1010 Class 5: Government Business Enterprises

1. 1010 Class 5: Government Business Enterprises

2. What is an Ideology? • It refers to a set of shared values, beliefs and ideas, and perceptions through which persons interpret events of the past, present and future. • It also refers to an explicit doctrinal structure providing a particular diagnosis of the ills of society. • It will include an accompanying action program for implementing the prescribed solution.

3. Settlers to Canada brought with them the ideologies of Old Europe Conservatism • Aristocracy • The Church • The status quo Liberalism • The rising commercial class. • Change agents • Traders

4. The Dominant Ideologies of Canada Political • Conservatism • Liberalism • Social Democracy Economic • Capitalism within the context of a mixed economy.

5. What is a Mixed Economy? • Government regulated Competition • Government protect indigenous industries. (In Canada, timber, fish, mining, manufacturing.) • Government protects and develops social programs.

6. Canada’s Economy in Flux • In the 1960’s and 1970’s Keynesian economics with increasing government intervention in the economy was popular. • Governments owned and operated airlines (Air Canada), oil companies (Petro-Canada), and steel companies (Sydney Steel). • Government was interventionist in its approach to the economy.

7. John Maynard Keynes • His ideas emerged out of the disaster of the great depression. • Government is obliged to bring full employment. • His contributions were well read in the US and Britain in the 1930’s and contributed to Roosevelt's ‘New Deal’. • Keynes was a major contributor to the concept of the mixed economy. • What is a mixed economy?

8. John Maynard Keynes • "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.“ John Maynard Keynes - The Economic Consequences of the Peace (1919)

9. Ludwig Von Mises • “All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamoring for the products it turns out.”

10. Milton Freidman • “Underlying most arguments against the free market is a lack of belief in freedom itself.” Milton Freidman

11. The Neo-Conservative Movement • Led by leaders like Thatcher in Britain they believed in minimal but strong centralized government • Free but regulated markets. • They were but tough on crime and were Free Traders.

12. Is Canada’s Economy Changing? • In the 1980’s and 1990’s Neo-Conservative ideas began to emerge in Canada and governments felt they no longer needed to protect domestic industries. • NAFTA, Canada-US Free Trade, Privatization, and the dismantling of the social welfare state became normalized. • J.M. Keynes Out (well, not really)

13. Major Influences in the Redefining of the Marketplace • Liberal economic theorists believed that the pursuit of profit will serve the best interests of society • That the market will self regulate. • Government should not intervene in the marketplace. • The ‘invisible hand’ of the marketplace.

14. Reinventing Business and Government Relations • A new role for government was envisioned and defined: • Elimination of the burden of overlapping federal and provincial jurisdictions. • The downsizing governments role through deregulation

15. Reinventing Business and Government Relations • A new role for government was envisioned and defined: • More lenient enforcement of regulations. • Offering economic incentives to companies to meet the challenges of the global marketplace.

16. Government Business Enterprises (Crown Corporations) • A GBE or crown corporation is any enterprise that is substantially owned by the government. • It is an institution brought into existence by government to serve a public function. • It may function in many ways like a private company. • Aka Crown agency, public enterprise.

17. Types of GBE’s • Commercial Crown Corporations – sell at market rates their goods or services. Sask Tel, Petro Canada (past) CN (past) • Economic Development Crowns – Atomic Energy of Canada, Via Rail, CBC, Marine Atlantic. They are assisted financially by government to provide a economic benefit. • Social and Government Service Crowns – Superbuild, CRA, Canada Lands Corp, ORC

18. Why Should Governments Own Business? • Perhaps a monopoly exists in that sector. Regulators have shifted to a more flexible incentive based regulatory approach.

19. Why do Governments Create Crown Corporations • Where the industry itself may lend itself to a natural monopoly (power, water) • Where the industry might experience wide price fluctuations and incomes (natural resource sectors) • Cultural issues

20. Major Objectives of PublicOwnership p. 278 • Promote economic development as nation building tool in the promotion of transportation, communication and resource development. • Promoting government ideology (auto insurance BC) • Correcting market failures - to go where the private sector refuses to go (EDC Canada)

21. Major Objectives of PublicOwnership II p. 278 • Protecting employment - As a means to promote regional development. • Commercializing and under performing area of public sector activity- Via Rail, LCBO, Canada Pension Plan • Excising policy control over a strategic industry Air Canada, Teleglobe, AEC, Polysar (synthetic rubber)

22. Polisar

23. Crown Corporation Under Attack Crown Corporations were attacked by their critics as being: • Costly • Bloated • Unresponsive • Unaccountable • That they compete unfairly against the marketplace. • They have outlived their useful lives.

