Jack Mintz is one of Canada’s most well-respected economists, and has a long history of providing insight into the potential consequences of economic policy in Canada.
As reported in the Financial Post, Mintz recently gave a presentation about the Canada Infrastructure Bank to the Senate banking, trade, and commerce committee. Mintz points out serious doubts about the infrastructure bank, and his viewpoint is worth considering as Trudeau moves forward with this dangerous policy.
Here are some key parts of Mintz’s presentation:
“An infrastructure bank combining government and private sector funding has been proposed in several countries, including Australia and United States,” said Mintz. “The idea has not particularly caught on since its advantages have not been made clear.”
Mintz points out the lack of evidence saying something like the infrastructure bank could work:
“The reason for this failure is that it is difficult to merge public and private interests. Private investors are solely interested in commercial success. Governments have other objectives that could compromise profitability. Four decades ago, my PhD thesis in this area predicted that Canadian mixed-enterprise experiments would fail, with companies eventually privatized or fully nationalized. That is what happened to Canada Development Corporation and others. Will we be repeating history once again with the Canada Infrastructure Bank?”
Mintz points out three possible advantages from the bank, including a revenue stream that attracts investor interest, the ability for investors to propose projects, and the possibility that retained earnings by the bank could be used for further projects.
However, Mintz points out some serious potential issues:
“If the government assumes risks with loan guarantees, this will lead to a misallocation of risks whereby taxpayers will be responsible for the downside but only share the upside. This type of risk allocation leads to poor performance as the private investor takes on risks that are inappropriate. A good example was the case of a private proposed Swan Hills hazardous waste treatment centre that cost the Alberta government over $1 billion in losses.”
This is what many people have been saying. Big banks and investors get benefits, but taxpayers get all the losses. It’s an example of moral hazard – the same attitude that caused massive problems in the 2088 financial crisis.
In addition to that concern, Mintz notes that private investors – including pension funds – could fail to earn the profits they expect, and could end up launching legal action – which could cause Canadian pensioners to lose money. Mintz mentions one case of a public-private gas pipeline. Says Mintz, “the gas pipeline, controlled by the Norwegian government, with a 44 per cent stake from private investors, lost $2.1 billion or 25 per cent of its value when the Norwegian government cut tariffs after 2012 in the interest of promoting oil and gas exploration in the North Sea.”
Now, Norway is being sued by the Canada Pension Plan Investment Board, a German insurance giant, and a sovereign wealth fund from Abu Dhabi.
Furthermore, Mintz also explains that governments may interfere with the choices made by supposedly “independent” public pension funds, to direct more money to infrastructure projects.
Concluding his presentation, Mintz makes the following important point:
“While infrastructure funding is important to Canada, we should remember that a significant share is already undertaken by the private sector, whether pipelines, railways, broadband or power transmission and distribution. The concern over the lack of infrastructure spending is with respect to our onerous regulatory system and a lack of investment in public-owned infrastructure.”
And while the government would like us to forget, Mintz mentioned that the public-private approach failed in the 1970’s, and ended up as privatization.
An important warning
Jack Mintz is offering an important warning about the infrastructure bank. Unfortunately, Justin Trudeau has been ignoring all warnings, including concern that the bank could be dominated by foreign interests. Trudeau seems determined to recklessly push forward with his dangerous $35 billion “plan,” no matter what anyone else says or the damage it could do to Canada.