The Nation's Business

The new thinking in Paul Martin's budget

Peter C. Newman March 9 1998
The Nation's Business

The new thinking in Paul Martin's budget

Peter C. Newman March 9 1998

The new thinking in Paul Martin's budget

The Nation's Business

Peter C. Newman

There’s a vague but dramatic connection between Paul Martin’s new budget and Ontario Hydro’s recent blockbuster announcement that it will write off $6.6 billion, the business equivalent of the sinking of the Titanic. The multibillion-dollar hit, nearly twice as large as the previous record write-down—also taken by Ontario Hydro—may be signalling the end of a uniquely Canadian experiment.

Crown corporations like Hydro were ideally meant to take advantage of the economies of scale by being large public enterprises, yet run with the disciplines of the private sector. Such a mixed-economy approach was a blend well suited to this country, with its forbidding geography and the absence of a large enough market to justify private ownership in some essential industries. The combination prompted governments to create nearly 500 state enterprises, operating everything from the national airline to the national broadcaster. Provincially, this included the huge utilities that fed electricity to Canadians’ homes and the nation’s industrial machine.

The idea originated at the turn of the current century with Sir Adam Beck, the son of a German blacksmith, who gained his reputation as a manufacturer of cigar boxes and as mayor of London, Ont. He led the fight to harness the hydro power potential of Niagara Falls, because no single municipality could raise the funds necessary to build the required generating stations and generators.

In 1910, Beck became the first head of the Hydro-Electric Power Commission of Ontario, and turned the municipally owned, provincially financed co-operative into the world’s largest public power authority. He eventually drove private operators out of the industry, and the monopolistic Crown corporation was born. Later known as Ontario Hydro, it became the proud and successful role model for similar Crown corporations in other provinces.

But that was long ago. That was before a succession of dubiously motivated CEOs drove Ontario Hydro into the ground. When the utility’s horrific write-downs are added to its existing debt of $31 billion, it is obvious that the days of the Crown corporation are numbered—or should be.

The brave experiment has foundered on the inability or unwillingness of Hydro’s management to exercise any sensible fiscal discipline. Mismanagement on this scale would never have been tolerated in the private sector, where shareholders would have launched a class action long ago. No matter how strongly its executives deny the possibility, Ontario Hydro is bound to be broken up into several entities, with the most viable sold to private entrepreneurs. Ron Osborne, the musical-chair CEO due to take over this week, will need to move fast to restore confidence in a company whose dire straits

The days of Crown corporations are numbered as private-sector values come to dominate public decision-making

he bears no blame for creating. He has nowhere to go but up. And if he thought that his previous berth as head of Bell Canada called for panic stations, welcome to Ontario Hydro! The connection between this corporate nightmare and Martin’s status quo budget is a shared value system. It emphasizes that the value system of the private sector has come to dominate public-sector decision-making. This is true, whether it involves trying to set the future pattern for a crippled utility, or the future role of Ottawa in our lives.

Martin was meticulously nonpartisan in spelling out his intentions. The deficit’s back may be broken, but the national debt (a nasty $583 billion) remains; he will not allow anyone, however worthy their cause, to divert him, and that means never losing control of the national accounts, as Canada did in the Trudeau and Mulroney years. It also means that Martin, who is emerging as Canada’s ultimate oxymoron— an intelligent politician—is well aware that his budget-balancing performance is as much good luck as good management.

The largest item in Ottawa’s expenditure accounts remains the $41.5 billion wasted annually in paying interest on the national debt, and that figure will rise as interest rates climb. Similarly, Martin knows that the main reason he was able to balance the budget was not because of the $14 billion in program cuts the Liberals have implemented since coming into office in 1993, but because annual revenues have jumped by $26 billion since then. That total is bound to drop as the looming recession, triggered by the Asian economic free fall, overtakes the Canadian economy. Martin is doing the right thing cautiously, but don’t ever expect him to kick-start Ottawa’s free spending ways of the past.

Canadians grew up in the comforting belief that nothing that could be imagined was impossible, that life from generation to generation would become ever more bountiful, that governments would magically provide the fiscal infrastructure for such a Disneyland world. The expectation was based on the concept of universal access to government largesse, the snoozy notion that anyone who was born or became a Canadian automatically inherited the manna of heaven. As the political scientist the late Alexander Brady once observed: “The role of the state in the economic life of Canada is really the modern history of Canada itself.”

But the hoary cliché about there being no free lunch sadly turned out to be true. “English Canada has become a crèche, a permanent day care,” Scott Symons, the expatriate Toronto novelist once thundered. “Everybody wants their little bottle of milk. Everybody wants their nipple. It will take a generation to climb out of the hole we have dug for ourselves.” The age of entitlement is well and truly over.

Ontario Hydro and Paul Martin are sending out the same unwelcome message: from now on, we’re on our own.

Have a nice day.