Regulating Natural Monopolies in Canada: An Introduction to 'Regulatory Failure and Renewal: The Evolution of the Natural Monopoly Contract', by John R. Baldwin

In the first decades of the twenty-first century – more than 150 years after the earliest franchise contracts were negotiated between Canadian governments and privately owned utility companies, and 30 years after the Economic Council of Canada published John R. Baldwin’s "Regulatory Failure and Renewal: The Evolution of the Natural Monopoly Contract" in 1989 – the federal government still holds a controlling interest in more than 40 crown corporations. The provinces and territories in Canada own at least 150 more firms. These public enterprises typically operate in industries prone to the formation of what economists call “natural monopolies”, including pipelines, power generation, municipal water systems, transportation, broadcasting and telecommunications. A wide range of policy instruments can be used to regulate natural monopolies, and these instruments lead to different redistributive patterns, and different levels and forms of inefficiency. In general, the social, political and economic environments in Canada have been institutionally secure, mature and sophisticated. However, the division of power that defines the federal system of governance in Canada has opened the door for idiosyncratic provincial (and therefore municipal) policy making, which has lead to the adoption of a wide range of regionally distinct regulatory responses to the formation of natural monopolies.

In this introduction to Baldwin's classic work, the history of Canada's efforts to regulate natural monopolies is surveyed, and the lessons learned from a theoretical framework founded on a transactions cost approach are articulated. Questions about privatization and public ownership still swirl around Canada’s pipelines, telecommunication networks and transport systems. In pursuit of answers to these questions, this introduction explains how Baldwin’s work helps us to make sense of policy heterogeneity by describing how transactions costs have shifted across time and space, how courts have constrained government opportunism and defined property rights, how local industrial, economic and technological environments have interacted with political pressures, and how private and public stakeholders have strategically engaged with the policy making process in pursuit of influence and control.