The fallout from the financial struggles of Big Sky Farms illustrates the reason why government should not own businesses.
The company, which owes more than $100 million, is in court protection while it devises a plan to reorganize and meet its obligations. Farmers who supplied feedgrain, and other unsecured creditors, fear they will never be paid.
Governments understandably want to stimulate the economy and create jobs but the public will benefit most if governments simply create an environment where private investment can succeed.
The public benefit from the Saskatchewan government investing in Big Sky in 2000 was always suspect.
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Hog production was not a new industry that needed government mothering.
With the Crow grain transportation subsidy gone, many thought livestock production should expand to make use of low-cost feed grains. Rising meat demand in the developing world would provide a ready market.
A wave of investment swept the industry, almost all of it private, sparking growth across Western Canada.
But the New Democratic government and the Saskatchewan Crown Investments Corp. (CIC) wanted more growth. CIC decided to expand its $500,000 stake in Big Sky by about $15 million to help it build two barn networks, with a total price tag of $60 million.
At the time, founder Florian Possberg said Big Sky had tried unsuccessfully to get interest in a public share offering. But private money for hog industry expansion was coming from somewhere because production was growing rapidly, especially in Manitoba.
Saskatchewan’s equity stake in Big Sky, by design and accident, expanded over the next few years to $26.4 million. It now owns about 63 percent of the company’s shares.
Government ownership is problematic because people inside and outside the business can think that if problems arise, the government will come to the rescue to protect its original investment.
That can relieve pressure on managers to have an airtight business plan and give false security to those who do business with the company.
There is also the problem of the advantage a government-backed company has against privately owned companies in the same field.
In 2008, when other hog producers, reeling from a soaring Canadian dollar and rising feed prices, cut their sow herds, chair Larry Martin said Big Sky did not plan to cull and would be able to benefit when prices rebounded.
Whether government ownership played a role in that surprising confidence is unknown, but it would be easy to understand if that perception arose among others in the industry.
It is also hard to say if Big Sky’s rapid, government backed growth discouraged others from getting into the business.
None of this is to vilify Big Sky. It employs hundreds of rural people and generates hundreds of millions of dollars in economic activity. It is community spirited, including a high profile pork donation each Christmas to food banks.
The objectionable matter is government ownership.
Government ownership can benefit the public when the business is a utility providing an affordable service to all citizens. But Big Sky is not a utility. It is a commercial company in competition with other operators who rely on private financing.
Government should encourage business, particularly fledgling industries, but should do it in ways that treat all equally.
With the right environment, such as good infrastructure, fair taxes and regulation and perhaps focused tax incentives, the companies that can get private financing should succeed, providing the jobs and economic development governments, and taxpayers, desire.
