Privatization is making a comeback

The Yukon's big transfer payments shelter us from many economic pressures. The latest craze, sweeping finance ministries from Australia to Ontario, is privatization.

The Yukon’s big transfer payments shelter us from many economic pressures. The latest craze, sweeping finance ministries from Australia to Ontario, is privatization. Left wing and right wing governments alike are taking a second look at one of Margaret Thatcher’s most controversial legacies, although politicians of all stripes try to avoid the p-word if they can.

“Public asset optimization” sounds so much better than Privatization 2.0.

Both Ontario and Australia have big infrastructure projects they would like to build, and voters aren’t keen on big tax increases. Unlike the Yukon, which boosted its capital budget by a whopping 38 per cent in its latest budget and still has transfer payment cash in the bank, these jurisdictions have tough choices about how to finance their roads, ports and Internet investments.

Cutting costs in government is hard work and can face stiff opposition from powerful public sector unions. Borrowing the money isn’t easy either, especially for a place like Ontario which has already run up a big debt. Ontario debt was $193 billion in 2007, but thanks to recent deficits it is expected to crack $300 billion in the next year or two. Ontario now spends around 10 cents of every tax dollar collected just on interest.

This has the Ontario Liberal government looking at privatizing government assets like the province-owned liquor stores, electricity grid and power generation. They are also thinking of selling off some prime real estate in Toronto, such as the headquarters of the provincial lottery company.

According to leaks in Australia, the newly elected right-wing government of Tony Abbott is also looking at selling $10 billion worth of national assets to pay for new road and rail projects. Ideas include the company that provides housing to Australian military personnel, Australian Rail Track Corporation and a publicly owned health insurer. There is even speculation they might try to sell Snowy Hydro, which would be as popular in Australia as the Yukon Party scheme to sell Yukon Energy a few years ago.

The Australian government has even found a few government companies that most voters probably didn’t know they owned. This includes Comcar, which provides chauffeured limousines for politicians and senior officials.

Support for privatization in Australia has come from an interesting source: the head of the competition tribunal, Rod Sims. He recently told the press that he believes the lack of competition in key sectors dominated by government companies, like mail and energy production, has hurt Australian productivity and cost regular Australians dearly.

“Government ownership versus private ownership massively affects the incentives people have to drive productivity change,” he recently told The Australian. He believes it is one of the single biggest opportunities to improve productivity in the country, given the size of government companies and the sectors they dominate.

Raising capital to recycle into new infrastructure projects and driving existing assets to be run more efficiently are two powerful arguments in favour of Privatization 2.0.

And not just Thatcherites are in favour of it. Some thoughtful voices in the centre and left of the political spectrum also support the concept for a variety of reasons.

First of all, it can generate billions for important 21st century infrastructure. It might make sense to sell off a 19th century asset like the national railway and use the money to build fibre-optic infrastructure for the future. With rising health and education costs, and public resistance to new taxes, privatization can make sense to a modern progressive politician who wants to get things done.

Secondly, people are realizing that the government doesn’t have to own Crown corporations in order to achieve public policy goals. It is sometimes easier to regulate a company when you don’t also own it, with its managers and unions inside government. One wonders if the Canadian government would have been so aggressive with regulatory orders to the railways about wheat shipments last winter had CN still been owned by the government.

Governments also own other assets besides Crown corporations. Government land is a classic example. Land acquired decades or even centuries earlier can become quite valuable over time. It is a legitimate question whether it makes sense for Canada to own a large multi-million-dollar villa in central Rome to house its ambassador. The Toronto Lands Corporation takes land owned, for example, by the school board and sells or leases it to pay for new capital projects.

The Yukon, with its transfer payments and cash surplus, is under little pressure to privatize so we will likely see little change to the status of Yukon Energy or the liquor corporation. Nor will we see many of the other moves cash-strapped governments are making, such as toll roads, sold-off Yukon Housing units or sale and lease-back of government buildings. Nor is the Yukon government under much pressure to allow more private use of the huge tracts of Crown land it controls.

There can still be good reasons for governments to own companies and other assets. But in an age of tight budgets and high public demand for new infrastructure, we can expect to see lots more questions being asked about government legacy assets.

Margaret Thatcher wouldn’t like weasel words like “asset optimization,” but I am sure she would smile to see politicians of all political stripes pushing the idea.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s Yukonomist show or Twitter

@hallidaykeith

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