The Innovation Journal: The Public Sector Innovation Journal, 5(2), 2000, article 1d3.

 

Is Innovation a Question of Will or Circumstance?

An Exploration of the Innovation Process Through the Lens of the Blakeney

Government in Saskatchewan, 1971-82

 

Edited by Eleanor D. Glor


Previous: Chapter 2 Top: Table of Contents Next: Chapter 4

Chapter 3: Managing Change in Economic Development (1)

 

Eleanor Glor

The Blakeney government actively attempted to influence and control the staples-based economy of Saskatchewan. Its primary tool for action in this arena was what would be known under New Public Management as alternate service delivery in the Government of Canada or Next Steps Agencies in the United Kingdom. In this case they were crown corporations.

Arms Length Agencies: Managing Crown Corporations to Achieve Economic Development

While the Department of Finance was clearly the government's primary agent for managing the government side of its operations, when the initial big push for implementation of social innovations was over, economic development became the predominant concern of the Blakeney government. Although the CCF government of Tommy Douglas (1944-61) introduced central economic planning through creation of the Economic Advisory and Planning Board, (2) this board had subsequently been dismantled by the Thatcher government. As a result, when the Blakeney government began its economic planning, it had to create new agents to do so. The Executive Council planning groups-the Planning Bureau and special secretariats-were assigned chiefly to economic issues after 1975, and crown corporations were usually the agents identified to carry out the policies developed. (3) An effectively managed crown corporation sector was a necessary condition of this strategy. The government focussed on creating new mechanisms for guiding its crown corporations, accessing
adequate financial resources, and enhancing and gaining more control over economic development in the province.

Management

The Blakeney government created ten new crown corporations in 1973 and 1974, followed by the creation of three new resource crowns during 1973 and 1974. It also significantly expanded its utilities, Saskatchewan Power and Saskatchewan Telecommunications (Waller, 1997, pp. 32-35). The government required a means to effectively develop, support and direct its crown corporations: It established a management and control system for the crown corporations separate from government operations. The private sector holding company approach that it adopted had been tried for a few investments, such as the Canadian Investment Development Corporation, de Havilland, and Canadair, by the federal government, but this approach had been developed most substantially in the public sectors of Spain and Italy, and to a lesser extent in France. The holding company consisted of a crown corporation that held the equity of the Saskatchewan crown corporations, received their profits, approved their investment proposals, negotiated their borrowing with the Department of Finance, and offered a range of secretarial, accounting, legal and industrial relations support services. Crown Investments Corporation (CIC) was a full-service financing centre, within which nearly all financial relationships between the government and its crown corporations were consolidated. (Waller, 1997)

Political decision-making was vested with the Cabinet Committee on Crown Corporations, whose membership was ministers responsible for individual crown corporations (who were also chairs of their boards) plus the chief executive officer of CIC. (4) This was the only Cabinet comittee to include a non-minister as a member. The Cabinet Committee on Crown Corporations was supported by CIC, which functioned as a central agency for the crown corporations.

Decisions concerning crown corporation formation, their mandates, and major investments were made by the cabinet committee, thereby bringing some limited consistency to the actions of the individual crown corporations. CIC collected, analysed and processed key capital and operating information for the central decision point; monitoring mechanisms included prospective and retrospective evaluation and strict capital rationing. Most corporate performance data, outside of financial and accounting data, was not formally shared on an ongoing basis. Additional information was captured, however, by appointing corporate officers to the individual crown corporation boards and corporate secretaries to support them, and through Premier Blakeney requesting extensive monthly reports. Ministers, CIC staff and the Premier served integrating roles.

How much control should be exercised over the crown corporations was a matter of debate within the government. A few ministers responsible for crown corporations, and some of the corporation staff felt CIC became too controlling to permit effective functioning of the crown corporations. They had earlier answered effectively to no one under the Thatcher government, where the mandate of the Government Finance Office had not even included either of the largest crown corporations-the utilities, Saskatchewan Telecommunications and Saskatchewan Power Corporation-although it had influenced them somewhat.

The dynamic of central governmental control and influence versus operational freedom is played out in every government with a crown corporation sector. In neighbouring provinces, Alberta allowed its crown corporations to remain highly autonomous, while Manitoba theoretically retained more central agency control over its crown corporations (Stevens, 1989, 1991, 1993). As opposed to the Alberta Self-Contained crown corporation system, and the Manitoba Vertical Information system, Stevens concluded that the Saskatchewan Lateral Relations Model tended "to balance corporate autonomy and institutional control" effectively (Stevens, 1991, p. 310). Growing out of its experience managing a variety of types of crown corporations, including running a commercial province-wide bus service, mining and sale of sodium sulphate, and retailing of natural gas since the mid 1940s, (McLeod and McLeod, 1987, p. 172), Saskatchewan developed a workable model.

