robinson@ubc-ean.CDN (Jim Robinson) (08/14/84)
Mark Hume writes > Certainly when the government acts as if it were the private sector, > that is with Crown corporations, it has the same ability to create wealth > as does the private sector. Unfortuneately, that is all the government is doing in such situations, namely acting. It is almost impossible for the government, which is not constrained by the market place ( as far as being competetive and having to have to justify their actions to sharaholders ), to operate in the private sector as if it were a private entity. They KNOW that they cannot go bankrupt, and that knowledge almost ensures that they will not be as efficient as a private sector company. If things go bad for them they merely reach a little deeper into the infinite well ( at least they think it is ) that is the taxpayers pocket. I have long come to the conclusion that the purpose of a Crown corporation is NOT to make money ( and thus create wealth ), but rather to carry out some other specific goal. e.g. Petrocan's goal is supposedly to help Canadians have some control over their oil resources and not to leave the multinationals with all the power. ( It certainly is NOT to give Canadian car drivers a break since they charge the same as the other oil companies but do not pay a cent in taxes ) An incident which examplifies (sp) very well the government's inability to operate as a private sector entity is the bonuses paid to the Canadair and De Havilland executives who helped those companies rack up incredible losses. ( I believe the government was forced to give Canadair an infusion of over a billion [ yes that's a 'b' not a 'm' ] dollars ). The justification for this obscene use of my money and yours was that the bonses were needed to keep theses executives from going into the private sector . Well, I don't know about you, but if I were involved in a company in the private sector the LAST people I would want running it would be those guys. [ As an aside note that De Havilland was purchased by the government in 1974 and was supposed to be sold when a responsible Canadian buyer could be found - guess there ain't too many responsible types out there ] At any rate if anybody out there has figures on the profits and losses of the 400 or so Crown corporations I would be very interested in seeing them. My underlying interest is in seeing how much they cost the taxpayer every year. By the way, don't forget that the post office is a Crown corporation and it sure isn't a model of efficiency. P.S. Glad to see that there are people out there. In my humble opinion, one of the problems with this country is that the people have abdicated their right to have a say in how things should be run. They are quite content to sit back and let the politicians do it, and since their main purpose in life is to be (re)elected and NOT to manage the country in a fair and efficient manner it is no surprise that Canada has got the problems it has. So let's hear it from any and all out there - the Socialists, the Capitalists, the Communists, and the Libertarians ( and anyone else ).
mmt@dciem.UUCP (Martin Taylor) (08/15/84)
Jim Robinson writes:
******************
Unfortuneately, that is all the government is doing in such situations, namely
acting. It is almost impossible for the government, which is not constrained
by the market place ( as far as being competetive and having to have to
justify their actions to sharaholders ), to operate in the private sector
as if it were a private entity. They KNOW that they cannot go bankrupt, and
that knowledge almost ensures that they will not be as efficient as a
private sector company. If things go bad for them they merely reach a little
deeper into the infinite well ( at least they think it is ) that is the
taxpayers pocket.
I have long come to the conclusion that the purpose of a Crown corporation is
NOT to make money ( and thus create wealth ), but rather to carry out
some other specific goal. e.g. Petrocan's goal is supposedly to help
Canadians have some control over their oil resources and not to leave the
multinationals with all the power. ( It certainly is NOT to give Canadian
car drivers a break since they charge the same as the other oil companies
but do not pay a cent in taxes )
******************
What should be the ideal natural history of a Crown Corporation? I know,
I know, some of you would say "stillbirth". But let's suppose that
there is a reason for having a Crown Corporation rather than a direct
element of the Civil Service to perform some action on behalf of the
people (that's us, folks).
Firstly, why is the Crown Corporation there? There are several reasons,
all leading to different develomental paths: (i) one or more failing
companies in an important field, where their failure might lead to
a monopoly or to loss of the field for Canada (CN is a good example);
(ii) non-existence of business in a field deemed important; (iii)
need
for a business in a field unlikely to be profitable for a private
company (AECL);
(iv) domination of a field by foreign companies, where startup of a
new company would be difficult but in the national interest (Petrocan).
(v) initiation of a business having considerable risk of failure but
potential for great profit (e.g. micro-electronics). Typically, a
gambling house will win if it has enough backing, but an individual
bettor is more likely to lose because of fluctuations that at some moment
pass his ability to pay, even though the expectation may be in his favour.
There are probably other reasons, as well. Also, I bet that lots
of Crown Corporations are created for other reasons that I would
call illegitimate (Canada Post, for example).
Crown Corporations (i) may need considerable infusions of public
money until the revived company or companies can stand on its/their own.
