How privatization became the economic dogma of our time

“Public Transit Privatization”, an illustration by Aaron Millard used during a public protest of a Metrolinx Board meeting in Toronto.

The following is an excerpt from Linda McQuaig’s new book, The Sport and Prey of Capitalists: How the Rich Are Stealing Canada’s Public Wealth, released this year by Dundurn Press.

Based on the notion that the private market can always do things better, the doctrine of privatization has become so pervasive that it is rarely questioned or challenged, becoming a driving force in our politics.

The benefits of privatization are routinely asserted with great confidence, although rarely with any proof. In fact, the evidence suggests the opposite: that privatization is costing us dearly in financial terms. It is also diminishing our collective power to own and control key aspects of our economy, our country and our lives, thereby shrinking our democratic capacity as a nation.

Of course, the push towards privatization is hardly unique to Canada. It actually started decades ago in Britain and the United States, and has had major impacts in both those nations.

But its impact is particularly profound in Canada – a country where public enterprise has played an especially important role.

For the first century after Confederation, Canada created impressive public enterprises and national programs – including power plants across the country, a national railway, a public broadcaster, a nationwide postal service, coast-to-coast transportation infrastructure, strong public health care and education systems, as well as a publicly-owned pharmaceutical company that pioneered medical breakthroughs and helped eradicate smallpox throughout the world.

Most of these national projects only came into being after hard-fought battles that pitted the public against a narrow set of financial interests.

After battling to put these public enterprises and programs in place, Canadians have spent the last few decades downsizing them or selling them off to private investors. After more than a century as nation-builders, we’ve spent recent decades as dismantlers or vendors of our ambitious collective undertakings.

Despite this recent privatizing, the impulse towards developing public solutions through government appears to be rooted deeply in our history.

As the late Canadian historian H. V. Nelles noted: “the concept of the positive, interventionist state did not have to be invented…[it] was the natural product of a colonial heritage and a unique economic history.”

Under British colonial rule, immense tracts of Canadian terrain were designated Crown lands, owned and controlled by the British Crown. Even after Confederation in 1867, the notion lingered that there was a share belonging to the Crown – although this share was now seen as rightfully belonging to the Canadian people, not the British monarch.

As Nelles put it: “The principle that a portion of ‘the bounty of nature’ properly belonged to the public had become one of the basic [Canadian] political values.”

This is in sharp contrast to the United States, which fought a revolution to sever its ties with Britain and then developed its frontier through “rugged individualism,” which emphasized the right of each homesteader to own his own piece of land. This highly individualistic creed left little room for a public domain.

These very different backgrounds at least partly explain how the U.S. ended up with a strong tradition of private enterprise, while Canada has excelled at public enterprise.

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Yet, we’ve often avoided creating public enterprises due to the opposition of the private sector – an opposition that only really disappeared in times of war.

Indeed, the Canadian genius for public enterprise reached a zenith during World War II, when the usual ideological baggage favouring the private sector was trumped by the need to pull together to fight Nazi Germany.

Canada’s war effort was masterminded by C. D. Howe, the powerful Canadian wartime cabinet minister who became known as the “Minister of Everything.” Although a wealthy, self-made businessman, Howe felt comfortable departing from capitalist practices in order to mobilize a massive public industrial effort to win the war. Under his direction, Ottawa created 28 wartime Crown corporations, which employed 229,000 workers and made significant technological advances in key areas like aviation, communications and weaponry.

In fact, the success of these Crown corporations exposed the fallacy of the notion that the public sector is inherently inefficient and lacking in innovation.

Victory Aircraft was a wartime Canadian Crown corporation that proved highly effective in manufacturing complex British-designed planes for the allied war effort. A Canadian government committee, noting the expertise developed by Victory, concluded in 1943 that it would be in the national interest for Canada to design and develop both military and commercial aircraft after the war.

But Howe was staunchly opposed to Victory’s continued operation as a Crown corporation after the war. As he wrote to the committee: “I suggest that the airplane business in the post-war period must not expect to find itself a ward of the Government.” Suddenly, with the prospect of peace, the notion of public enterprise was once again something to be denigrated as a mere drain on the state.

It’s extraordinary how men like Howe, who worked tirelessly in developing highly successful Crown corporations during the war, were keen to dismantle them once hostilities ceased.