The Blakeney government's crown corporation innovations have been outlined by Tom Waller as: The scope of the operations and the scope of the sector, the economic development functions assigned to CIC, the creation of different expectations for different categories of crown corporations-utilities, resources and financial and service crowns, and the preparation, beginning in calendar year 1978, of a consolidated financial statement reflecting all of the operations of the commercial crown corporations. (Waller, 1997, pp. 45-46)

Accessing Financial Resources for Economic Development

Besides good management, and sufficient control of its crown corporations, the Saskatchewan government required funding for its economic development strategy.

Although a number of the Saskatchewan crown corporations were unique, the Saskatchewan Development Fund was an innovation that offered individuals the opportunity to invest in the province. Long before the current popularity of mutual funds for retail investors, this Fund, operating as a crown corporation and chaired for most of the 1970s by Hon. Wes. Robbins, had a mandate to offer safe investments for both income and long term growth while attempting to invest in Saskatchewan. Many of its investments were Saskatchewan government bonds and Treasury bills and some Saskatchewan-based corporations. In 1976 the Fund began offering deferred income averaging annuities. At an undetermined point the Fund began guaranteeing a minimum return of 5% compounded annually: This was a factor, for example, in 1982.

A larger source of funding for economic development than the Saskatchewan Development Fund Corporation was the Saskatchewan Heritage Fund. Like Alberta, which created the first Heritage Fund, Saskatchewan adopted a strategy of depositing its resource revenues in a Heritage Fund created for the purpose. Saskatchewan's Heritage Fund differed from Alberta's in that only a portion of the revenues was intended to be used for investments in the crown corporations and the economic development of the province. (5) From 1978, when it was created, to 1982, the Saskatchewan Heritage Fund received $3,040M in non-renewable resource revenues. This equalled 35% of the government's total (Consolidated Fund plus Heritage Fund) revenues during this period. $1,678M (55%) of the Heritage Fund revenues were paid as a dividend to the Consolidated Fund, $432M (14%) went to provincial development expenditures (capital investments in roads, health and educational institutions, research and cultural facilities), and $825M (27%) was invested in crown corporations (non-budgetary transactions (6)) (Government of Saskatchewan, 1982). Saskatchewan also borrowed $1,493M for crown corporations during this period, for a total crown corporation investment of $2,318M over five years.

Through creation of the Heritage Fund and borrowing, Saskatchewan amassed the financial means to develop and influence the economy of the province.

A Tool for Economic Development

Although this strategy was not unique to Saskatchewan during the 1970s, more than other provinces, the Blakeney government stimulated economic development under provincial control or in joint venture with the private sector. It assured initially, and later legislated, the province's right to purchase, within three months of the claim being staked, up to 50% of any hard rock mining claim in Saskatchewan. By picking up this option, the government automatically created joint ventures and majority or substantial ownership by the province. Alberta, in contrast, tended to maintain minority investments and chose a less active a role in the decision-making of the companies in which it invested; nonetheless, it also followed an activist path in economic development, attempting to diversity through petroleum-linked investment and industrialization (Richards and Pratt, 1979, p. 231).

The Saskatchewan economy has always been dependent on staple products, with agriculture (crops and livestock) representing about 45% of production during the 1970s. Other major products were food and beverage, crude oil, potash and uranium (Table 1). Their production grew 60% overall from 1978 to 1981. The government's economic strategy was to secure better benefit from these products, especially ones where Saskatchewan had major deposits of significance in world markets (potash and uranium). Although it encouraged some niche manufacturing, like specialized farm implements, and some innovative manufacturing, such as fuel alcohol and fibre optics production, Saskatchewan did not expect to develop a major manufacturing base, except as a natural extension of development of its primary industries, e.g. milling of ores. Alberta had higher expectations in this regard, and better prospects.

Table 1: Major Products, Saskatchewan, 1978 and 1981

Product

1978
$ millions

1981
$ millions

Crops

1,711

3,239

Livestock

614

658

Food and Beverage

559

844

Crude Oil

689

821

Potash

496

998

Uranium

261

258

Subtotal

4,330

6,818

Other

1,040

1,800

Total Farm Products, Manufacturing, Mineral Sales

5,370

8,618

Source: Government of Saskatchewan, Budget Address, March 1983, pp. 32, 33.

The CIC information-gathering system enabled management and the board and through them, the government to be well informed about economic activity in the province, to be aware of opportunities, to pursue them, or to arrange for others to pursue them. Thus CIC worked toward development of a paper mill and a heavy oil up-grader, in partnership with the private sector and a cooperative, respectively, during the 1970s and 1980s. (7)

The Saskatchewan government's economic development strategy was one of joint venture equity investment in provincial resource industries. The process it used was one of collaborative development, except only in the case of potash where it tried but was unable to secure industry cooperation until it had coercively purchased a large portion of the industry. The province created and invested in new crown corporations, gained greater control over existing ones and used them as a major element in its economic development strategy. It thereby brought very substantial resources under its control and created a large managed economic presence in the province. Saskatchewan gained control of the potash industry in the province. By 1982 crown corporations were the largest employer in Saskatchewan and CIC was listed as the 14th largest corporation in the Financial Post's list of the top 500 corporations in Canada. Crown corporation assets accounted for one third of Saskatchewan's GDP and crowns accounted for more than one fourth of total investment in the province (Stevens, 1991, p. 305, from Regina Leader-Post, 12 August 1982, p. 5). In contrast, the federal government's conglomerate, the Canada Development Corporation ranked 38th among the top 200 industrial enterprises in Canada in 1976 (Laux and Molot, 1978, p. 843). In its approach Saskatchewan participated in a trend followed not just by social democratic but also by most other governments in the rest of Canada, Europe and elsewhere, but not in the USA.

