Potash and the unsung government corporation
By modern thinking, Canada's Potash Corp., now a corporate star in the midst of a front-page takeover bid, has an illicit origin.
Indeed, according to current business wisdom, Potash Corp. should not have succeeded. But now, global mining giant BHP Billiton thinks it's worth $40 billion. Others believe it is worth much more.
Still, the dirty secret here is that this huge corporate asset began its life as a twinkle in the eye of a socialist politician, Allan Blakeney. A Rhodes scholar and an ordinary guy, Blakeney was the man who succeeded Tommy Douglas — the founder of universal health care — as premier of Saskatchewan.
Yes, the Potash Corporation of Saskatchewan, was, gasp, a government owned and created company.
Nowadays, it really seems that Crown corporations, as they are called in Canada, no longer have any political champions.
To market-focused politicians of the right and centre, it is just assumed that private companies do a better job. While to those of the left, all corporations are seen as malevolent.
But it hasn't always been that way. Somehow government-owned business has fallen between the cracks.
Help in a downturn
In the U.S., Fanny Mae and Freddie Mac are the poster children for this discredited breed.
Set up to help provide cheap mortgages for ordinary Americans, they got in over their heads and are now billions of dollars in the hole.
It is easy to forget that the big flaw with Fanny and Freddie may not have been that they were creatures of the government.
Instead, since they traded on the stock market, the case could be made that their failure came from acting too much like a regular business, using their implied government support to take private-sector risks they never should have.
It is not so long ago that government corporations were believed by politicians of both left and right in this country to be valuable engines of economic growth.
It was a (provincial) Conservative government, for instance, that created Ontario Hydro, which remains a Crown corporation today. It was federal Tories who created the CBC.
The list of existing Crown corporations is long, created by governments at every level and of every stripe. And many other successful Canadian companies, now listed on the stock market, began as government instruments of economic growth.
Potash Corp. is just one example. Others include CN; Air Canada; Cameco, the giant uranium producer; and Canadair. There are many more.
Some were created from scratch. Others, like CN, were assembled from a group of failing companies in an industry that was going through a period of economic chaos. Canadair, the aircraft manufacturer now part of Bombardier, was brought to life as part of the war effort.
In economic downturns, these Crown corps would often invest tax dollars in services when no private company was interested.
The Saskatchewan advantage
Different Canadian governments created most of the successful Crown corporations because they fulfilled a crucial economic need: Electrical power, infrastructure, transport, communication.
But others, including Potash Corp., were for resource extraction, created with the express purpose of investing in jobs and keeping them close to home.
Their entire raison d'etre was to build a large locally-controlled corporate player so as not to leave the small fry to be swallowed up by some out-of-province company run from a distant centre.
The Saskatchewan Crown corporations, both those that are in government hands and those now listed on the stock market, remain remarkably well run. Perhaps it is something in the water.
(A friend from York University's Schulich School of Business told me once about a study that showed the leading common feature of many successful organizations was that they were run by a person from Saskatchewan.)
Sasktel remains a modern and efficient telecom provider despite serving a provincial population of only one million.
It is hard to know how long it will last. But it is also hard to imagine that if it and the other Saskatchewan Crowns had not been created that there would still be telecom, power and insurance head offices in the province.
It is true that government corporations sometimes become unwieldy. Some, like the old Ontario Hydro, were forced to serve their political masters rather than market forces and so built up huge debts.
Since they are often too big to fail, taxpayers always have to pay eventually.
But, as we have seen recently, companies owned by stockholders that are judged too big to fail can get much bigger bailouts.
The difficult thing to calculate is whether the public investment in government companies is worth the jobs, the services and the economic development they create.
In the case of Potash Corp., it is clear that investment is worth quite a bundle, or BHP Billiton would just take its wads of cash and build its own potash mine.
The other hard thing to calculate is when is the best time for governments to relinquish control, confident that it has done its good work and trust the stock market to do the right thing.
The huge value the market is placing on Potash Corp. reminds us that despite the current ideological tide against these kinds of entities, government corporations remain part of our economic tool chest.
Some fail but that is true of all endeavours. When they are successful, they can accumulate capital that may take years to show its value.
They can create new business when no one else is willing to invest. They can create wealth and power. And if you don't believe me, ask the Chinese. They have plenty of government-owned corporations that are said to want in on this bidding war as well.