Instead, Howe allowed British aircraft giant Hawker Siddeley to purchase Victory Aircraft, and set up a Canadian subsidiary known as Avro, which absorbed another successful Canadian wartime Crown corporation, Turbo Research Limited. Ottawa continued to provide financial support for these now-privatized aviation operations, investing more than $6 million in Avro between 1947 to 1952. This public financing enabled Avro to develop a promising 50-passenger seat commercial Jetliner, which caught the attention of American business magnate Howard Hughes, owner of airline TWA. Hughes offered to purchase 30 Jetliners for TWA, but the deal was opposed by C. D. Howe, who wanted Avro to limit itself to developing military fighter planes for use in the Korean War.

Although Avro missed out on the TWA deal, it went on to develop a military supersonic interceptor jet known as the Avro Arrow, which was considered one of the most advanced aircrafts of its time. But, apparently at the request of Washington, the Avro Arrow program was cancelled in 1959 by the Conservative government of John Diefenbaker. That controversial cancellation abruptly ended Canada’s ambitions as an innovative aircraft producer.

What is clear, however, is the role played by these Crown corporations – Victory and Turbo – in laying the groundwork for Canada’s emergence as a promising producer of modern aircrafts.

Another highly successful Canadian wartime Crown corporation was Research Enterprises. It teamed up with the National Research Council in Ottawa to design and produce more than $220 million worth of vital wartime components – radar equipment, binoculars, periscopes, range-finders, radios and wireless sets.

Indeed, Canada developed and installed one of the first operating radar systems in North America – a coastal defence system to protect Halifax harbour.

Yet, with the war winding down in May 1945, Howe announced the Liberal government’s intention to sell Research Enterprises, provoking considerable controversy in the House of Commons. Unmoved, Howe defended the decision in Parliament with a glib: “What are the peace-time uses of radar?”

Not all Parliamentarians were so short-sighted or ideologically blinded. Alastair Stewart, a Winnipeg member of the CCF, refuted Howe’s arguments in the House of Commons, noting that “eventually with the use of radar, we can expect that the day will come when aircraft will land with all the precision we associate with the movement of railway trains today.”

Stewart also understood that the expertise which Research Enterprises had developed during the war could be a springboard for the Crown corporation to diversify into related fields such as “measuring instruments, cameras and photographic equipment, motion picture projectors …television…surveying instruments…automobile and aero instruments…medical and dental equipment … commercial radio and FM sets.”

Sadly, however, Howe prevailed with his determination to shut down public enterprises, regardless of their promising potential. Research Enterprises was sold, with 13 of its manufacturing facilities purchased by Rogers Majestic, a Toronto radio equipment manufacturing concern that had been a major sub-contractor for the Crown corporation during the war. Rogers Majestic was owned by Ted Rogers Sr., and the company went on to focus on broadcasting (Ted Rogers Jr. would later become a billionaire in the Canadian telecommunications business).

By 1950, Rogers Majestic had sold the former Crown corporation’s manufacturing facilities to multinational electronics giant Philips. For several years, Philips manufactured lighting products at two Canadian factories, but by 2003, both these factories had closed. Nothing was left of Research Enterprises, nor any of the ambitious diversification possibilities once insightfully described by Alastair Stewart in the Parliament of Canada.

C. D. Howe was a towering figure during the war, and he has been credited with transforming Canada from a largely agriculture-based society to an industrial one. His legacy lives on today – somewhat ironically – through the C.D. Howe Institute, a business-funded think tank that has consistently promoted pro-market ideas. While Howe shared these ideas, it was actually his development of Canada’s wartime Crown corporations with their substantial manufacturing capabilities that laid the foundation for Canada’s evolution into a modern industrial nation. Once the war was over, Howe reverted to his conventional pro-market views, pushing for privatization rather than envisioning a future for the promising public enterprises he had built.

Many decades later, we are now faced with an urgent need to evolve beyond a modern industrial nation, powered by fossil fuels.

An enormous mobilization, on a scale similar to the one orchestrated by C.D. Howe, will be essential to fundamentally redesign our economy and society for the global green energy revolution. Indeed, given the urgency of the task if we are to avert climate disaster, it’s clear that a massive campaign of government planning, oversight and ownership – along the lines of what was achieved during the war through government planning and Crown corporations – will be needed.

Once again, the task is too big and too important to be left to the private marketplace.

Linda McQuaig is the recipient of a National Newspaper Award for investigative reporting. She is also the author of eight national bestsellers, including Shooting the Hippo, selected by the Literary Review of Canada as one of the twenty-five most influential books of the past twenty-five years.

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