Hydro One and the re-emergence of the Canadian mixed economy: Don Pittis

Once upon a timeCanada described itself, perhaps even proudly, as a mixed economy.In the aftermath of the free market ideological revolution that grew up in the 1980s,thatdescriptionhadfallen out of favour.

Now, suddenly, the Canadianmixed economy seems to be getting a new lease on life.

Quebec is pouring $1billion into Bombardier. Ontario is launching the biggest IPO in more than a decade asit sells shares in Hydro One,using the proceeds to invest elsewhere in the economy.

Meanwhile, the federal finance minister, Bill Morneau, a successful businessman,is preparing to launch a nation-widedeficit spending plan of his own.

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In the greater world, the term mixed economy has a variety of meanings. But in postwar Canada it was celebrated as some sort of bridge between a planned industrial economy includingstate-owned businessesand a purer laissez faire economic system where private entrepreneurs wereleft to do the work.

Of course from its inception, the so-called free market has never been truly free of government involvement. Some of theearliest joint stock companies, including the Hudson's Bay Company,were founded on royal charters and monopolies.

Whether they arebanks or car companies, when they fall on hard times, corporations knowtaxpayers will bethere for them.

Public vs private

Even companies that currently claim to be founded on free market principles continue to depend on favourable government regulations and treaties.

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Contrary to what you might think from the strong ideological language of think tanks and Fox News as magnified by the comments sections, the separation of private and public in business didn't useto be so much of an issue.It was a Conservative premier, James Whitney, for instance,whocreated the precursor of Ontario Hydro.

As private sector businesses crumbled in theGreat Depression of the 1930sit seemed natural forCanadian politicians of all stripes to involve themselves in business. Federal cabinet ministerC.D. Howe, whosename now decorates a right-of-centre think tank, was the founder of Air Canada, a Crown corporation. He developed it out of another Crown corporation, Canadian National Railways. (Howe also left usthe CBC.)

Following the government-led war effort, governmentscontinued to found and support businesses. Near the end of the Second World War the federal government created its own bank. Quebec created its own electricity company and Saskatchewan created its own insurance company. Those are only a few of many examples.

In the 1970s the government succeeded in creating its own integrated oil and gas company, the Canadian equivalent of Norway's Statoil. It fell victim to the growing wave of free market ideology, represented by Margaret Thatcher in Britain and U.S. president Ronald Reagan, that swept the world starting in the 1980s,insistingprivatization was essentialto make economies strong and efficient.

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The difficulty for governments now is that after 10 years of the most free market leadership in Canadian history, the Canadian economy remains on its knees.

Waiting for the private sector

The theory is that free markets, low interest ratesand low taxes were supposed to launch a wave of new businesses that would grow up,producingexports andjobs.

Instead, Canadian industrial champions have been picked off by powerful international corporations such asU.S. Steel (Stelco), Rio Tinto(Alcan), Xtrata (Falconbridge).

Other Canadian giants such as Inco were swallowed by companies controlled by their own governments. The Canadian economy remains stagnant.

While things are not as bad as in the wake of the Depression, governments are desperatelytrying to think of ways to relaunch a hollowed-out industrial economy as global demand sags.

The sale of Hydro One shares is just one more demonstration that there is no shortage of private capital willing to invest in existing businesses. There are reports that pension funds would have willingly snapped up the entirecompany.

The problem is not a shortage of funds,but the ability and desire of the private sector to create new businesses and jobs.

That private sector failuredoesn't mean theideologues of free markets have gone away. They will continue to snipe at government efforts to preserve or create Canadian jobs despitethe fact thatthe free market model has not solvedour current problems.

A Maclean'seditorial commentthis week recommends letting Bombardier fail. But that means it would likely go the way of Inco, its technologyfalling into the hands of a foreign competitor that continues to support their champion during hard times with handouts or military contracts. Just watch what happens next time Airbusgets into financial trouble.

Our new finance minister must have his own reservations about getting the government too deeply involved in the private sector economy.As a Bay Street insider and the scion of a Canadian business family, Morneaumust have been as exposed as anyone to the ideological certainty that the free market is the economy's bestsalvation.

Maybe we just haven't waited long enough.

On the other hand, maybe the free market ideologues are no more right or wrong than the postwar planners were in their day.

Like skinny jeans and beards, maybethemixed economy is back in style.

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More analysisby DonPittis