Crown Corporation

Crown Corporation, wholly owned federal or provincial organization, structured like private or independent enterprises. Established to carry out regulatory, advisory, administrative, financial or other services or to provide goods and services, crown corporations generally enjoy greater freedom from direct political control than government departments. Although the 1951 federal Financial Administration Act (FAA) declared that crown corporations are "ultimately accountable, through a minister, to Parliament, for the conduct of (their) affairs," they are not subject to budgetary systems or direct control of a minister in the same way as government departments.

The first crown corporation, the Board of Works, was established in 1841 to construct a canal system in the Province of Canada. Crown corporations such as CANADIAN NATIONAL RAILWAYS, PETRO-CANADA and several provincial hydro firms now rank among Canada's largest enterprises. They have been created by various governments, including NDP, Liberal, Progressive Conservative and Social Credit governments. The establishment of important crown corporations in the fields of transportation (AIR CANADA, CNR, ST LAWRENCE SEAWAY) and communications (CANADIAN BROADCASTING CORPORATION) attests to the unwillingness or inability of private firms to provide important services in a vast, sparsely populated country, rather than to a preference for PUBLIC OWNERSHIP per se. Since WWII other federal crown corporations have emerged as important providers of loans and related financial services to farmers (Farm Credit Corporation), small businesses (Federal Business Development Bank) and exporters (Export Development Corporation), interests whose needs were not always met by private financial institutions. The federal government also owns and operates coal mines (Cape Breton Development Corp) and Petro-Canada, a major integrated oil and gas company. For many observers this major role for crown corporations constitutes the essence of this country's "mixed" economy and a central difference between the industrial organization of Canada and the US.

Provincial crown corporations are also significant, although differences exist in their roles, economic importance and administration. In most provinces crown corporations are responsible for the generation and transmission of electricity and the retail distribution of liquor. In the Prairie provinces, telephone service is usually provided by crown corporations (see UTILITIES). Recently, provincial crown corporations as diverse as the Potash Corp of Saskatchewan, the Sydney Steel Corp of NS and provincial energy companies in Saskatchewan, Ontario and Québec have been formed. In BC, Saskatchewan, Manitoba and Québec, crown corporations sell automobile insurance, while the Alberta, BC and Ontario governments own railways.

Crown corporations assume special prominence in Québec and Saskatchewan. In Saskatchewan, crown corporations were extended deep into the provincial economy after the CCF's landmark electoral victory in 1944. In that province, crown corporations were conceived as a key element in Saskatchewan's efforts to establish a more diversified economy through the creation of secondary industry. And since the early 1960s, successive Québec governments have employed crown corporations to diversify the provincial economy, to preserve and create jobs, and to nurture francophone managers. HYDRO-QUÉBEC is a major example but crown corporations were also established in the steel, oil and gas, forestry, and asbestos industries to name a few.

A central rationale of crown corporations is that the commercial activities of government, to be performed successfully, must be shielded from constant government intervention and legislative oversight. Hence, crown corporations enjoy greater administrative freedom than government departments. As government enterprises, however, their autonomy cannot be absolute and must be tempered by some public control over policy-making. The Canadian experience suggests that the imperatives of corporate autonomy, government control, and legislative oversight are often conflicting and difficult to reconcile.

The range of controls and influences over federal crown corporations has developed piecemeal. But a key element was section VIII of the FAA which in 1951 established a regime of financial controls over most crown corporations. It did so by organizing them into 3 "schedules" or types - departmental, agency, and proprietary - each of which performed different functions and enjoyed a different relationship with the state. Departmental corporations, such as the Economic Council of Canada, performed no obvious commercial functions and were treated the same as government departments. Agency corporations, such as Atomic Energy of Canada Ltd, were accorded greater freedom while the proprietary corporations such as Air Canada, CNR and Petro-Canada, enjoyed even greater autonomy in financial matters.

The FAA's provisions required agency and proprietary corporations to submit annual capital budgets to the responsible minister, the minister of finance and the president of the Treasury Board. The budgets needed the approval of these 3 ministers, Cabinet and ultimately Parliament. Agency corporations also submitted operating budgets for approval to the responsible minister and the president of the Treasury Board. Cabinet also controls the appointments, remuneration and dismissal of crown corporations' boards of directors and senior officers. Theoretically, boards provide the key link between the government and corporate management, but their effectiveness may be undermined by a lack of precise definitions of the powers, duties and responsibilities of boards, political PATRONAGE in the selection of members and, finally, the federal government's unorthodox and controversial practice of appointing senior civil servants to the boards. Ineffective boards may not be able to withstand government intervention. The Acts of some federal crown corporations, notably Petro-Canada, empower the Cabinet and sometimes the minister responsible to issue directives allowing the government to order a crown corporation to implement particular government policies. The use of directives remains controversial as does the question of whether crown corporations should be compensated by the government for the costs incurred in implementing directives.

