Canada has a long history of state-owned enterprises, mainly referred to as Crown corporations. The act of privatization has a fiscal impact on the government of Canada. According to Levac and Wooldridge (p.25) defined privatization as the transfer of activities from the public sector to the private sector. Privatization can take different forms depending on the interest of the public sector and its significance to the public. Privatization can be in the form of an outright sale of the public sector organization or company to a private investor to create a public-private partnership. Other forms of privatization can be the privatization of operations only by creating contracts, open competitions, and franchising public services to private ownership. In Canada, Crown corporations have played a vital role in Canadian life. Crown corporations are known to provide services and operate at a more significant arm’s length from public sector officials. Their structure was designed to act like private or independent companies (Tupper, para.1) and (Fremeth and Holburn, p. 4). Examples of Crown corporations include VIA Rail, the Canadian Broadcasting Corporation (CBC), Canada Post, and many others. This paper will elaborate more on privatization in Canada and when it is appropriate to privatize public sector organizations and Crown Corporations.
Because the public sector by any means tends to reduce efficiency and effectiveness when distinguished for-profit businesses, which may lead a government to privatize the public sector, when the government wants to increase its efficiency of service delivery to the citizen, the best way is to privatize the public sector organization. Different empirical research has proved that for economic productivity efficiency, the Canadian government should consider privatizing its public sectors. A study done by Kouser et al. (p. 38) found that the government has a responsibility to manage monopolies and aid in the supply of public services and commodities, for example, defense, provide and facilitate education, infrastructure, and areas where public goods are needed to give information.
In such a scenario, privatization can build positive effects specific to those areas where the public sector’s role is reducing, and the market is at its weakest point. Iacobucci and Trebilcock (pp. 1-3) argue the reason for some factors that may be needed and may cause the privatization of the Crown Corporation. They noted information asymmetries could cause inefficiency in the public sector. Another thing is ensuring public goods and services are all explicitly provided for essentials, where the tendency of goods and services are under provided. These factors may lead to the privatization of Crown corporations.
Cost Reduction and Fiscal Benefits
Cost reduction and fiscal policy pressure from the government may lead to privatizing services and goods. Studies have argued that when the government sells some volume of state-owned assets to the private sector, they will be able to collect in an organized manner, a considerable amount of money within a period (Kouser et al., p. 39). To reduce the Canadian government’s costs on private sector organizations, privatizing some public corporations and Crown corporations with the aim of potential cost saving may be appropriate. The private sector can provide services to the public which are of high quality and lower prices. Schoenberg and Parke (p. 4) argue that private contractors are not tied to the legal laws and restrictions in the civil system and public employee collective bargaining agreements. The private sector can provide flexible assignments and wage packages for their employees. Due to this, many private industries offer wages based on efficiency and productivity, reducing the government’s cost to public sector organizations.
Raise of Revenue
The Crown corporations have used it as a means of implementation of public policy in Canada. An example of a state-owned corporate like Air Canada, which has been used in cross-Canada transportation, has been used to facilitate some government policies. However, when the government wants to raise the amount of money, the option of privatization may be acceptable and will bring a positive outcome. Research done by McLean (p. 25) said that the government should consider the privatization goals if they want to make it. The study gave two options; when privatization is meant to raise government revenues, then the option will be acceptable and for the country’s benefit. Still, it is to increase the profitability of the firm organization or sector. In that case, the government needs to reassess its priorities for the company, and society will benefit from the decision. Privatization can bring a reasonable sum of money to the government, and for Canada, between 1986 and 1996, the government had the ten most extensive federal privatization, which totaled $7.2 billion. In 1985 alone, the government raised a total of $ 3.8 billion from the sale of shares in the Canadian National Railway Co. (CN) and Petro-Canada (Levac and Wooldridge, p. 29). The goals for privatization matter and should be meant to benefit the society directly affected by the services users of the services associated with the firm.
Further research has been done concerning the privatization of the public sector to private ownership and found that privatization is recommended and may be performed due to accounting performance. The positive impact of privatization has been seen in the firms’ accounting performance after privatizing. Privatized companies have been associated with better performance in accounting because the new management tends to improve the companies’ objectives and offer better incentives to workers under merit (Kouser et al., p. 38). Privatization increases, without a doubt, the profitability, operating efficiency, financial accountability, and capital investment in the country.
In their study, Estrin and Pelletier (p. 76) compared the post-privatization accounting information with the pre-privatization of the same companies. The impact of accounting within the public sector has been criticized as poor and cannot be compared. Even for accounting procedures, improvement tends to differ between private and public institutions. This means that when the public sector organization consistently misses accounting for their financials, which are taxpayers’ money for the services, it’s time for the firm’s privatization. This is because privatization will be able to account for the money and use the most updated formating, recruitment, management, and consultants for service delivery efficiency and effectiveness.
