitsula, J. M. and K. A. Rasmussen (1990). Privatizinga Province: the New Right in Saskatchewan.Vancouver: New Star Books.

Pritchard, J. Robert S. (Ed.) (1983). CrownCorporations in Canada: The Calculus of InstrumentChoice. Toronto: Butterworth.

Quail, J. (1988). “What if We Get Competition? –What’s in it for the Consumer?” paper presented atPower Grab: The Future of BC Hydro Conference onDeregulation and Competition in the ElectricityIndustry, Vancouver, January 10.

Samson, C. (1994) “The Three Faces of Privatization”Sociology Vol.28 (1).

Sclar, E. (2000) Yout Don’t Always Get What You PayFor: The Economics of Privatization. Ithica: CornellUniversity Press.

Simmons, G., Howard, T. and Christensen, R. (2002)Power Grab: The Impact of Power Market Deregulationon B.C.’s Environment and Consumers Vancouver:Sierra Legal Defense Fund.

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Starr, P. (1990). “The Limits of Privatization,” in D. J.Gayle and J. N. Godrich (Eds.), Privatization andDeregulation in Global Perspective. New York:Quorum Books.

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Stewart, W. (1998). Dismantling the State: Downsizingto Disaster. Toronto: Stoddart Publishing.


Taft, K. (no date). Light among the Shadows: TheDeregulation of the Electrical Industry and the Futureof EPCOR. Edmonton: Parkland Institute.

Taft, K. and M. Gordon (1999). Aftershock: The Openand Shut Case Against Privatizing EPCOR.Edmonton: Parkland Institute.

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Wallace, R. (2001). The British Columbia Advantage:Lessons from Alberta on the Deregulation of theElectricity Industry. Edmonton: Parkland Institute.

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