Crown corps tranquilize fiscal insanity

By Andrew Kemle

Issues regarding economic and fiscal stability have, for the most part, replaced issues of domestic security as matters of primary concern for nations since the end of the Cold War. Classical and reform liberal ideologies have provided some solutions to these economic issues faced by Western democracies. Classical liberalism offers solutions of free markets and privatization, while reform liberalism balances the security and stability of government intervention and ownership of resources with the incentives of profit-driven entrepreneurial practices. 

The former is typically more appealing to Western citizens as it calls for lower taxes and a greater potential to increase personal wealth. As such, it has greatly impacted economic policy in Canada. However, the stability that comes with controlled markets and the security of a financial overseer can’t be ignored in these troubled times, especially when the main drawbacks of this type of policy can be nullified.

The answer to our economic woes lies in government-owned businesses called Crown corporations. The function of these state-owned institutions is to provide goods and services to citizens based on the public good as opposed to the will of shareholders. These businesses avoid problems of distribution and profit-over-welfare thinking. Following the ideas of Keynesian economics, which fall under the reform liberalism banner, Crown corporations serve as overseers in the economy and allow the government to make direct adjustments in sectors with government-owned institutions much easier. Economic booms and busts are often much more controlled in the Keynesian model and the market as a whole is less volatile.

Until the inception of the Mulroney government, Canada had various Crown corporations — like Air Canada and Canada Post — which lessened Canada’s stigma as a fiscal basket-case. Many of these Crown corporations, like Air Canada, were privatized as Canada was swept up in the wave of the neoclassical liberalism of the late‑’70s and ’80s. Though it would be inaccurate to say the financial recession that hit Canada in this time was caused by mass privatization, the inability for the economy to effectively recover until the utter defeat of Kim Campbell’s Progressive Conservatives in the 1993 election is worth noting.

However, as with any left-wing policy, the main critiques remain high taxes and low incentives. This is especially relevant if a company is completely owned and controlled by the government — very little profit-driven thought can make its way past the bureaucracy and funds that must be raised to keep the company afloat. However, a hybrid of the two forms of business — private and public — has been achieved in Russia with outstanding success, nullifying many of these concerns.

Called ‘National Champions’ by Russian President Vladimir Putin, these corporations are vertically integrative companies placed in vital sectors that are expected to pursue profit and serve people’s best interests. One of the most successful of these, Gazprom, remains one of the largest companies in the world and is a major player in the oil and gas industry. The Russian government serves as the primary shareholder in these corporations, while the CEO and other high-ranking executives are private citizens who run the business as any other entrepreneur would in a free market while still being indirectly responsible to the people. Being the owners of these companies, the government ensures low domestic prices while expecting the executives to strive for maximal profit in foreign countries. This allows for the state to set domestic fiscal policy to their liking as well as remain the major player in the national economy while the companies are able to support themselves through free-market practices, ensuring all practices are for the common good. 

These National Champions have since greatly impacted the Russian economy. Since 1999, Russia’s purchasing power has increased to seventh in the world, and its gross domestic product grew six-fold, jumping from 22nd to 10th worldwide. The number of people living below the poverty line decreased from 30 per cent to 14 per cent and, according to a 2004 study by the Andreas School of Business, the overall tax burden of Russia was much lower than other European nations. Despite the gains in profit, the overall goal of these Champions is to serve the public good has not been lost as shown by the distribution of wealth and the growth of the middle class from eight million to 55 million people, despite the less than democratic practices of the Putin administration. 

Financial stability remains nearly unbreakable in Russia since this introduction. The Russian economy declined slightly during the 2008 crisis, taking only a year to bounce back to the incredible growth rate it had experienced before. Total loss of GDP was also much lower than other major economies, and all losses were reimbursed after the economy recovered in late 2009.

Overall, this form of state-owned business greatly increases the stability and performance of the economy in whatever sector it is located. Though profits will not grow nearly as fast for already developed nations, loss of revenue and incentives should not be a problem if efficient models like Putin’s Champions are followed. More importantly, financial stability will increase with the addition and promotion of government overseers, which will greatly benefit citizens and their investments in the long run and avoid the impact of massive and catastrophic market failures. The best option for Canada’s economy is the stable reform liberal model. You can only grow upwards if you have a steady base to stand on. 

Leave a comment