The significance of privatization of public firms tends to depend to the level of failure in the market share. In situation where the government role in the public sector is seemingly failing or have small market share, privatization is notable a positive way to bring an improved outcome. Markets that are becoming competitive when firms are privatized, there must be an improved competitive structure (Megginson and Netter, p. 9). When the government wants to enhance competition within the market, one working solution is through changing the ownership to a private owned. External competition is a challenging part for the state-owned companies and enterprises. Due to the globalization, some of the goods and services can be sourced from a different country and which may be of great quality and even cheaper compared to the local manufactured by state-owned firms. The government may be forced to respond to the issues and by privatization decision, it will have the best way to incorporate and enhance competition between service delivery. One example of a Crown corporate organization that operates in a competitive environment is the Canada Post which entails different businesses like delivering mails and also delivering packages. Other businesses, also are in the same market hence there is a fight of the market share. In such moments, the government should privatize competitive corporations for better services (Boardman, paras. 7-8). In a situation where the market is not competitive, and the state-owned entreprise enjoys the monopoly, the corporate start behaving in a manner that affects the production through limiting of the output (Kouser et al., pp. 39-40). By privatization of the Crown corporate, the interference of political and states power ceaze and the private ownerships maximize on the production while venturing into new markets.
Employment issues have been witnessed in many Crown corporations and public sector organizations. The government controls the employment structure and employers’ recruitment to public state-owned organizations. Crown corporate tends to maintain employees, even though there are employment delays. Employees have job assurances in state-owned firms compared to privately owned firms (Kouser et al., p. 45). Individuals who are against privatization of the public sector are public employees. They oppose the matter because a private entity can provide quality services by maximizing less or more efficient labor inputs than public labor (Schoenberg and Parke, p. 19). Employment issues arise when it comes to the government, and through hiring of inefficient individuals. To solve this, the government can privatize a corporation to cut costs associated with employment, and also ensure competent is at its peak and merit only serve the corporation through different incentives offered (Estrin and Pelletier, p. 89). Also, there is an assurance that the corporation will maintain the most competence because the public sector mainly faces political interference in employment. By privatization, the Canadian government will be able to minimize political interference in the industry and hence keep the lawmakers off the organizations.
Risk transfer is another way that would make the government privatize the public sector. The desire of the government to transfer risk to the private sector through contracting out some services tend to influence privatizations. The government exchanges the risk of services needed by the Canadians and exchanges those services perceived to be with high risk with monetary value to the private sector (Schoenberg and Parke, p. 5). Risk distribution to different personal and organizational settings tend to be an aim of the government. A report by Estrin and Pelletier (p 95) says that risk evasion and financial conservatism are among the reasons the public corporate is highly related to inefficiency. Public-owned companies tend to be afraid of investing to meet risk, and the need for more responsiveness in investing in available opportunities brings inefficiency in service delivery. When the government wants to distribute risk and offer quality services, privatization of the public organization may be the best way to respond to threats and provide services to the public.
Flexibility and Timeliness
Flexibility and timeliness are a good reason public sectors can privatize the government owned organization. Due to the collective bargaining power agreement between the employees in the public sector, the government may be limited to hire or release an incompetent employee (Schoenberg and Parke, p.6). Unlike private sector, where the employer has the liberty to hire and release any employee on the basis of incompetent or lack of values and ethical issues related to the organization. Private sector also can take advantage of the seasonal demand to maximize profit as compared to the public sector where production level is always maintained. This may be caused by the fact that the public sector may not be ready to take risks. Timeliness is another factor for public sectors to consider when they want to privatize a Crown corporation (p.6). There are situations where the government cannot complete a task even if they have the skills needed because of lack of resources and time. For the private corporation they can adjust this with an easy sitting to plan the timeframe needed for the project to be completed.
Lastly, social factors can be used when Canadians want to privatize a company. Today, private sector demand is very high because people perceive that quality and efficiency are always the best. Private services like medical services and education have been perceived to be of quality compared to the same services available in the public sector. Through the privatization of some services, the restructuring of privatization should be considered often due to the benefits of the public (Kouser et al. p. 6). However, it is not necessarily total privatization. Still, the government can use contracts to give services to the public using the private sector to gain their users’ trust and confidence. Also, when the government wants to increase the quality and service cost to the satisfaction of the users, they should privatize public companies to privately owned ones. Private companies may be willing to offer some of the services that may be associated with the benefits offering of after-sales services compared to the public sector.
The main reason for the privatization of the public sector and Crown corporation generally, is the efficiency and effectiveness of service offering to the public. According to research done, it is proven that the private sector performance is much better and far compared to the public sector. One of the reasons for this, is the internal organization mechanism and the management of the private organization. However, there are many ways that the public sector or Crown corporate can be considered when they want to privatize public firms. Some of the reasons are when they want to raise revenue, increase efficiency, increase quality and more services, avoid political interference, for productive efficiency, cost, and risk reduction, time and flexibility are all great ways of privatization. This will cause service delivery to increase by a higher percentage compared to when they are publicly owned.
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