Matt Gurney: Another fund or agency won't fix our real problem — we're a bad bet
I'm excited to borrow from the new Canadian Major Projects Infrastructure Development Bank Wealth Fund Pension Plan.
By: Matt Gurney
There really isn’t anything wrong with the idea of a Canadian sovereign wealth fund. Other jurisdictions have them. There’s no reason Canada couldn’t or shouldn’t be one of them.
But based on what was announced today, I am worried. And not even because we might be capitalizing this wealth fund with debt, which is not normally the way it’s done. I’m more worried about something very basic and fundamental. What would the wealth fund be for? What problem is it trying to solve? And what does that tell us about how things are going in the country?
A sovereign wealth fund, here or elsewhere, is a way for governments to direct — either themselves or via some sort of independent advisory board — investments that are in the interests of the jurisdiction that controls the fund. Usually, they exist to help countries diversify their economies away from over-dependence on a particular kind of financial asset, like oil royalties. This can serve multiple purposes, from creating a rainy-day fund to cushion oil shocks, to securing a nation’s long-term financial prospects by investing capital into projects or businesses that are sustainable in the long term.
By comparison, Canada isn’t a one-industry petro state. It is planning a major build-out of state capacity. New natural resource projects, infrastructure to sustain the economy, and even military and dual-use defence/civilian infrastructure could all be funded by investments from something like a sovereign wealth fund. That wouldn’t be the conventional use of such a thing. But, okay, maybe. In theory, I have no objection to the idea of creating something that acts more like an investment vehicle than a subsidy machine.
But I come back to that other question. What problem are we trying to solve here? Because a problem Canada really should not have is difficulty accessing capital to finance large projects.
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Yes, it’s true — we are a relatively small population, rich per capita, but not a giant. But we already have lots of ways of addressing this. We are constantly bragging about our banking sector — which is well known for being both stable and capable of investing.
Then we created the Business Development Bank of Canada (BDC) specifically to increase the funds available for Canadian businesses looking to capitalize expansion, because (go figure) the private banks weren’t willing to take risks. Then we rolled out the Canadian Infrastructure Bank, which we needed because the BDC ended up being even more risk averse than the banks. Then we have all those regional economic development agencies. Meanwhile, the Canada Pension Plan is just aching to find quality investments with high returns for pensioners.
It is genuinely fascinating to watch our attempts to layer these things on top of each other. And I’m sure my little off-the-cuff recitation there left off a bunch of options. Canada is a country that seems to excel at creating new ways of managing a problem we can’t or won’t fix.
Or, as I joked on Twitter:
This whole thing brought to mind some of the criticisms (including my own) about the Major Projects Office. The MPO, as I’ve written before, is a thing that exists not because it’s a good idea on its own merits, but instead as a way to bypass institutional dysfunction.
Is that what a Canadian sovereign wealth fund will be — just another bypass of a problem all the other attempted bypasses did not, in fact, bypass?
At a certain point, it’s time to acknowledge that the problem isn’t a lack of novel investment vehicles. We aren’t starved of potential capital.
The problem is that no one wants to finance big projects here. The people who actually control vast sums of capital have written us off as a bad investment.
The announcement of the wealth fund was almost buried by another fascinating story. On Monday, the Financial Times published an article that quoted a series of Canadian industry leaders or experts about how regulatory burden is putting a major damper on Canadian economic productivity.
From the FT:
Canada’s leading industry groups say Prime Minister Mark Carney’s effort to cut red tape is floundering, costing the country billions more in trade losses than US President Donald Trump’s tariffs. Forestry, oil and gas, and car industry representatives told the FT they are frustrated at the pace of regulatory reform that is central to Carney’s efforts to insulate Canada from Trump’s devastating US trade war.
Those industry leaders are speaking about exactly the problem a wealth fund — and the BDC, and the infrastructure bank, and the development agencies — are already trying to solve.
Now check this Globe and Mail piece out, and see my added emphasis:
If a given infrastructure project is not being developed, it is likely because the private sector has determined that it is not economically feasible, or too risky due to onerous regulatory restrictions.
Exactly. Until we fix that we are just throwing good sovereign wealth funds after bad investment banks.
It might be worth asking ourselves why we have a major foreign paper publishing an article citing senior Canadian sources all lamenting how hard it is to get anything done in this country, on the very same day the prime minister of Canada announces a $25 billion investment intended to spin up yet another organization tasked with getting things done in this country.
Because our problem isn’t a lack of ways to compensate for the problem. We are amply provided for on that score. Our problems is, if you can believe it, the problem itself. We ought to be directing at least a little bit of our attention into figuring out what the root cause might be and how we can fix it, before we borrow another $25 billion to try to find yet another shortcut around it.
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The problem we are trying to solve here is that there is some wealth in this country that is, as yet, unlooted by Liberal cronies and clients.
Canadians are a fantastically honest, clever, and hardworking people. Stealing everything they built is a big job.
This is Matt Gurney at his best.
Well-done.