When they are profitable, I don't see any argument one way or the other
for selling them to someone who might see a way to make them even more
profitable (though I wouldn't want to sell off CN or Air Canada, no
matter how profitable they might be).
Crown Corporations (ii) and (iv) also demand public money, possibly a
lot in case (iv), but perhaps not so much in (ii). In these cases,
there seems to be a better case for going private once the companies
are sturdy. However, because it is assumed (by me) that the reason for
the Crown Corporation existing in the first place is that it is important
for the country that there be a Canadian presence in the field, therefore
we have to be very sure that the company will not fail once it gets into
private hands.
Crown Corporations (iii) will never be sold, and probably will always
cost more than they earn. Their benefit is in the increased profits
that they can bring to other parts of the economy (nuclear techniques
and materials from AECL, for example). They are not (or should not be)
net costs to the taxpayers, because the money going out through them
comes back from many sources.
Crown Corporations (v) will either die or be sold at a large profit
to the taxpayers (or might be kept, to feed their profits into the
Treasury, depending on your political philosophy).
One illegitimate reason for creating a Crown Corporation is that the
organization cannot function under Civil Service regulations. It is
the regulations that should be changed, not exempting one small part
of the Civil Service from them. ALL the arguments that were used in
deciding to create Canada Post could be applied equally well to the
Defence Department! Canada Post should be a part of the Civil Service
and therefore (don't laugh) directly responsible to the people of the
country. It should never be a profit-making organization, since
communication is essential for the country's welfare. As with
excessive gasoline taxes, excessive postal rates inhibit the economy.
(There are separate arguments in favour of having very high gasoline
taxes.)
I don't think there is any natural law that says the profit motive
will create efficiency and nothing else will do so. Generally, the
motive of being perceived by onesself and others as performing well
is a pretty powerful one. Lack of recognition is a great morale-
destroyer, and one that I think is responsible for a lot of Canada's
sad labour history (I mean that the workers don't get recognized as
people with a stake in what they are doing). The problem with the
Civil Service is similar, and one reason (illegitimate) for forming
Crown Corporations: "We can't pay the top people enough in the Civil
Service to get good executives and managers." What a damning comment
on a public that insists on having a good Civil Service but also on
not paying adequately for that service.
There seems to be no single ideal natural history for a Crown Corporation.
Some should be formed, stabilized, and sold; some should grow and
be perpetually supported; some should grow and die when the need for
them ceases. There should be no demand on them to be efficient and
profit-making, unless that is part of their specific mandate. It is
probably better that we have a functioning De Havilland that will sell
its planes when the world economy recovers from its Reagan staggers
than to let it die because it costs a billion to keep it through this
period. (I recognize that there are legitimate arguments on the other
side, but that's where I would put my $250 or whatever I contribute to them).
Perhaps the top brass made some bad judgements, but perhaps they didn't
and things could have been much worse.
--
Martin Taylor
{allegra,linus,ihnp4,floyd,ubc-vision}!utzoo!dciem!mmt
{uw-beaver,qucis,watmath}!utcsrgv!dciem!mmtchrisr@hcrvax.UUCP (Chris Retterath) (08/16/84)
+
I have been thinking about Crown corporations and was interested
to see Martin Taylor's (mmt@dciem.UUCP) defense for having them.
For some reason this county loves to set up government companies,
much more than many other Western nations. I personally think
that, as a consequence of our relative economic backwardness
and proximity to the largest economy in the world, we want
the market to move faster and provide things that we have
"deemed" desirable -- therefore, the government is pushed into
"doing something" to solve our frustrations.
Just going over the items Martin has raised, it is interesting to
note how subjective they really are. For example, his point (i)
states that a faltering *important* business that is a national asset
would be a prime candidate for nationalization.
(Note: I am not quoting directly, and all italics (*) are mine; the
5 points as presented by Martin appear below.)
Obviously, someone has to decide just *how* important the business is,
and be alarmed sufficiently by the poor performance of that business
to decide that it will disappear COMPLETELY unless something is done.
What I don't think is realized by the doom-sayers is that companies
that do go under are often taken over successfully by other parties,
with "business as usual" minus the unprofitable bits. Example? Well,
if Chrysler HAD gone belly up, do you really beleive that GM/FORD/NISSAN,
or other companies would NOT have bought out the manufacturing plants,
et cetera? Particularly at bankruptcy prices? Martin places CN into
this category of business; do you really beleive that the ENTIRE CN
empire would have been disbanded if CN had gone broke? Of course not;
private companies would have bought the profitable tracks and useful
rolling stock and provided a rail service. Unprofitable rail lines would
have been closed down immediately, rather then years later as CN is
currently doing, after wasting millions of tax dollars keeping the lines
open!
