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Privatization pros and cons

March 25, 2015   ·   0 Comments

AT TIMES WHEN GOVERNMENTS find themselves facing recurrent deficits, privatization is an option they often embrace.

That’s the case with Ontario’s current Liberal government, with rumours abounding that the upcoming provincial budget will disclose plans to sell off some or all of some government assets. Two frequently mentioned as being up for grabs are the Liquor Control Board of Ontario (LCBO) and Hydro One, the transmission and retailing wing of Ontario Hydro before it was dismantled by the Conservative government of Mike Harris.

Privatization has been around a long time, and in Canada has amounted to a reversal of nationalization, a phenomenon witnessed early in the 20th Century in the formation of Canadian National Railways as a means of staving off the collapse of several private railways.

However, the federal government wasn’t alone in opting to create publicly owned corporations like the CBC, Air Canada and Atomic Energy of Canada Limited (the latter two having, like the CNR, since been privatized). Ontario led the way among the provinces with the creation of Ontario Hydro by a Conservative government that saw power at cost as a key weapon in attracting industry.

Since then we have witnessed the creation of publicly owned electric utilities in British Columbia, Saskatchewan, Manitoba, Quebec and the Maritimes (but not in Alberta), and in B.C. the Social Credit government of then premier W. A. C. Bennett also created B.C. Ferries, a government-owned coastal ferry system.

In most cases, public ownership was seen as the best means of providing important services at lower cost to the consumer.

That certainly was the case with Canada’s medicare system, which has seen private insurers replaced by government monopolies, and B.C.’s creation of the Insurance Corporation of British Columbia (ICBC) as the sole provider of car insurance there.

Ironically, some types of privatization are now being promoted as doing precisely the same thing. A classic example is in the moves by Toronto and other large cities to privatize garbage collection. The perceived benefits, apart from less likelihood of strikes by the collectors, include better equipment and lower labour costs.

That seems to be what has happened in the case of highway maintenance, successive Ontario governments having concluded that competitive bidding among construction firms will ensure that the work once done by government equipment and personnel can be done just as well at lower cost to the taxpayer.

However, that’s not necessarily the case, particularly when a government sells off a natural monopoly without being able to regulate the privatized entity.

That is, of course, what happened when the Harris government sold its toll highway, 407, to a private consortium as a means of being able to claim it had balanced its budget.

Although the consortium has done a good job of maintaining and widening 407, the tolls currently imposed are far higher than they would have been if the roadway had either remained publicly owned or toll increases were subject to government regulation.

In considering whether to sell some or all of Hydro One, the Wynne government is likely examining what appears to have been a highly successful form of privatization, the awarding of a contract to Bruce Power to manage the Bruce Nuclear Power Development. Today, there seems little doubt that Bruce Power has done a better job of managing the eight nuclear power units than the publicly owned Ontario Power Generation has at Pickering and Darlington.

But does that mean similar success could be expected from privatizing Hydro One?

And would privatizing the LCBO guarantee anything more than higher prices for alcoholic beverages? We wonder.

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