Parliament passes the legislation establishing federal crown corporations and must approve any subsequent amendments. It approves the tabled budgets of crown corporations and any government-requested appropriations to cover operating deficits. Parliament also reviews the annual reports of crown corporations, queries ministers during question period and discusses corporate performance with ministers and senior management in the forum of parliamentary committees. In federal politics, however, no standing committee specializes in the scrutiny of crown corporations, although such a committee operates in Saskatchewan.

Such formal controls on crown corporations are buttressed by a range of informal processes and influences. In fact, the relationships between governments and crown corporations, like most political relationships, are sometimes fractious and often characterized by bargaining, negotiations, and compromise.

The traditionally quiet environment of federal crown corporations was shattered in the 1970s when a major debate emerged about their roles and effectiveness. At the heart of the debate was the view that the scope and economic importance of crown corporations had outdistanced Ottawa's capacity to control them and that crown corporations had become too prominent in the economy. This debate continues unabated. To many observers, the FAA was antiquated and some felt that major crown corporations, particularly the CNR, had escaped political control. Successive auditors-general criticized the financial management of crown corporations and controversy surrounded the activities of Atomic Energy of Canada Ltd and Air Canada. Petro-Canada's rapid expansion and Via Rail's chronic problems fuelled the discontent. The role of crown corporations is also a problem in several provinces including British Columbia, Saskatchewan, Manitoba and Québec.

In Canada, the reform of crown corporations is proceeding along 2 different courses - the establishment of revised regimes of control and accountability and more controversially, "privatization." In 1984 with the passage of Bill C-24, the federal government replaced the 1951 provisions of the FAA with a new legislative framework. Among other things, the law establishes new schedules, extends the Cabinet's capacity to issue directives, and stresses the notion that crown corporations can neither establish nor dispose of subsidiaries without Cabinet approval. It also clarifies processes of budgetary approval, and provides for the submission of corporate plans to the Cabinet for its approval and to Parliament for discussion.

The passage of such reforms, although politically difficult and slow, has not brought about major changes in the relationships between crown corporations and governments. Indeed, observers note that Bill C-24 generally codifies existing procedures and policies, breaks little new ground, and leaves major problems unsolved. To a degree, the continuing stalemate reflects the diversity, complexity and the rapidly changing nature of the crown corporation sector. But a deeper problem is disagreement about the role, nature and purposes of crown corporations in the Canadian ECONOMY. Should crown corporations use the same criteria as private firms in their decision making? What rules should govern competition between public and private firms? What balance should crown corporations strike between commercial considerations and the accomplishment of political and social goals? And in a general sense, is an effective crown corporation one whose behaviour is similar to or different from a comparable private firm? Comprehensive reform of crown corporations awaits resolution of perennially controversial questions about the economic role of government.

In "privatization," Canadians are presented with a more radical prescription. Proponents of privatization maintain that Canada's political and economic well-being will be enhanced if the assets or shares of crown corporations are sold to private investors, however defined, in whole or in part. The appeal of privatization, bolstered by the example of the British government's policy, is rooted in the contemporary enthusiasm for more "market driven" policies and a reduced economic role for government. Advocates believe that crown corporations are inefficient, too sheltered from market forces, and simply too numerous. A related proposition is that many crown corporations have outlived their usefulness as policy instruments and ought to be sold to the private sector. The government of Brian MULRONEY has raised the concept to new prominence by appointing a minister of state for privatization, by selling de Havilland Aircraft Co and Canadair, and by proposing the sale of several other crown firms.

Privatization also has critics, some of whom see it as an ideological crusade and as a short-sighted policy. Critics of the sale of de Havilland Aircraft to Boeing Corporation of Seattle question the wisdom of selling a potentially dynamic Canadian firm to a foreign company. Others worry about the terms and conditions of proposed sales and the possible loss of government control over the economy. Another line of reasoning asserts that ownership may ultimately be less important than the exposure of firms to competitive forces. Finally, other critics maintain that a partially "privatized" enterprise, embracing a mixture of public as well as private ownership, will be an unwieldy organization.

For these reasons, questions about the role of crown corporations remain controversial. The current political climate clearly favours privatization and the government has acted upon it, Air Canada and Petro-Canada being notable examples.

Author ALLAN TUPPER

Suggested Reading
M. Gordon, Government in Business (1981); Allan Tupper and G.B. Doern, eds, Public Corporations and Public Policy in Canada (1981).