In category (ii), a business is non-existant in a field that is
*deemed* to be important. Alright, how do you decide? What is important
and necessary for some may be overpriced, inefficient, and downright
silly for all. Since Martin has no examples in this field, I assume
it is because he cannot think of any (I may be wrong), and I cannot
think of any myself. Oh yes, there is the case of the guy building
fiberglas coffins on an Indian reservation somewhere with government money;
for some reason he is having trouble selling the coffins. Seems that the
idea hasn't caught on yet. My argument is that this is silly, and that
a new venture like this should have been financed privately.
Category (iii) covers businesses in a field unlikely to be
profitable for a private company. The example that Martin uses in Atomic
Energy of Canada, Ltd. This is a bad example given that AECL is likely
NEVER to be profitable -- their loss statements are in the order of
millions a year. Martin's argument says that AECL brings other profits
to the economy and consequently are not net losers. Well, I don't buy this,
because the money that is used to run these unprofitable dinosours could
have been used to provide other things that the market wants more of.
Two can play at this "total social benefit" game -- I would first have
to be convined that there ARE other profits coming in and not just to a
few small engineering companies affiliated with AECL; and secondly,
there IS a cost to the people who have had their money confiscated from other
far better investments that probably would have had a higher net benefit!
Those lost benefits are not entered onto the balance sheets of national
companies!
Category (iv) covers nationalization for nationalistic reasons;
"...in the national interest". This is an interesting category because
it is not concerned with economic efficiency, or, indeed, any sort of
rational thinking whatsoever. We want to "own" it -- whatever that means.
Why don't you go go and buy stock in a foreign company -- you will then
have a far more tangible form of ownership in that company? What exactly
are the benefits of having our "own" oil company, anyway? Are their prices
cheaper? If so, is it at the expense of our tax dollars? I think that the
answer to this is fairly clear in Petro-Can's case -- the gasoline/oil
is the same price with the added insult of an extra at-first-temporary-but-
now-permanent tax to pay for the company. The only national interest at
all applicable would a war or other national emergency, and it is not clear
that we need an oil company for that. We fought WWI & II without one, and
future conflicts are unlikely to be as prelonged. An oil crisis? C'mon,
folks, that legend is dead. How about increased self-sufficiency; we
can explore for our own higher priced oil on the frontiers while the
world has an oil glut!
Category (v) covers a large risk of failure to a new business.
Ye gods, has the man never heard of venture capital, bank loans, trust
companies, or credit unions? Do we really need a new crown corporation
for every high-tech window? The new techie centres popping up all over
the hinterland are pure puffery --- political porkbarrels of money
handed to places like Peterborough and Dalhousie to hire high priced
people from the industries that need them and then provide some of their
services to the local fledging non-existant electronics industry!
Martin feels that a large backing is necessary to get started; I guess
Steve Wozniak didn't agree when he started Apple from his garage.
Did Ford need a nationalized industry to start mass producing automobiles?
Would we be better off as a nation if we gambled stolen tax dollars on
many new industries in the hope of a "jackpot" payoff, or if we left
the gambling to those trained people in the financial world who support
new companies? Is there really any comparison?
Martin makes the comment that we are better off with a functioning
De Havilland -- maybe we would be even better off if it was sold off to the
highest bidder and a re-vitalized smaller company started selling planes!
Here are Martin's original categories, from <1050@dciem.UUCP>:
~ Firstly, why is the Crown Corporation there? There are several reasons,
~ all leading to different develomental paths: (i) one or more failing
~ companies in an important field, where their failure might lead to
~ a monopoly or to loss of the field for Canada (CN is a good example);
~ (ii) non-existence of business in a field deemed important;
~ (iii) need for a business in a field unlikely to be profitable
~ for a private company (AECL);
~ (iv) domination of a field by foreign companies, where startup of a
~ new company would be difficult but in the national interest (Petrocan).
~ (v) initiation of a business having considerable risk of failure but
~ potential for great profit (e.g. micro-electronics).
All opinions are my own; comments are welcome.
--
Chris Retterath
{decvax,utcsrgv,utzoo}!hcr!hcrvax!chrisrjohans@mprvaxa.UUCP (David Johanson) (08/24/84)
Jim Robinsonays in his message: "By the way, don't forget that the post office is a Crown corporation and it sure isn't a model of efficiency." If you chech the records, The post office is no longer a CROWN CORPORATION. It's charter ended in 1983. just ask a postman. david johanson