Privatization spin and reality don't add up

Consumers, taxpayers and citizens all pay through the nose for trendy sell-offs of public services

Commentary from Larry Solway

  A few months Toronto Hydro sent me a mystifying letter asking me to choose between a guaranteed fixed rate for electricity and a rate based on market prices. I chose fixed. Should I have had to gamble? Are we all not entitled to an affordable essential service? Ah me - the realities of the marketplace. The new age of reality. The new age of exploitation.
  Politicians have learned that to denigrate and derogate government, you have to defecate on it.
  The sinister campaign to turn government into a venal, wasteful, duplicitous evil has been a roaring success. Why else would so many of our willing fellow citizens cheer when government (acting as government) sells public assets to private entrepreneurs in the name of more efficiency. For those who miss the point: privatization. If citizens can be persuaded that government is wasteful, ruinous, costly, overstaffed, and inefficient, we give licence to "improve" public enterprise by making it private.
  If "going private" doesn't turn our crank, we throw in the other pillar of the marketplace: deregulation. Freed from the onerous restrictions of regulation, industry and commerce can rise to new heights of better service, lower prices, and fairer competition. Got that?
  My favourite goes back to before the current exgurgitation of privatization. It goes back to Brian (Medicare is a sacred trust) Mulroney. It goes back to the abandonment of a Canadian icon with the fire-sale of Connaught Laboratories.
  Connaught grew out of the stunning discovery of Insulin by Banting and Best at the University of Toronto. The University created Connaught, housed in an ancient building still seen on a traffic circle on Spadina avenue just north of College street in Toronto. They made and distributed insulin to the world's diabetes sufferers.
  Mulroney's Tories decided there was gold in Connaught. They offered it for public sale to Canadians. It was called giving Canadian assets back to Canadians. It worked (we are led to believe) in the privatizing by selling shares to the public of Air Canada, Petro Canada, C.N.R etc) Even though Connaught was on the cutting edge of biotechnology Canadian investors didn't want a new security that couldn't double overnight. Investors tend to be in there for the short haul. (There is no better evidence of how short than the present stock market chaos.)
  Failing to interest Canadian investors in the long-term benefits of being a leader in the development of new vaccines, they put the whole thing up for sale to the highest bidder. Again the marketplace took charge. Two major bids came in. One from Swiss Ciba Geigy and the other from French Pasteur-Merieux. The Swiss company was seen to be the better company but the higher bid came from Merieux. Connaught was sold. We lost a treasure. We lost a chance to rise to pre-eminence in the whole field of biotechnology.
  Some ironic history. In the unregulated world of railroad robber barons private entrepreneurs laid down railway tracks with insane abandon. They floated bond issues that were eagerly grabbled up by investors. (British Grand Trunk bondholders to this day lobby the Canadian government for repayment of defaulted issues from a hundred years ago.) Like today's hi-tech meltdown, the railway bubble burst and if the government (Arthur Meighen's Tories) hadn't stepped in and created Canadian National Railways, there would be no trains except CPR. So Canadian National became North America's largest railroad and assumed hundreds of millions of dollars in debt. (Sound familiar - Ontario Hydro had the same problem) But it ran, or tried to.
  It was a mess. Instead of fixing it they sold what they could, privatized some of it and wantonly dismantled what wasn't profitable. VIA still staggers along supported by federal funds.
  CN privatized then closed thousands of miles, massacring it's work force, and restoring fiscal balance. It all makes good financial sense if you believe that public interest is best served by discarding anything that can't make a profit.
  Interesting that highways don't make a profit but we spend money like water to widen and repair them. One critic asked: "Why do governments refer to highway money as an investment and railway money as a subsidy?
  Today we anxiously wait for the other shoe to drop in the takeover of Ontario Hydro. Hydro was an easy mark for the philistines of privatization. It had run up enormous debt. It's nuclear stations were in disrepair. It's labour contracts and management salaries were untenable. The fact that it once delivered superior low-cost electric power to the most remote (and unprofitable) is forgotten. We have turned it over. I still don't know what I signed when I agreed to accept electric power at a fixed rate. And I still don't know what British Power, a company with a reputation for making a mess of things, takes over our nuclear generating facilities. What I do know, and SG highlighted it, is that in California where they "freed" electric power from the burden of regulation, there are now power outages and blackouts and the spectre of bankruptcy hanging over two major distribution companies. (There is more to it than meets the eye, since the California government deregulated production but kept a ceiling on prices that could be charged by distributors. Further irony is that part of the meltdown in the U.S. markets was precipitated by the imminent collapse of these two major power distribution companies)
  I believe, and so should the Left, that government still has a place in business, sometimes through partnerships. Example: waste management. During the dogfighting over Toronto's garbage and the Adams Mine site, opponents of landfill said we could do more to recycle. One of their shining examples of how well recycling works is in Edmonton's multi-million dollar composting plant, built by the City of Edmonton with partner TransAlta Corporation.
  This was the essence of partnership in a mixed economy. (Alberta of all places!) The plant hums merrily away converting about 70% of Edmonton's sewage and solid waste into compost.
  Suddenly the private sector partner has decided it wants out. They had spent $100 million just two years ago. They want out so they can concentrate on their core business: electrical generation. It wants to put its energy into more acquisition of power generating facilities. Who can blame them? Private business does what private business has to do: make a profit. So the city government will, I guess, have to go it alone. But that, say the cynics, is Alberta. Footnote to TransAlta's focus on power generation is the announcement that Alberta's Enmax Corporation wants to join with Fording Coal Limited to create a 400-megawatt generating facility. Look out - here comes more smog.
  Last week, when I wrote about the empowerment of government as an agency of progress and prosperity, and our last best hope when things get tough, I said that we citizens, through government, have to do what business can't and won't do. If we take composting seriously, we have to delegate government to spend tax dollars to get it done, instead of trying to make it look profitable enough for private business to join in. If we need private participation, we must be prepared to pay for it. Those guys don't work for nothing.
  Government intrusion into private business has been a boon not a boondoggle. I happen to think that Federal money invested with Pratt and Whitney keeps Canada on the cutting edge of aerospace excellence. The same for our participation in the rescue of Bombardier/Canadair/DeHavilland. They are the fourth largest aerospace company in the world. By the way, it was that "horrible" Bob Rae who saved DeHavilland. He did it with our money too saving a steel mill in Sault Ste Marie and a paper company in Iroquois Falls.
  Finally, private does what private has to do. When things get tough they downsize. They pull in their horns. They reduce staff. But private is for profit, government is for people. When business pulls back, government must be prepared to move forward.
  Which is why budget surpluses are a sacred trust. Which is why government must not wantonly distribute that money in an orgy of political opportunism. If we restore citizen faith and respect in government we will restore the obligation for government to act for all of us. We will restore and rehabilitate government as a player in the economy, as an owner and an employer. Which is how public housing gets built and transit systems grow and the price of higher education is lowered - even one day to zero.

Has privatization helped the consumer? What do you think?

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