24. Ideas • Neo-Classical economists during the late 1970’s and 1980’s persuaded government the subsidies to business were a major source of economic inefficiency. • School of new public management.

25. Critics of Nationalization • Claimed that government measures distorted market values and resulted in inappropriate compensation. • There was, however, great concerns about the extent to which crown corporations might be acquired by foreign interests.

26. Case: The Creation of the CNR • Railroad maps • Immigration to Canada • Settlement of the West

27. Factors the Lead to the Development • Expansion of Agriculture in the Prairies • Immigration to Canada

28. Laurier in 1903 “I think that we can claim that it is Canada that shall fill the 20th century”

29. What was Wilfred Laurier trying to accomplish by building two Railroads? • Continue Sir John A MacDonald’s nation-building • Boundaries • Provinces • Agriculture and infrastructure • French-English connections

32. Alison Kemper ADMS 1010

33. Railway Boom and Crash

34. What did Robert Borden inherit when he was elected PM? • The Railway Mess • Three intercontinental railways • Fewer than 7.5 million people • Financially weak • Unable to meet debt obligations • Banks at risk

35. 1917 Royal Commission • 3 people, two recommendations • Smith, the American, recommends • Canadian Northern take over Grand Trunk Pacific in the West, • Grand Trunk take over Canadian Northern in the East, • Government take over the routes in the middle (uneconomic ones)..

36. Royal Commission • The Majority Report • All lines be nationalized.

37. Too Much Capacity Three railroads to serve a population of 8 million people

38. In the meantime. World War One (The Great War) began August of 1914 and ended Nov 11, 1918.

39. Prohibition

40. The Outcome • Dominion (Canadian) National Railways • Non-partisan board • Permanent company • Not subject to the parliament

41. Canadian Pacific opposes the deal • Not fair competition • They offer to operate the railway • Claim (along with the Liberals) that this was bad public policy motivated by friends in trouble

42. 5 November 1919 The Grand Trunk Acquisition Act is passed and the Railway is Nationalized.

43. Arthur Meighen The father of railroad nationalization.

44. Unionist Party of 1917

45. Results of the election • Borden is elected by a landslide. • His CNR plan is accepted. • Troops and goods moved freely. http://upload.wikimedia.org/wikipedia/commons/3/3a/Canada_1917_Federal_Election.svg

46. Problems with CN Part 1 • Abnormally high operating costs. In seven of the ten years between 1985 and 1995, the CNR's revenue from freight operations failed to cover its operating costs. To compensate for the shortfall, the railway raised the fees it charges other carriers to use its lines, driving down traffic and increasing shipping costs. But its owner, the federal government, acted as a patron and covered most of the difference. Because it could rely on this support, the CNR was able to avoid taking the steps necessary to become profitable.

47. Problems with CN Part 2 • Excess trackage. After railroads were deregulated in the U.S. in 1982, they shed 25% of their unprofitable lines. Between 1985 and 1995, the CNR trimmed only 15%. That left one-third of its track carrying only 1% of its freight volume. Less than half of its runs made money. It had failed to close more because of government regulations and its mandate as a service-oriented Crown corporation. Hearings to authorize more closings became political minefields, and the railway was forced to keep many open because of pressure from elected officials and voters.

48. Problems with CN Part 3 • Labour problems. For decades, the CNR employed many more people than necessary to run its operations. To remain competitive after American deregulation, it was forced to rationalize its workforce. It cut about a third of its workforce between 1992 and 1995 - about 11,000 jobs - but remained overstaffed. Labour costs, which represented 43% of the CNR's revenue in 1992, had fallen to 38% by 1994, but above the U.S. average of 36%. Arcane rules set up in past negotiations with labour unions made it more difficult and expensive for the CNR to cut staff.

49. Privatization of CN • In 1993, the National Transportation Act Review Commission recommended that the CNR be privatized. Transport Minister Doug Young took up that cause two years later. In his 1995 spring budget, he announced the government's intention to sell the railway, saying, "If the government doesn't need to run something, it shouldn't . . . and in the future, it won't.”

50. Privatization of CN • Deregulation of railroads in the United States caused a massive restructuring of the industry, and the CNR's ability to keep pace with rapidly shifting circumstances was compromised by its Crown corporation status. The changes that the CNR needed to implement to become a strong competitor like dropping unprofitable track or reducing its bloated workforce, could not be made without running a political gauntlet.