Once again, our provincial government is considering privatization as a way to solve their current financial woes.

Once again, they’re promising to use evidence-based decision making.

That’s a good thing. Because the evidence is clear – has been clear for a very long time – privatization is not the solution.

Why is our provincial government talking about privatization right now?

It’s no secret that Newfoundland & Labrador is facing fiscal challenges. Shortly after his election, Premier Furey announced he intended to get advice from the brightest and the best. His approach was to put together a Premier’s Economic Recovery Team (PERT). A government news release provided the following mandate for PERT:

The Premier’s Economic Recovery Team is tasked with developing a plan of action that will respond to the Province’s immediate fiscal challenges and plot a new course forward. In addition, the Economic Recovery Plan should also focus on programming to revitalize the economy and identify the changes required to get us there.

Furey appointed UK-based Dame Moya Greene to head PERT. Greene is well known for her work in privatizing CN railway, the deregulation of the Canadian airline industry, and a contentious stint as CEO of Canada Post. She moved from Canada to the UK where she was the driving force in privatizing Britain’s Royal Mail.

In May of 2021, PERT issued its report, ‘The Big Reset.’ Among other things, it said “The NLC is a profitable entity and has consistently paid the province a considerable dividend. In the last 10 years, dividends have totalled $1.6 billion.”

And yet – in direct opposition to the evidence – one of the report’s recommendations was, “The Provincial Government should sell all or a majority interest in the Newfoundland Labrador Liquor Corporation.”

In that same report, Moya Greene also recommended privatizing Motor Vehicle Registration and the Registry of Deeds, Companies and Securities, which between them netted the provincial government $161 million in fiscal year 2019-20 alone. This income is also needed to provide public services like health care and education.

On November 23, 2021, the NLC announced that it “is currently on pace to deliver a dividend of $210.0 million in fiscal year 2022, which would be the largest in the organization’s history.”

The very next day, the Government of Newfoundland and Labrador issued a Fall Fiscal and Economic Update. During that update, Finance Minister Siobhan Coady said:

I will say NLC has indicated … a record amount of dividend coming to the people of the province this year, which is very positive for us. That means investments in health care and education, for example … We’ve gone through a request for proposals to bring in an outside expert who’ll look at the cost, the benefits of monetization [by which she means privatization]. Who’ll take into consideration the amount of money … we do realize from … the Newfoundland Liquor Corporation every year. And that will be part of the decision-making process. And how it is best for the people of the province. So all that will be weighed and factored in when we consider whether or not we monetize [privatize] that asset [the NLC].

On December 15, 2021, Minister Coady announced the Government of Newfoundland and Labrador had retained Rothschild & Co. to review a number of public assets – including the NLC. London-based Rothschild & Co. stands to make upwards of $5 million for its efforts. For decades, Rothschild has been an advisor to governments worldwide on privatization.

To add insult to injury, Coady, “wouldn’t confirm the report would be made public, due to the potential presence of ‘commercially sensitive information.‘”

And while they’re at it, the provincial government has also asked Rothschild to review Motor Vehicle Registration and the Registry of Deeds, Companies and Securities. There are also rumblings that Rothschild is reviewing other government services too, like ferries, the air ambulance service, and highway snow clearing.

Government and its consultants will try to convince you that the benefits of government’s getting a big lump of cash to pay down on its debt outweigh the benefits of receiving hundreds of millions of dollars every year. In fact, the sell-off of major public assets and infrastructure to private, for-profit corporations or equity partners will mean the loss of billions of dollars of revenue for the people of Newfoundland & Labrador.

They will try to convince you that privatization means cheaper, better-quality services. None of these things is true.

What Moya Greene didn’t say, what our government isn’t saying, and what Rothschild won’t say is that the evidence shows privatizing public services for short-term monetary gain is a BIG MISTAKE.

What is privatization?

Privatization comes in many forms. Here are the basics.

Selling

The simplest form of privatization is when a government sells the right to deliver a public service to a company or a consortium of companies.

Contracting Out / Outsourcing

Another common form of privatization is contracting out or outsourcing. That’s when government awards a contract – usually a long-term contract – to a company or consortium of companies to deliver a public service for a set amount of time.

Public-Private Partnerships (P3s)

Public-private partnerships (P3s) are another form of privatization. Take for example a P3 in which a government hires a company or consortium of companies to build a hospital. The private sector raises the money, builds the hospital, maintains the hospital on a contractual basis, and somewhere down the road may sell the hospital back to the government.

Lower costs a myth

Governments claim privatization leads to lower costs for users.

