The idea behind Crown corporations is sound enough. Set up within government quasi-autonomous agencies independent of direct political control, with a clear mandate to deliver a certain service or achieve a certain objective, and more freedom and flexibility than if they were fully integrated within government departments: to hire outside the civil service, to borrow on their own account, to strike contracts and own property and the rest.
The Bank of Canada is an example of how it works when it’s done right. The governor of the Bank and the finance minister negotiate an agreement every five years, setting out for all to read the broad policy objectives the Bank is to pursue, in line with the government’s overall responsibility for the economy. But how the Bank meets these objectives, or what decisions it makes day-to-day, are left to the Bank, without fear of clandestine pressure from politicians with short-term electoral imperatives on their mind.
Ideally, we’d organize every government department on similar lines, much as New Zealand did back in the 1980s – though not literally Crown corporations, they were for the most part “corporatized,” set up at arms-length from the responsible minister. The effect is to make ministers more purchasers of services than overseers. Ministers set the broad policy objectives for their departments, which form the basis of a contract with each department’s chief executive officer (yes, that’s what they’re called), establishing clear expectations of what they are to achieve, along with metrics for assessing their progress and incentives for hitting their targets.
Canada Post losses now exceed a billion dollars a year.Christinne Muschi/The Canadian Press
That, alas, is the part that is missing from many of our Crown corporations: accountability. Independence from political oversight was supposed to come with a tradeoff: strict performance expectations, and consequences when these are not met. Yet in one Crown after another, the experience has been repeated failure to deliver services to a level the public has a right to expect, failure to stay within their budget, or both. No consequences have followed.
I wrote recently about the ongoing fiasco at the Canada Pension Plan Investment Board, where over the last two decades employment has increased fifteen-fold, costs have increased fifty-fold, all in the service of an active management strategy whose stated purpose is to outperform the market averages for a comparable mix of assets. Two decades later the strategy has manifestly failed – the fund sheepishly admits in its latest annual report to having generated an “annualized value added” since 2007 of “negative 0.2 per cent,” or a cumulative shortfall of $70-billion relative to what it would have earned simply by buying the indexes.
Yet far from paying the price for this disaster, everyone at the fund is getting rich – including the directors, who are supposed to be the check on this sort of abuse.
That may be the worst example of a runaway Crown, but it is far from the only one. Take Canada Post, also the subject of a recent column. The corporation’s losses now exceed a billion dollars a year, though it charges more than it ever has (since 1981 the price of a stamp has risen by three times the rate of inflation) and delivers less (letter-mail volume has fallen by nearly two-thirds over the last 20 years; weekend delivery ceased long ago; most households no longer receive home delivery). The problem of late delivery was solved by redefining late letters as on time – it is now considered acceptable if a letter takes two business days to make it across town.
Again, no consequences have ensued. Though it is supposed to be self-sustaining, it was recently bailed out by the government to avert insolvency. It has as many employees now as it did 40 years ago. Its legal monopoly over letter-mail remains intact. No serious reform has even been attempted.
Then there is Via Rail. Passenger traffic at the state passenger train monopoly has held up reasonably well, rebounding to prepandemic levels, though it remains a tiny fraction of total passenger movements, even in the Windsor-to-Quebec City corridor. The problem is that fewer and fewer of them are arriving on schedule. On-time performance in 2023, the last year for which figures are available, had fallen to 59 per cent, from 82 per cent a decade before. That’s worse even than Air Canada – no longer a Crown corporation, since its privatization in 1989, but old habits die hard – at 63 per cent.
Fewer VIA Rail trains are arriving on schedule.Christinne Muschi/The Canadian Press
Like Canada Post, Via Rail’s losses continue to mount. In fiscal 2023 it lost $382-million on operations, an increase of 8 per cent on the previous year. Revenues, at $431-million, covered barely half of expenses. What consequences did management pay for this abysmal performance? One million dollars in bonuses. Moreover, the government is preparing to pour tens of billions of dollars into upgrading service in the corridor to high-speed rail – to be run, naturally, by the terminal slowpokes at Via. So passengers will get there late, sooner.
And, of course, there’s the CBC. The corporation’s share of the English-language television audience, according to its most recent annual report, had dwindled to 5 per cent. Of course, most networks have seen their market share shrink in recent years, as the number of channels has exploded. But no other network enjoys the same level of public subsidy: $1.4-billion in total in the last fiscal year, roughly two-thirds of it for English television.
If the purpose of public funding, as it is so often said, is to bring the nation together around the electronic hearth, it is signally failing at that. If, on the other hand, the purpose is to provide programming the private sector allegedly won’t – highbrow, niche, etc. – it isn’t doing much of that, either: possibly because it is so heavily dependent, in addition to subsidy, on advertising sales.
Obviously it makes no sense for a public broadcaster to be selling advertising, or mimicking the fare on private networks. But neither does subsidy make sense any longer, in the age of cable, satellite and the internet, when all of the technological limitations of early television – scarcity of spectrum, no way to charge viewers for content – that once made the case for public funding have disappeared.
This is now widely acknowledged. Yet nothing changes. Even those who still defend public broadcasting in theory have a hard time defending it as practised at the CBC. Yet not only have there been no consequences – no reform of its mandate, no changes in the executive suite – the government is increasing its annual subsidy.
CBC received a $1.4-billion public subsidy in the last fiscal year.Tijana Martin/The Canadian Press
I haven’t mentioned the Canada Mortgage and Housing Corporation. It seems to be relatively well-run, at least compared to some of its stablemates. But if the purpose of the CMHC is to stimulate home construction and make housing more affordable, well, it hasn’t exactly been a shining success, has it?
As for the suite of other Crowns in the financing end of things – the Business Development Bank of Canada (BDC), Export Development Canada (EDC), Farm Credit Canada – again, I have less concern with how they are managed than their whole purpose, which is in essence to funnel subsidies to business.
There is almost never any sound economic case for this – if a business is profitable, it doesn’t need the subsidy; if it isn’t, it shouldn’t get it – and lots of reasons to oppose it, beyond the direct cost to the treasury: it distorts business investment decisions, steers resources away from competitive sectors into uncompetitive ones, creates dependency that only results in ever-increasing demands for subsidy.
The economist John Lester, in a study for the University of Calgary’s School of Public Policy, estimates subsidies to business, at the federal level alone, now total in excess of $40-billion annually. Of these he calculates 36 per cent do not even pretend to remedy some market failure. Of the remainder, two-thirds fail the test of costs versus benefits. Specifically, he finds that in fiscal 2023 the supposedly self-sustaining BDC’s lending programs cost about $2.3-billion more, including the social opportunity cost – the amount the same money might have earned if invested privately – then they returned. Farm Credit Canada cost a further $1.9-billion in implicit subsidy.
Things are obviously a lot better than in the days when the Chrétien government was using Via Rail and other Crown corporations – “my Crowns,” public works minister Alfonso Gagliano called them – to deliver funds to their friends and supporters, or browbeating the Business Development Bank to do likewise. We’d never want to go back to that kind of direct political interference in the management of Crown corporations, which defeats their very purpose.
But neither should we be content with seeing them so independently mismanaged as some of them are at present. Nor should they be left to carry on indefinitely at assignments that have either long since become obsolete, or never made much sense in the first place. It is time for a serious housecleaning at the Crowns: a reconsideration and revitalization of their mandates, in some cases; a tightening of performance requirements, with penalties for failure to meet them in others; in still others winding them down altogether. The price of freedom is accountability.