Was the government's economic development strategy a success? From 1971 to 1981 the provincial GDP expanded fourfold from $3.509B to $15.044B in current prices and 1.5 times from $3.5B to $5.451B in constant prices. Unemployment ranged between a low of 2.8% and a high of 4.9%, alternating between the lowest and second lowest rate among provinces (Government of Saskatchewan, 1981, p. 73; 1982, p. 83). In other words, the economy did very well indeed during the period. By creating a world headquarters for potash in Saskatchewan, it had created the potential for related decision-making, research and development, and greater employment in Saskatchewan.

Was the government responsible for this expansion? Certainly not completely. The major factor in Saskatchewan's economic development during the 1970s was increased prices for crops and resources; Saskatchewan benefited as it lost again when prices fell during the 1980s. Nonetheless, the government's strategy supported development, while also building a number of social objectives into its economic development strategy, including provincial control of resources, local purchasing, high employment, employment of aboriginal and northern people, environmental responsibility, and labour benefits. The attitude, as with the Saskatchewan Development Fund and many other economic initiatives, was an empowered can do and we can do it ourselves.

Conclusion

Despite these many advantages of the Blakeney government's economic development strategy, it had a major weakness: it did not retain the support of the people of the province. The government failed to communicate effectively and develop general support for its economic development approach. The NDP was weakened by the debate over uranium. The biggest and most contentious investments in resource industries came as the economy began to worsen, inflation spun into double digit figures, interest rates went sky-high and the financial position of individuals with debts, many of them farmers, became serious indeed. Large farmers returned their support to the Conservatives, who promised relief.

The government did not develop grass-roots contact with the people of Saskatchewan on the issue, but instead developed and aired an expensive advertising campaign for The Family of Crown Corporations, portraying the government much like any other large corporation at a time when and in a place where large corporations were not popular. The Conservatives built successfully on the idea that the government-crown corporations were rich while the people were not. If anything, the advertising campaign helped contribute to this image. The population's support for development through the government, which had never been strong, turned into active criticism. Among other things in the 1982 election the public endorsed the feasibility of eliminating the gas tax to transfer wealth from the government back to the taxpayers.

Notes

1. The author acknowledges Garry Beatty and Mike Costello, former deputy ministers of Finance for their input to this chapter.

2. Composed of Ministers of the government, a chair who was a civil servant, and a secretary, it organized an annual Cabinet Planning Conference, which reviewed the state of the economy, identified guidelines for the next budget, and provided the government with economic advice when asked to. The staff of the Board reported directly to the Premier (Cadbury, 1971, pp. 51-64).

3. The strategy was similar to the arms length agency strategy used by the British government during the 1980s, but in the economic rather than the government service delivery domain.

4. G. H. Beatty, who had been Deputy Minister of Finance, moved to CIC in July 1976 and became CEO in the fall. He was appointed to the CIC Board of Directors in July 1976 and remained a member until 1982.

5. Some argued that so much was paid as a dividend to the Consolidated Fund to finance operations of government that when resource revenues collapsed in 1980-81, unsustainable expenditures were in the base and deficits and killing debt ensued. Others argued that the Devine government's deficit arose from establishing expensive new programs like home repair grants and homemaker pensions and eroding the revenue base, especially by abolishing the gasoline tax and reducing resource taxes.

6. These are expenditures which do not affect the bottom line of the balance sheet (Consolidated Fund), and do not affect the annual deficit e.g. a loan , which appears in the books as an account receivable. Source: 1993-94 Estimates, Part I, Government of Canada, p. 72.

7. The Government of Saskatchewan owned 30% of the pulp mill from the time of its construction in the 1960s and this continued until the late 1970s when the Government of Saskatchewan bought up the remaining 70% and became 100% owner of the Prince Albert Pulp Company. Later, in the Devine years, this pulp mill was sold to Weyerhaeuser and part of that transaction was an agreement by Weyerhaeuser to construct a paper mill. With respect to the heavy oil up-grader the Government of Saskatchewan was in discussion about becoming a partner in a heavy oil up-grader in both Lloydminster and Moose Jaw. Neither of these matured during the Blakeney years. During the Devine years, the province became involved in heavy oil up-graders in partnership with a cooperative, in Regina, and the private sector, in Lloydminster.


Previous: Chapter 2 Top: Table of Contents Next: Chapter 4

 

Last updated: December 4 2013