When a government contracts out a public service, it usually awards the contract to the lowest bidder. A corporation’s main goal is to make money for its shareholders. In order to have the lowest bid, it looks for ways to save money. It pays people as little as possible. It cuts staffing to the bare minimum. It replaces people with technology. (Just think about self-serve. Did prices go down when people had to check themselves out? Of course not!) It sends jobs offshore to countries where wages are low. It scrimps on materials (in Ontario, the private corporation awarded the contract for highway snow clearing scrimped on salt and sand). It buys lower-quality materials (think about the quality of the asphalt used on our streets and highways). It cuts the level of service. (Not only did that Ontario company scrimp on salt and sand, it cleared the highways less often!) And where it can, it raises fees. That’s exactly what happened in Ontario, Manitoba, and Saskatchewan when they privatized their land registries. Not only did fees go up, their fees are now the highest in Canada!

Despite the promise of cheaper booze, most users in Alberta didn’t get to enjoy lower prices for liquor after their liquor stores were privatized – unless they lived in Calgary or Edmonton – where prices on the most common products dropped a little. They also didn’t get the bigger selection of products they were promised (except in the biggest stores in the biggest communities). And unlike public liquor stores, private liquor store owners are under no obligation to sell the same product for the same price in every community in Alberta – a big, red flag for people living in rural communities. In Saskatchewan, privatization led to similar results – loss of stores, jobs, and selection.

Government’s real reasons

The truth is that there are a number of self-serving reasons governments like privatization.

Lack of accountability. Governments find the concept of privatizing public services appealing because it means they can wash their hands of responsibility. Because unlike governments, which answer to taxpayers, corporations answer only to their shareholders.

To look more fiscally responsible. Governments like privatization because it gets the cost of delivering public services off their books. It makes it look like they are improving provincial finances. And yet, taxpayers are still footing the bill.

To keep party donors happy. If you take the time to review the records of which corporations donate to political campaigns, you’ll often find the true beneficiaries of privatization listed among the donors. You’ll also find privatization consultants on that list of donors. They’re the companies who are brought in after a government has decided to privatize public services in order to justify that decision – and they’re usually paid a lot to do so.

Case study: Britain’s Royal Mail

Moya Greene was the CEO of Great Britain’s Royal Mail from 2013 to 2018. Her success or lack thereof in privatizing the Royal Mail gives a clear example of the many problems associated with privatization and the selloff of public infrastructure to for-profit investors.

Over the course of Moya Greene’s employment with the Royal Mail, 12,000 jobs were cut, and yet the newly privatized Royal Mail paid out almost $1 billion to rich shareholders. And while hundreds of mail centres and delivery offices were being closed, Dame Greene received an astronomical $3.2 million in salary in 2017 alone – salary paid for by the public.

Today, the Royal Mail is losing 1 million British pounds – roughly $1.7 million Canadian – EVERY DAY. Yet its executive and shareholders are still receiving dividends.

British Columbia

In 2014 Carol Bellringer, Auditor General of British Columbia, raised major concerns about the high cost of debt acquired through P3 projects. She examined 16 different P3 projects in the province and reported:

“The interest rates on this $2.3 billion of P3 debt range considerably, from 4.42% to 14.79%, and have a weighted average interest rate of 7.5%. Over the last two years, government had a weighted average interest rate on its taxpayer-supported debt of about 4.0%…”

Her review shows that P3 projects are creating higher levels of debt than if the government had financed the projects itself, since interest rates for P3s are almost double what governments pay.

Partnership BC

Partnership BC is the body the current Government of Newfoundland and Labrador has retained as a consultant to help with the privatization of long-term care. In 2015, the BC Finance Ministry produced a review of Partnership BC that was highly critical of some of its activities, flagging “issues of conflict of interest, dubious practices, and questionable assumptions in the multi-billion-dollar program.”

Nova Scotia

In 2010 Auditor General of Nova Scotia Jacques Lapointe reported on his review of 39 P3 schools in that province. He cited numerous and significant problems with the administration of the contracts. Lapointe concluded that “[t]he terms of service contracts are not adequate to ensure public interest is protected …The lack of these significant contract terms impairs the Department’s ability to hold the developers accountable and effectively manage the contracts.”

He also noted that risk was transferred back to government, and developers were being paid twice for the service, resulting in deficits for local school boards.

More About the Cost of Privatization

McKenna, Barrie. “Canadian governments have become seduced by private-public projects.” Globe and Mail. December 14, 2014. http://www.theglobeandmail.com/report-on-business/canadian-governments-have-become-seduced-by-private-public-projects/article22078500/

National Union of General and Public Employees. A collection of items about privatization in Canada. http://nupge.ca/issues/privatization?page=15

Think it couldn’t happen in Newfoundland & Labrador?

Increasingly, the Government of Newfoundland & Labrador is relying on P3s to build public infrastructure. So how is that working out?

On April 12, 2019, the provincial government announced it had awarded the contract to build two 60-bed long-term facilities – one in Gander and one in Grand Falls-Windsor – to a consortium. These new, badly needed facilities were supposed to open in 2021. That opening has been delayed until some unspecified date in 2022. Information obtained through the access-to-information process revealed that inspectors had found thousands of deficiencies – more than 400-pages worth – including problems with ventilation and accessibility.