Montreal, July 15, 2004  /  No 144  
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Harry Valentine is a free-marketeer living in Eastern Ontario.
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by Harry Valentine
          In the months prior to Canada's recent federal election, the parliamentary secretary to former Transport minister Tony Valeri addressed a gathering of trucking industry executives on the merits of government systems management of Canadian freight transportation. The idea of government systems management of the economy had its origins with American President Clinton's economic advisor, Laura D'Angelo Tyson, who had proposed a policy of government systems management of America's high-technology sector. Tyson authored The Yugoslav Economic System and its Performance during the 1970's (Berkeley Press, 1980) in which she had high praise for the economic ideology of Marshall Josef Broz Tito.
          She developed a subsequently thesis on state systems management of sectors of the economy, basing her research on the economic strategies of Nicolae Ceaucescu's central-planning regime in Romania. Tyson had high praise for Romania's astounding productivity. When Mikhail Gorbachev assumed power in the former USSR, noted American economist and author of Foundations of Economics, Paul Samuelson, also a proponent of state management of the economy, predicted at the time that the productivity of the Soviet economy would surpass that of the USA. Despite the ultimate failure of government systems management overseas, the policy still finds favour amongst certain people close to the government in Ottawa. Except that they'd use economic regulation of privately-owned companies as the means to administer such a policy. 
Systems management vs. lateral management 
          The newly elected prime minister, Paul Martin, was a successful transportation industry executive before entering politics. He applied a private-sector systems management approach to the various divisions of the companies he owned. In private industry, a company remains viable as long as its earnings exceed its operating costs. Presently in Canada, practically every state-owned and state-run transportation "business" requires an operating subsidy. Those that actually cover their own operating costs from earnings are a rarity. If Canada's new government actually intends to impose its approach to systems management onto Canada's freight transportation industry, it can only be achieved through a regime of centrally planned economic regulation. 
          The system of central planning by top management in the private sector has been abandoned in several business sectors. It has been replaced by a system of lateral management where decentralized decision-making authority has been delegated closer to the front lines. In the high-technology sector, top executives formulate an overall objective or mission for the organization. Company staff then has great flexibility to align their ingenuity and innovation around the overall mission, one which may be modified in response to perceived changes happening in the economy. The ability to continually respond rapidly to changing customer demands assures the ongoing survival of a company. Government systems management of a privately-owned high-technology sector would have replaced front-line decision-making with a restrictive regime of central control. Ingenuity and innovation in the high-tech sector would have plummeted along with the ability of private companies to rapidly respond to continually changing markets. 
          Ongoing change occurs in a dynamic economy, requiring that even the freight transportation companies have the flexibility to respond to such change. This could only be done efficiently in an environment that is free from cumbersome economic regulation or related restraint. A regime of state systems management of Canadian transportation would likely overwhelm company management with additional state-imposed duties, demands and constraints, effectively incapacitating managements' ability to best serve their industry's customers. Government bureaucrats are not the main customers of this industry, neither are they its partners, nor are they even the legitimate representatives of this industry's customers. Imposing a regime of state systems management on to this industry would merely entrench an unproductive, wealth-consuming parasite that will ultimately inflict more long-term economic harm. 
     A regime of state systems management of Canadian transportation would likely overwhelm company management with additional state-imposed duties, demands and constraints, effectively incapacitating managements' ability to best serve their industry's customers.
          The present regime of economic regulation of the railways has for years reduced their ability to respond quickly to changing customer demands. A previous article covered the need for the total economic deregulation of all railway freight operations in Canada (see TRANSPORTATION GRIDLOCK IN CANADA'S HEARTLAND, le QL, no 134). That industry presently has a shortage of intermodal terminal capacity (resulting in frequent delays) at several big cities. In an environment free from both economic regulations as well as from state systems management, private companies other than the railways could build new, smaller, less centralized intermodal terminals in or near large centers, connecting them to the major railways via short industrial lines. The details as to how to integrate these respective operations into mainline intercity railway freight operations can be negotiated privately and in the absence of any state overseers.  
A single national airline? 
          Politically, it may be much easier for government officials to impose government systems management on to the intercity passenger transportation sector. A gullible public, and naive elected officials, would be unlikely to oppose any such regime, let alone raise any objections. Officials would likely claim that a single national airline operator, flying to all major destination across Canada, would allegedly better serve all Canadians. Such an agenda would be a high priority amongst federal nationalist elements. A regime of state systems management of Canadian intercity transportation would give state officials the opportunity to devise a hidden agenda, perhaps a 3P (public private partnership) program, to rescue Air Canada from bankruptcy.  
          Following its privatization, the former state airline company incurred a massive debt starting during the high-tech malinvestment boom years of the mid to late 1990's. Air Canada undertook action in response to a booming demand in high-tech related business travel. Much of Air Canada's debt can be traced to their purchase of rival Canadian Airlines. The combination of the post-2000 high-tech meltdown and increased commercial and business use of steadily advancing broadband telecommunications technologies has reduced the overall long-term need and demand for business-class air travel. Numerous efforts have been initiated by Air Canada's top management to upgrade the carrier's viability, in a more competitive domestic environment. Their most recent initiative aimed at the competition has been litigation action brought against another rival airline, WestJet. 
          WestJet executives are alleged to have committed corporate espionage, in that one of them may have obtained flight scheduling information directly from Air Canada's Website, by using a home computer located at his residence. Air Canada is alleged to have obtained the WestJet executive's garbage, which contained shredded documents. Over a period of many years, peak demand for air travel occurred during certain regular hours on weekdays as well as on weekends. Scheduling information is publicly available on airport arrival/departure notice boards. Maintaining its stature as Canada's national airline carrier will become more difficult for the "bankrupt" Air Canada to achieve in an increasingly competitive business environment. This litigation action could open the door to government systems management to be imposed on Canada's airline industry. 
          By enacting government-run systems management of transportation, Canada would inadvertently be paying tribute to Nicolae Ceaucescu and Marshall Josef Tito, whose economic policies and state central planning served as the basis for the thesis on government systems management of business. An alternative regime would be total economic deregulation of transportation. Under such a regime, Air Canada may have to restructure itself into a conglomerate of smaller, independently managed subsidiary companies. 
          Onetime IT&T CEO Harold Geneen authored a book on the advantages of a well managed conglomerate. Armed with Geneen's insight, Air Canada may be able to restructure itself, including selling off some of the subsidiaries. It will then have little or no need to initiate litigation action against WestJet. In an environment free from state intrusion, several independent, privately-owned airline companies could form an operating alliance. Such an alliance of companies could provide the same kind of transcontinental service across Canada that a single national airline company could otherwise have provided.