Selling The Crown Corporations

December 24th, 2009 by Potato

I’ve long been opposed to the privatization of Canada’s Crown corporations. To my mind, most of them exist for very good reasons: to ensure service delivery in what might otherwise be an underserved market, to foster competition in a marketplace prone to monopolies/oligopolies, or to provide a service that private corporations can not be trusted to handle. In many cases to operate without profit as the prime motive. Plus privatization hasn’t served us terribly well in the past: look at Ontario’s 407 or Drive Test centres, for example.

However, with the recession putting a dent into the government budgets, there is a lot of talk about privatization again. I’m even more opposed to it now because in addition to the other factors, the timing isn’t particularly good. Interest rates are low, and there is demand for safe government bonds (or an aversion to risky investments). The government should have no problem issuing all the debt they need to cover the deficit in this environment, so a sale isn’t a necessity. More importantly, the private sector is going through some of the same pains of the recession — and with the flight to safety, have to pay a premium to raise money — so they’re not going to be able to put attractive valuations on the Crown corporations for buyouts. We’ll get more buck for our bang by waiting until conditions to improve to sell (at which point interest rates may be higher and the 5-year bonds may be maturing and all set to be paid off).

Call me a Keynesian, heck, call me a socialist, but to my mind the economy runs in cycles. The job of the government is to work against the boom-bust cycle: the government is supposed to run massive deficits during recessions to prop up the economy (and to weather the decreased revenue), and is supposed to pay that debt down during the good times with surpluses. However, everyone always seems shocked and appalled whenever a recession brings about the double-whammy of increased spending and decreased tax revenue, and the government starts racking up debt (though caution with debt is always warranted). When things turn around and a surplus is generated, people are again put off by the fact that the government is “over-taxing” them, and demand tax cuts and pork-barrelling, when the boom times are when taxes should be raised and the debt retired. If the government had to take over some failing industries in the downturn, such as say a railroad or two, the boom times might be a good time to spin that off in an IPO; not trying to sell of what good assets they have in a downturn.

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