CANADA PRIVATIZING PROGRESS SLOW

Like other Western industrial states, Canada has, in recent years, embarked on the privatization road. But the approach has neither been as methodical as the French way nor as significant thus far as British moves to reduce the government share of the economy.

Along with the pursuit of a free trade agreement with the United States, deregulation of the transport industry, and a concerted attempt to pare down the federal deficit, privatization has constituted one of the cornerstones of Tory economic policy since the Progressive Conservatives came to power in Ottawa in September 1984. Perhaps it's a sign of an overloaded agenda that the privatization process has gained relatively little momentum.What is the true size of state ownership in the Canadian economy? The federal government, for its part, controls some 50 so-called Crown corporations, with total assets valued at approximately C$47 billion. The 10 provincial governments, for their part, control entities with assets exceeding C$75 billion.

Taken together, the federal and provincial state corporations represent about 12 percent of Canada's gross national product (compared to 6 percent in Britain, following a dozen major sales in seven years).

Both at the federal and provincial levels there is a desire to restrict the role of the state in the economy, to nurse public finances back to health, and to improve competitiveness by encouraging private enterprise.

All over Canada, labor unions are expressing concern over the potential impact of privatization on employment and have requested in vain that there be nationwide public consultation on the subject.

The intervention of the state in the Canadian economy increased considerably during the last two decades, especially when the Liberals were in power under former Prime Minister Pierre Elliott Trudeau.

Over the same period, the province of Quebec also applied a strong interventionist policy. This was particularly the case between 1976 and 1985, when the social democratic (and pro-independence) party, the Parti Quebecois, led by former premier Rene Levesque, ruled in Que bec City.

In Quebec, the leitmotif was different from other parts of the country: a primary objective was to expand the role of French Canadians in an economy dominated by Anglo-Saxon interests.

Federally speaking, the minister responsible for privatization is Barbara McDougall. One of the rising stars in the Tory Cabinet of Prime Minister Brian Mulroney, she has a solid background in the financial domain. The minister in charge of privatization in Quebec is an ex-businessman, Pierre Fortier.

While there have been obvious candidates for privatization that have, indeed, been returned to the private sector, there are some state corporations that can be qualified as untouchable in the foreseeable future.

Foremost among those under federal control is PetroCanada. With the collapse of world oil prices, PetroCanada will likely remain for a long time the largest Canadian-owned oil company.

Only a tiny portion - if any - of Air Canada, the national airline, might be sold. If a share issue does take place, it will likely not surpass 25 percent of the company, and the employees would obtain first refusal.

Canadian National, one of North America's leading railways, is currently disposing of its trucking division, but there is no real push to privatize any of CN's remaining operations.

Definitely not on the auction block is Hydro-Quebec, the giant utility taken over by the Quebec government in the early '60s.

Tampering with Hydro-Quebec would be politically explosive. The corporation has come to symbolize a more mature, confident and economically aggressive society in Canada's French-speaking province. With assets approaching C$30 billion and revenues of C$4.4 billion in 1985, Hydro-Quebec is, moreover, Canada's biggest non-financial company and a powerful tool for maintaining growth in Quebec.

As indicated earlier, privatization is taking place in a special context in Quebec.

Explains Mr. Fortier: "The economic nationalism which sought to give French-speaking Quebecers the opportunity to penetrate various industrial and commercial domains was at the origin of the establishment of nearly all the state corporations in Quebec."

But the situation has changed dramatically in recent years with the advent of a French Canadian managerial elite in Quebec. (The province accounts for more than half of Canada's business school graduates.)

Ghislain Dufour, head of Quebec's most powerful employers' federation, also underlines that "the present era is characterized by the emergence of a strong Quebec private sector that is less reliant on the protection of the state to play its role."

A dozen or so state enterprises figure on the Quebec government's "hit list." These include the Societe Generale de Financement, one of the largest industrial groups in the province, the troubled state-owned asbestos and mining firms, and Dofor, a financial holding company that controls important pulp and paper interests. The main privatization transaction thus far has concerned Quebecair, a regional airline.

Mr. Fortier acknowledges that the privatization process is complex and difficult. "However, its undertaking is a sign of the political maturity of Quebec and of a growing awareness of new North American economic realities," he declares.

As far as the Canadian minister of privatization, Mrs. McDougall, is concerned, only the Royal Mint and the Bank of Canada (central bank) are totally excluded from the federal list of state corporations destined to be returned to private industry.

But after getting off to a good start in its privatization drive, the Mulroney government has been marking time, considers William Stanbury, professor of regulation and competition policy at the University of British Columbia.

"In terms of net assets controlled by the public sector, we're about where we were when the Tories started," says Prof. Stanbury.

How does he come by this calculation? The C$866 million, he points out, PetroCanada spent in 1985 to buy 1,800 service outlets and four refineries

from Gulf Canada more than outweighs the total proceeds the Ottawa government has reaped from the eight Crown firms of any size sold since 1984.

Not without controversy, De Havilland Aircraft of Canada was sold in 1985 to the American giant, Boeing. This year, another struggling aerospace manufacturer, Canadair Ltd. of Montreal, was picked up by Bombardier, the fast-rising transportation equipment firm that supplied subway cars to New York.

Recently the federal government put Montreal-based Teleglobe Canada back on the market after allowing several bids to quietly expire earlier this year. New bids will be accepted by January.

Created in 1949, Teleglobe is the national overseas telecommunications carrier for all countries except the United States and Mexico. Its earnings of C$53 million in 1985 clearly make it the fattest of all Crown corporations.

The potential suitors for what has been described as "the jewel of the Crown" are well-known heavyweights on the Canadian economic landscape - Canadian Pacific Ltd., Bell Canada, Power Corp., and the pension-funds group led by the Caisse de Depot et Placement du Quebec.

Political critics argue the Tory government is selling Teleglobe to obtain several hundred million dollars for federal deficit reduction because Finance Minister Michael Wilson's "ego is on the line." Mrs. McDougall counters that the sale will result in significant reductions in overseas phone and telex charges. What seems certain is that the battle for control of Teleglobe will constitute the high point of Canada's privatization process in 1987.

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