Deregulation and BC's Crown Corporations

What's the deal?
May 1, 2001

We're hearing a lot during this election about opening up BC's Crown Corporations to "competition"--a more attractive term for deregulation and a slow form of privatization. The public debate, however, would be well served by some clarity on the issues--particularly with respect to why these corporations exist and what deregulation would mean for British Columbians.

BC owns a number of valuable commercial enterprises, all of which are mandated to provide reliable, equitable and affordable access to essential services, and to distribute the benefits of BC's resources among all citizens of the province.

ICBC and BC Hydro are two of the oldest and biggest publicly-owned enterprises in the province. Both operate as regulated monopolies with important policy goals. ICBC provides universal basic auto insurance to BC drivers at rates that are among the lowest in the country. Because ICBC operates on a non-profit basis, the investment income generated from the corporation's financial reserves is used to keep rates low and to fund programs aimed at preventing accidents and auto-crime. ICBC employs 5,800 British Columbians and is affiliated with about 5,000 insurance brokers throughout the province.

BC Hydro provides many benefits to the public. Its primary purpose is to ensure that all British Columbians have a stable source of electricity at a regulated price that is determined by the cost of production. BC Hydro is a low cost, clean and efficient energy provider because the public has maintained a long-term investment in an integrated system of dams, transmission, and distribution lines. As a public sector monopoly, BC Hydro also has an incentive to encourage energy conservation. It provides about 5,600 jobs to the people of this province. Finally, BC Hydro taxes and dividends provide the province with revenue that can be used to meet additional collective needs like health care, education, childcare and housing.

Deregulation threatens the many benefits we get through public ownership in the auto insurance and electricity sectors. Deregulation means reducing or eliminating government rules about the number of companies allowed to enter a particular market, the prices paid by consumers, the kinds of services provided and how much profit can be taken. Deregulation takes regulatory authority away from governments (i.e., the public) and increases the influence of the market. And, because it limits the role of government and increases the size of the private sector, deregulation is, in effect, just another form of privatization.

Even if we did not sell our Crowns outright, deregulation would force ICBC and BC Hydro to behave as if they were private in order to compete with for-profit companies entering the market. Instead of aiming to provide universal, reliable service at fair prices, encouraging safety and conservation measures, providing good jobs to British Columbians, purchasing the services of local suppliers, investing in the local economy, and providing revenue for other public programs, ICBC and BC Hydro would have to focus exclusively on the financial bottom line. And, once the private corporations have creamed off the most profitable customers and services, the Crowns will be hard-pressed to fulfill their mandate to serve all British Columbians.

Those who favour competition typically claim that it will increase consumer choice and reduce prices because competitive firms will have to be more efficient. But the evidence shows that the promise of competition is more myth than reality. In auto insurance, competition has given consumers in Ontario and Alberta higher premiums, lower benefits and poorer service (10-20% have no coverage at all). Electricity deregulation in Alberta and California has brought skyrocketing costs and brownouts. Consumers now have to compete against one another with their pocketbooks for services controlled by a handfull of profit-hungry corporations.

In both the auto insurance and energy cases, deregulation has meant a quick concentration of the industry in the hands of a few large multinational firms, forcing competition among consumers instead of between providers for service, while sending jobs and profits outside the local economy.

Even more worrisome, deregulation would make the auto insurance and electricity industries open to challenges under the NAFTA. Once these industries are opened up to for-profit competitors, the rules of free trade kick in. BC Hydro, for example, would not be able to charge BC consumers more favourable rates, or guarantee them stable supply of electricity.

Crown corporations perform a number of important roles in BC. Public investment and regulation in these key industries has provided access to service regardless of where people live or how much money they have. The Crowns have also given us more control over economic development in the province and made sure that a portion of the wealth generated in BC stays in BC. It would be easy to start down the road to privatization by deregulating, but very difficult to turn back. Why would we take these risks?