Business·Analysis

Hydro One and the re-emergence of the Canadian mixed economy: Don Pittis

Despite money that is practically free, private sector growth has dried up. As governments pour money into Bombardier, extract it from Hydro One and get ready for deficit spending, is it ever a good time for governments to get into business?

If private money won't grow the economy, can government take its place?

Hirsute Prince Harry jokes with veterans this week. Maybe, like beards and skinny jeans, says Don Pittis, government involvement in the economy is back in fashion. (Reuters)

Once upon a time Canada described itself, perhaps even proudly, as a mixed economy. In the aftermath of the free market ideological revolution that grew up in the 1980s, that description had fallen out of favour.

Now, suddenly, the Canadian mixed economy seems to be getting a new lease on life. 

Quebec is pouring $1 billion into Bombardier. Ontario is launching the biggest IPO in more than a decade as it sells shares in Hydro One, using the proceeds to invest elsewhere in the economy.

Meanwhile, the federal finance minister, Bill Morneau, a successful businessman, is preparing to launch a nation-wide deficit spending plan of his own.

In the greater world, the term mixed economy has a variety of meanings. But in postwar Canada it was celebrated as some sort of bridge between a planned industrial economy including state-owned businesses and a purer laissez faire economic system where private entrepreneurs were left to do the work.
Millions of Hydro One shares went on sale on the TSX Thursday in the biggest privatization of a Crown corporation in 20 years. But as the majority owner, the Ontario government will remain involved in the company. (Darren Calabrese/Canadian Press)

Of course from its inception, the so-called free market has never been truly free of government involvement. Some of the earliest joint stock companies, including the Hudson's Bay Company, were founded on royal charters and monopolies.

Whether they are banks or car companies, when they fall on hard times, corporations know taxpayers will be there for them.

Public vs private

Even companies that currently claim to be founded on free market principles continue to depend on favourable government regulations and treaties. 

Contrary to what you might think from the strong ideological language of think tanks and Fox News as magnified by the comments sections, the separation of private and public in business didn't use to be so much of an issue. It was a Conservative premier, James Whitney, for instance, who created the precursor of Ontario Hydro.

As private sector businesses crumbled in the Great Depression of the 1930s it seemed natural for Canadian politicians of all stripes to involve themselves in business. Federal cabinet minister C.D. Howe, whose name now decorates a right-of-centre think tank, was the founder of Air Canada, a Crown corporation. He developed it out of another Crown corporation, Canadian National Railways. (Howe also left us the CBC.)

Following the government-led war effort, governments continued to found and support businesses. Near the end of the Second World War the federal government created its own bank. Quebec created its own electricity company and Saskatchewan created its own insurance company. Those are only a few of many examples.

In the 1970s the government succeeded in creating its own integrated oil and gas company, the Canadian equivalent of Norway's Statoil. It fell victim to the growing wave of free market ideology, represented by Margaret Thatcher in Britain and U.S. president Ronald Reagan, that swept the world starting in the 1980s, insisting privatization was essential to make economies strong and efficient.

The difficulty for governments now is that after 10 years of the most free market leadership in Canadian history, the Canadian economy remains on its knees. 

Waiting for the private sector

The theory is that free markets, low interest rates and low taxes were supposed to launch a wave of new businesses that would grow up, producing exports and jobs.
Canada's new Finance Minister Bill Morneau, considered a Bay Street insider, must decide just how far the government will become involved in the private sector economy. (REUTERS)

Instead, Canadian industrial champions have been picked off by powerful international corporations such as U.S. Steel (Stelco), Rio Tinto (Alcan), Xtrata (Falconbridge).

Other Canadian giants such as Inco were swallowed by companies controlled by their own governments. The Canadian economy remains stagnant.

While things are not as bad as in the wake of the Depression, governments are desperately trying to think of ways to relaunch a hollowed-out industrial economy as global demand sags. 

The sale of Hydro One shares is just one more demonstration that there is no shortage of private capital willing to invest in existing businesses. There are reports that pension funds would have willingly snapped up the entire company.

The problem is not a shortage of funds, but the ability and desire of the private sector to create new businesses and jobs.

That private sector failure doesn't mean the ideologues of free markets have gone away. They will continue to snipe at government efforts to preserve or create Canadian jobs despite the fact that the free market model has not solved our current problems.

A Maclean's editorial comment this week recommends letting Bombardier fail. But that means it would likely go the way of Inco, its technology falling into the hands of a foreign competitor that continues to support their champion during hard times with handouts or military contracts. Just watch what happens next time Airbus gets into financial trouble.

Our new finance minister must have his own reservations about getting the government too deeply involved in the private sector economy. As a Bay Street insider and the scion of a Canadian business family, Morneau must have been as exposed as anyone to the ideological certainty that the free market is the economy's best salvation.

Maybe we just haven't waited long enough.

On the other hand, maybe the free market ideologues are no more right or wrong than the postwar planners were in their day.

Like skinny jeans and beards, maybe the mixed economy is back in style.

Follow Don on Twitter @don_pittis

​More analysis by Don Pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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