BC Rail Privatization should go forward

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Appeared in The Province, January 20, 2004

Anti-privatization crusaders are seizing on the recent scandals in the BC legislature to argue against the planned privatization of BC Rail. Transportation Minister Judith Reid, however, says that the BC Rail privatization deal should proceed. The Minister is spot on: the taxpayers of British Columbia shouldn’t allow unsubstantiated rumours to derail good public policy. The benefits of privatization are well established, and BC Rail is no exception. It simply comes down to fiscal common sense.

First, let’s review the financial picture. As a crown corporation, BC rail has frequently operated in debt, despite numerous bailouts. That’s no surprise -- government owned businesses lack the incentives that keep private companies operating in the black. According to the Canadian Taxpayers Federation, BC rail is $600 million in the hole this year, with a $107 million deficit left over from last year. When government business enterprises run into tough times governments use taxpayer dollars to support operations and keep the business running. Private companies, on the other hand, face losing capital and ultimately bankruptcy. In other words, private companies are forced to be efficient, allocate resources where the returns are the greatest, and focus on quality and consumer satisfaction. Not so for government-run businesses.

Another important difference is that government businesses aim to achieve social objectives rather than economic objectives. Research shows that government business enterprises are more labour intensive, as goals are not to maximize profit but rather focus on job creation. With less capital, labour productivity at government businesses are usually lower than at their private counterparts; a particular troubling concern given that government workers are usually paid a wage premium.

Finally, let’s talk about fairness. BC rail earns most of its revenues carrying lumber, energy, and agricultural products. How is it fair that downtown Vancouverites are forced to subsidize a lumber company in the interior? Shouldn’t energy companies and farmers pay the full cost for the transportation of their goods to market? The average British Columbian might love to have his or her transportation subsidized, but that wouldn’t make it right. And what about businesses that ship by truck, rather than train? Is it fair that Company A, which ships by private truck, has to pay more to move its goods than Company B, which just happens to have a market better served by subsidized rail?

Under private ownership, prices for rail transport reflect the full costs involved, businesses that are only competitive based on subsidies are weeded out, and the railroad’s costs are contained. Some companies might indeed lose out, and ship less freight to market. Some employees might lose jobs, as the rail line is made more efficient. But other employees would prosper as their companies were more competitive.

Take Canadian National, the company that purchased BC Rail and was once itself a government business enterprise. The results of their privatization have been remarkable. Even the CBC acknowledges that since Canadian National’s privatization in 1995, it has “morphed into a lean, mean hauling machine in an increasingly competitive North American market,” and “Canadian National is considered on both sides of the border to be a continent-wide success story.”

The $1 billion buyout by Canadian National Railway is a windfall for taxpayers of British Columbia as the money will provide the province with an infusion of cash to fund other programs. Also, taxes paid by Canadian National in the future will also accrue to provincial benefit. Most importantly, taxpayers will forgo paying the future deficits that BC Rail would surely incur if left in public hands. Let’s weed through the rhetoric of the ideologists pushing the anti-privatization crusade and do what’s common sense: keep the privatization train moving.

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