Research Paper on Crown Corporations in Canada

Crown corporations constitute an essential part of Canadian economy and, traditionally, they play an important role in the life of the country affecting not only economy, but also political and social life of the country. At the same time, it is necessary to underline that the creation of crown corporations in Canada was not accompanied with a considerable interference of the government into economic life of the country. In fact, it was rather an attempt to take under control strategically important companies which needed the governmental support and, what is more important, which should serve to the interests of the public and, therefore, needed the establishment of the public control over their functioning. However, in recent years, the role of crown corporations has started to decrease and the government has launched the program of their privatization that potentially may result in the minimization of the presence of the government in the national economy and the total loss of control or influence on the former crown corporations that may change considerably political, social, and, naturally, economic life of the country.

First of all, it should be said that crown corporations has started to appear since 1918 when Canadian National Railway was nationalized (Bets 1996). The number of crown corporations gradually grow until the second half of the 20th century. Since 1980s the government has started to decrease its activities in the national market and has not nationalized any company after the nationalization of Canada Post which was turned into crown corporation in 1981 (Watkins 1989). Naturally, the government initiated the creation of crown corporation not because of its attempts to limit private capital somehow but by the actual necessity. In this respect, it should be said that basically, crown corporations were created because of economic, social or political considerations.

Speaking about economic considerations of the government which stimulated the development of crown corporations, it is necessary to point out that the government decided to nationalize Canadian companies under the impact of objective economic factors. It should be said that the development of the national economy was based on the principles of the open market economy. Despite its progressive character, this model of development exposed some companies to the risk of bankruptcy in the case of some financial difficulties. At first glance, the government should not interfere in this natural economic process, but the problem was that the companies grew and so did the economy. What is more important some companies gradually transformed into monopolies to the extent that they could fully define the rules of the ‘game’ in the national market (Bliss 1987). Naturally, such a situation threatened to the economic interests of Canadian people since the downfall of such a company could be a real economic disaster for the entire country because of its monopolistic position in the industry. As a result, the nationalization was the way to prevent economic crisis in certain industries as well as in the national economy at large because the problems of Canadian National Railways if it remained a private company would inevitably affect all other industries and branches of Canadian economy (Mackintosh 1994).

Moreover, financial problems of private corporations would lead to numerous social problems, including unemployment, lack of financial support of some categories of employees, which needed additional support crown corporations could provide them with (David 2000). At the same time, many nationalized companies were really important for the public and this is why they needed to be nationalized to serve the interests of the public and not to the interests of private owners.

Not less significant was the nationalization from the political point of view and the World War I turned to be a serious stimulus to the creation of crown corporations. To put it more precisely, the World War I revealed the necessity of the considerable resources that should be constantly at hand of the government in the case if another military conflict started (Gillespie 1990). This means that Canadian government had to control strategically important corporations which could provide the army and the entire country with the strategically important resources, infrastructure, etc. This is why it was extremely important that government could control these strategic companies because, in the case of a war, for instance, the government could hardly mobilize private companies as affectively as it could do in the case of crown corporations. In the modern, world, it is also quite significant that the government could control strategically important companies. Otherwise, these companies would be acquired by foreign companies and Canadian would simply lose control over them. For instance, Air Canada, which, though had been privatized recently, when it was a crown corporation, was controlled by the national government and, therefore, it was supported and remained competitive in the market providing the country with an alternative to foreign companies. However, after the privatization of this company the risk that this company would be acquired or influenced considerably by foreign companies, especially American ones, had increased considerably (Brewis 1996).

Obviously, such a situation may be potentially dangerous because if foreign companies establish their control over the national airlines, it may be a real threat to the national security since the country would be practically deprived of an opportunity to influence the policy of a foreign owner of the company. In fact, this trend will be common to all crown companies that the government is going to privatize (David 2000). In this respect, it is necessary to remember that along with the political threat of losing control over strategically important industries, it may affect economic and social interests of the country. For instance, the government can hardly influence a private company if it initiates the redundancy. Or else, the collapse of the company, or the lack of investments could result in the financial crises of the privatized crown company that may threaten to the national economy.

Thus, it is obvious that the current policy of privatization of crown corporations should be carefully planned and should not include the companies that are monopolist or that are important to the national interest of the country. Otherwise, the national political and economic interests, as well as social stability of Canada will be under a threat.

References

• Bets, C.M. (1996). “A Small Open Economy in Depression: lessons from Canada in the late 19th early 20th centuries”, Canadian Journal of Economics, vol.~29, p. 25-64.
• Bliss, M. (1987). Northern Enterprise: Five Centuries of Canadian Business. Toronto, ON: McClelland and Stewart.
• Brewis, T.N. (1996). Canadian Economic Policy Canadian Trade Committee, Private Planning Association, Montreal: McClelland and Steward.
• David, D. (2000). Atlantic Canada and Confederation: Essays in Canadian Political Economy, Peterborough, ON: Broadview Press.
• Gillespie, W.I., (1990). “The Redistribution of Income in Canada”, Canadian Tax Journal, vol.~1, p. 117-175.
• Mackintosh, W.A., (1994). The Economic Background of Dominion-Provincial Relations, Mclelland and Stewart, Toronto.
• Watkins, M., (1989). “The Political Economy of Growth”, in W. Clement and G. Williams (eds) The New Canadian Political Economy, McGill Queen’s, Kingston and Montreal, p. 219-327.