20 January 1997
Ottawa’s reforms no way to run a port
If you’re excited about the economic potential for our major ports, such as Halifax and Saint John, you should be mad as hell right now. Ottawa is missing a golden opportunity to give our ports the kind of structure that has helped turn CN from basketcase into economic powerhouse. Instead, we’re in line for business pretty much as usual in the never-never land of government dominated businesses.
Ottawa is still touchingly wedded to an outdated vision of our ports as public utilities rather than as true commercial operations. Changes to ports legislation now before parliament, while a marginal improvement over the old system, still leave too many of its defects in place. Those defects include too much politics in how the port is run, not enough discipline and accountability for decision-makers, and the lack of incentives to seek the winning edge in the turbulent and harshly competitive marine transport world.

Port decision-making in Canada is famous for its politics and bureaucracy. Several years ago, the Vancouver Port Corporation complained that, because of bureaucratic restrictions, it had taken two years and cost more than $250,000 to sell a parcel of land worth $95,000. The federal government has long treated spots on port corporation boards of directors as patronage plums. And decisions about crucial capital investment were made more on the basis of clout within cabinet than on the commercial strength of potential port investments.

Like CN before privatization, the ports have not traditionally been seen as pillars of the economy, to be run on a sound business basis. Instead they have been patronage machines harnessed to the political needs of the government of the day. This has bred a ports culture which is insular and timid, where caution is rewarded and innovation resisted. One university study characterized Canada’s port administrators as “reluctant reactors”, glumly accepting change and innovation only when it is forced on them by circumstances. What we need, the study concluded, is “enthusiastic prospectors”, those who continually see (and indeed create) change and uncertainty, and continually experiment with innovative responses to new trends.

People unfamiliar with marine transport might think that it’s a staid old business and in need of little innovative management to keep up with change. Nothing could be further from the truth. No part of the economy is spared from the turbulence and upheaval caused by competition and technological innovation, and our ports are certainly no exception. And yet in recent years our port managers have been reluctant to monitor the profitability of each of the services they provide, to put in place the most up-to-date global information systems, such as Electronic Data Interchange, to monitor technological developments more generally, or even to have authority for land tranfers and setting their capital budgets.

Bureaucratic resistance scuttled attempts to make ports truly autonomous and to put in place the incentives that would change this culture of mediocrity. That is not to say that there haven’t been changes. The minister of transport, for example, will only have unfettered discretion to name one director of the Halifax or Saint John port board. Some of the patronage power to name directors is being handed over to provinces and municipalities. The other spots will still be filled at the minister’s whim, but only after some largely cosmetic consultations with interested groups. Ports will have more freedom to borrow to finance their expansion, but not to borrow against the port’s existing assets to do so.

This will not do. A well run port’s board is not a theatre for interest group negotiations, nor are its directors chosen for any other reason than their ability to protect owners’ interests. It is not prevented from borrowing against its assets to make needed improvements. The only way to make our ports work is to hand over to them the land and other Crown assets and then to sell them off as proper corporations, with shareholders who can hold the board of directors accountable for performance.

How should that performance be judged? By the return on investment that the management earns for the shareholders. Profit or loss are the key signals that tell whether the best value is being wrung out of these productive assets. The kind of not-for-profit structure proposed under Ottawa’s legislation deprives both managers and owners of the port of the most important performance benchmark.

Only when managers and directors are held accountable for results, and when shareholders demand a fair return on their investment, are creativity and managerial skill truly unleashed. We’ve seen it time and time again. Under the bad old system, Crown corporations met the political objectives of their bosses. The results were erratic: over or underinvestment, labour featherbedding in sensitive constituencies, unrealistic pay structures and poor management. But the privatization of CN has proven that proper incentives can set these problems right, create wealth for Canadians, and build an infrastucture in tune with our real economic needs and with technological change. This is the medicine our ports need, but its not what Ottawa’s offering.