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Hurray for Privatization

Stephen Gowans

let out a loud cheer for privatization. C'mon. Cheering can deliver a quick rush of feel-good dopamine to your brain. And if you're a resident of B.C., you're going to need a few dopamine rushes to get through the next few years. Premier Gordon Campbell -- Mike Harris and Ralph Klien on steroids -- is about to go on a privatization bender. Trouble is, you'll get the hangover. Campbell, and his pals, will get the high.

Skeptical? Ask Toronto residents about privatization. One early January morning, as residents of Canada's largest city tucked into their breakfasts and opened their newspapers, they came in for a shock. There, nestled snugly on page A6 was a headline that read, Hikes in electricity bills may shock Torontonians. "But the Harris government has privatized power distribution," sputtered a thousand lips. You know. Market discipline. Private sector efficiency. Lower prices. Surely, there was a mistake. Arthur Dent (the perpetually bemused character from Douglas Adam's Hitchhiker's Guide to the Galaxy), standing in his pyjamas outside his demolished house, only to learn the earth was to be demolished to make way for a new hyperspace bypass, couldn't have been more gobsmacked. Was all that Ontarians had been led to believe about privatization, being demolished to make way for, what...the real world?

As thousands of pyjama clad Arthur Dent's dipped their toes tentatively into an ice-cold pool of reality, they learned (a) the price of electricity was going up by as much as 20 percent, and (b) the price was going up because the newly privatized hydro companies were compelled to hike their prices to make a profit.

People paying more for privatized services? Wow. This could find a place in Ripley's Believe It or Not. Strange, but true. Except a better case could be made for the strange but true enduring belief in the merits of privatization in the face of a mountain of contradictory evidence that says privatization is good for investors, good for politicians who rely on investors' largesse to run election campaigns, but a disaster for everyone else.

And the mountain was getting bigger.

Just a few days later, Torontonians learned another unpleasant truth about privatization. They'd been ripped off on Highway 407.

Highway 407 is a column of asphalt that etches its way across the north of Toronto, designed to relieve congestion on the interminably clogged highway 401, an aging behemoth jam-packed with cars, vans and trucks. Well, actually, highway 407 is designed to make a bundle of money for the consortium that owns it. Whether it relieves congestion of highway 401 is neither here nor there.

The highway was the brain child of the Rae NDP government. Toronto had long outgrown its system of highways and needed a new road to carry traffic across the city, so Rae came up with a clever forward thinking idea that owed everything to the 19th century: toll roads. The province would build the highway, sell it to private investors for a profit, and the private investors would charge commuters tolls to travel on what, in the 20th century, would have been public infrastructure. Win-win-lose. Business liked it. Rae liked it, because business liked it. The media liked it. And a majority of Ontarians liked it, because business liked it and the media liked it. Ontarians just didn't know they were about to become losers -- big time.

By the time the highway was built, and ready to be sold, Mike Harris -- welfare hater, public school skeptic, purveyor of public subsides to private schools, darling of the right wing, and proto-species for the Campbells that followed -- had already moved pictures of his family, including the wife he would later leave, into the Premier's office.

In May, 1999 Harris sold the highway, which had cost the province $1.5 billion to build, for $3.1 billion, making a tidy profit of $1.6 billion. Brilliant. Except Macquairie Infrastructure Group, an Australian investment bank that bought part of a Spanish company that owns a majority stake in the highway, did an analysis of its investment. What it found led to more than a few smiles in Macquairie's boardroom. By the bank's figuring, the highway was worth $6.3 billion, twice what it was sold for. For the Australians this was a pretty good deal. Take the deposits of investors, buy a road in Canada for less than it's worth, and collect profits from the tolls paid by Toronto commuters who had become sick of sitting for hours on end on the insufferably congested 401. The Australians were wondering who said privatization didn't have its merits. Toronto commuters, shelling out more money after the fourth toll increase in three years, weren't so sure.

Air travelers, at least those who had to pay for their tickets out of their own pockets, rather than riding on the corporate tab, were becoming increasingly skeptical, too. Who couldn't help but be skeptical? When the federal government took the bold step of selling off Air Canada, and then deregulated the airline industry, what followed was the collapse of airline after airline, federal government bailouts, re-monopolization, deteriorating service, fewer routes, and higher prices. Not what privatization was said to promise. It was as if long-suffering Canadians had been promised a gourmet dinner and got stuck with a Big Mac -- and the tab.

Now, Gordon Campbell is about to cut B.C.'s already lean public service (it's the second leanest in Canada) by 11,700 full-time positions, using the same old con. "Look," he says. "We're privatizing this public service and this one and this one. Now, the province won't be paying for any of these services and that means we can bring your tax bill down." Great, except we still need the services. It's just that we end up paying someone else for them. And that might be all fine and well expect that the someone else we'll be paying is someone in the business of making a profit. So, on top of setting prices to recover the cost of providing the service, they're also building in a profit margin. Which is why Toronto residents are going to be paying 20 percent more for their electricity. The newly privatized energy companies "have to increase their prices because they must now act as profit-making businesses," the Globe and Mail helpfully explained. Now you know why business -- and the media, themselves businesses -- like privatization. Taxes come down, and they get handed new moneymaking opportunities.

And if you're like a number of Ontario businesses you can escape the pain of having to pay the higher prices privatization brings. Large electricity consumers, like Dofasco, Bowater Pulp and Paper Canada, won't be paying an extra 20 percent for electricity this spring, as Torontonians will. Instead, they'll be receiving a subsidy from Queen's Park of up to $194 million to keep their energy prices below market level. And they're the ones who pressured the government to privatize hydro companies in the first place.

You'd think we'd have had enough. But now more privatization is coming. This time to our already passively privatized health care system. "Alberta will 'pioneer' changes to Canada's health care system," says the Toronto Star, "opening the door to delisting services, increasing privatization and making patients pay more for their care." Sounds good? The Globe and Mail says Premier Ralph Klien's proposals will compel Albertans to "pay more for less."

And the Ontario government is looking for private investors to build, own, and maintain public hospitals the province will lease. The Australian state of Queensland tried this. In 1992, it contracted with a private firm to build and operate a hospital in Port Macquarie. The government said it had saved millions -- and it looked like it had. Rather than the total cost of building the hospital appearing in the governments books all at once, all that appeared was the much lower, single year's leasing cost. But this was illusion. Year after year, the same leasing costs kept appearing, adding up over time. Three years later, the state auditor concluded taxpayers had been misled -- and gouged. Rather than paying $50 million for the hospital -- the price the state government would have paid had it built the facilities itself -- taxpayers would pay $140 million to private operators, almost three times more. And governments in Canada have tried the same scheme with schools, roads, and other infrastructure.

Privatization hasn't delivered. In fact, it's done much worse. It's caused chaos, less choice, higher prices, and a heavier tax load. Promised manna, Canadians have been showered with something far less ethereal, and more pungent.


Steve Gowans calls himself a radical, but others just call him contrary and a pain-in-the-ass. He can be reached at sr.gowans@sympatico.ca.

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