BUSINESS

PRIVATIZING THE SYMBOLS

TOM FENNELL March 6 1989
BUSINESS

PRIVATIZING THE SYMBOLS

TOM FENNELL March 6 1989

PRIVATIZING THE SYMBOLS

BUSINESS

In one of Canadian history’s least likely twists, Saskatchewan, the cradle of Canadian socialism, is rapidly becoming a symbol of free enterprise. Ever since Tommy Douglas became premier at the head of Canada’s first socialist government in 1944, he and his successors in the New Democratic Party aggressively used Crown corporations to spearhead economic development. But, now, Saskatchewan’s Conservative premier, Grant Devine, is selling off some of the province’s largest publicly owned corporations and he has made it the dominant economic and political issue in the province. And his private-sector gospel is not limited to Saskatchewan. Last week, Devine returned from a month-long trip to Asia, including stops in Hong Kong and

NDP GOVERNMENTS BUILT THE CROWN COMPANIES THAT THE TORIES NOW WANT TO SELL OFF

Tokyo, where he tried to find investors willing to buy into the Potash Corp. of Saskatchewan (PCS)—the largest monument to NDP economic policy in the province.

Devine has left little to chance in his privatization campaign. He imported a British strategist and held a long series of public meetings to explain the initiative, and, just to get the public used to investing in Crown corporations, the government floated huge bond issues in two Crown corporations. Since his re-election in 1987, the province has sold almost $700 million in assets, and now plans are almost final to sell another $1.5 billion worth, including the giant PCS and the Saskatchewan Mining Development Corp. Devine says that money raised from the sale will be used to erase part of the $3.3 billion in annual deficits that Saskatchewan has accumulated. But critics say that the premier is blinded by ideology and that his actions will erode the province’s economy.

The biggest political battle will be over potash. The pink-and-white-colored ore, which is used around the world in fertilizer, has been an emotional issue in the province for years. Premier Allan Blakeney successfully started to nationalize the industry in 1976 when U.S. firms controlling the sector refused to expand production. The PCS now operates five mines and has assets of about $1 billion. It is the largest potash company outside of the Soviet Union, and, because the PCS was the flagship of the former NDP government’s fleet of Crown corporations, it is an important political and

historie symbol. That is an image the Tory strategists say they must eliminate if they are to carry out a successful privatization plan.

As the debate over the potash sell-off rages, government strategists say that Devine will have to remind taxpayers that the PCS has lost millions of dollars, while convincing potential investors that the giant mining firm can still succeed. There are signs that he will be able to manage that. After losing $103 million in 1986 and another $28 million in 1987, PCS executives are projecting a profit for 1988. But even if the firm does turn the corner, it will be largely because of the fact that the government two years ago assumed $662 million in the PCS’s long-term debt to make the corporation attractive to investors. And Devine regularly points out that the province is paying $220,000 a day merely to service that debt. But at least one leading potash industry analyst said that

the issue will be popular. Said John Douglas, a fertilizer industry analyst with Douglas Associates in Florence, Ala.: “The damn thing will be oversubscribed immediately.”

The government is also attempting to privatize the world’s largest uranium producer. Last year, Ottawa and the province merged the federally owned Eldorado Nuclear Ltd. and the Saskatoon-based Saskatchewan Mining Development Corp. to create Cameco-A Canadian Mining & Energy Corp., with assets of $1.5 billion. Now the government wants to sell its position in Cameco through a share issue in the new firm. Like the PCS, the Crown mining corporation was an NDP policy instrument. Chartered in 1974, it was given the mandate to become a major developer in the province’s

booming mining sector—particularly uranium. And it was given the right to purchase 50 per cent of new mines in the province. Mining analysts say that Cameco may ultimately be a good buy because it has become profitable since its merger.

As part of its privatization effort, Devine’s government is pushing a parallel political agenda aimed at winning popular support. Before embarking on the outright privatization of Crown corporations, the government first offered public participation through the sale of interest-bearing bonds in two major publicly owned firms. If investors make money on the bonds, some government strategists predict that Saskatchewan residents will be reluctant to oppose a share offering.

As well, since late last fall, the province has staged 17 weekly town hall-style meetings to explain the share issue. And to help plot

its course on privatization, Devine brought in a leading strategist from Britain on contract as a private consultant. Oliver Letwin, 30, a former domestic-policy adviser to Prime Minister Margaret Thatcher who now heads the privatization unit for N. M. Rothschilds Bank of London, has been a “public participation” consultant for the province since January, 1988. Letwin said that privatization will not prevent the government from achieving the same social and economic objectives that NDP leaders insisted could only be achieved through public ownership. He argued that through legislation, including tax policy, the province can still influence the private sector.

And the government also needs the revenue from the sales. Since taking power, the Devine government has spent almost $3.3 billion more than it has collected in revenues. Finance Minister Gary Lane said that he wants to erase most of the red ink by balancing his budget before the next provin0 cial election, which is expected in 1 1990. As well, Michael Walker, execu! tive director of The Fraser Institute, a ^ free-market think-tank in Vancouver,

said that if the sales move ahead, not only will the province reap $1.5 billion, but taxpayers will also gain because they will no longer have to support the sometimes money-losing Crown corporations.

Although the opposition NDP takes responsibility for creating most of the province’s Crown corporations in the name of public participation, they argue that it is the Devine Tories who are now blinded by ideology. Said NDP Leader Roy Romanow, a central figure in the Blakeney government’s nationalization of the potash industry: “The Devine government is simply privatizing for the sake of privatization.” And if the PCS share issue sells out, the NDP’s pride in its list of Crown corporations could well become history.

TOM FENNELL

DALE EISLER