Half a loaf may be better than none, but there is also a full-loaf option for Canadians should Trudeau choose to finish the project his father started.
Our federal government’s new Canada Infrastructure Bank will place control of our future infrastructure in the hands of foreign corporations, to send profits out of Canada by giving foreign companies preferential access to our infrastructure. It will also shift the constitutional balance of power federally by eroding the traditional role of provinces and municipalities in controlling developments on their own turf.
Nothing to quarrel with there.
But these are second-order effects of the main reason the bank is needed — to protect Canadian and foreign investors alike from the Canadian government. And from provincial governments. And from municipal governments.
The infrastructure bank is a logical way to protect investors from the danger of Canadian politics
The driver behind the bank is “political risk,” a catch-all term that refers to actions that future governments might take — everything from unexpected environmental regulations to unilaterally tearing up contracts — that would harm investors. Because infrastructure investments tend to be long term, politically driven and sometimes subject to scandal, investors are wary of being hammered by future governments should projects become unpopular with the public. Canada is a minefield for investors, given the opposition to developments of all kinds, whether pipelines spanning thousands of kilometres or urban redevelopments limited to a single block.
“We have an approach that allows (investors) to have low political risk,” Federal Finance Minister Bill Morneau told reporters this week, in explaining why the infrastructure bank will succeed where other attempts to spur infrastructure investment failed.
Major Canadian institutional investors such as the Canada Pension Plan Investment Board are gung-ho on infrastructure investments. CPPIB owns pipelines in Peru, transmission lines in Chile and broadband in Hong Kong. But CPPIB tends to avoid infrastructure in Canada, despite the multitude of opportunities here, because our NGOs can be counted on to organize opposition to almost any development and our governments can be counted on to cave to them.
Among other features, the infrastructure bank would protect foreign investors by attracting interest from jurisdictions subject to trade protections, such as the U.S., which has NAFTA protection, or the EU, which will have protections under the new Comprehensive Economic and Trade Agreement. Foreign investors will then be able to invest in Canada with more confidence than Canadians can now, since they’ll be entitled to compensation when Canadian governments act arbitrarily.
As one example, when then premier Danny Williams of Newfoundland expropriated U.S.-owned Abitibi-Bowater’s assets in 2009 without providing compensation, Abitibi-Bowater obtained compensation from the government of Canada under a NAFTA provision. As another, when then prime minister Jean Chrétien’s federal government in 1993 ripped up the contract to redevelop Terminal One at Toronto’s Pearson airport, claiming the contract had been awarded to cronies of the previous Mulroney government, NAFTA again kicked in to protect the investors, since one of them was American.
Because of the wariness of Canadian investors such as CPPIB to invest in Canadian infrastructure, Morneau is being logical in pursuing foreign companies, which benefit from preferential treatment thanks to Canada’s international agreements. CPPIB and other Canadian investors might then also be willing to invest in Canada through the backdoor, piggybacking onto foreign investments to obtain greater protection. Because investments through the infrastructure bank could become the chief source of infrastructure funding, provinces and municipalities would reluctantly go along, ceding decision-making to the federal infrastructure bank and the deals it’s willing to finance.
If the infrastructure bank succeeds as the Canadian government envisages, Canadians would be big winners, because we would get much of the infrastructure we so badly need. But Canadians would also be big losers, because the infrastructure would come at a cost to our sovereignty and democratic freedoms, since local decisions would more often be subject to the machinations of a federal Crown-owned bank, which in turn would be subject to foreign preferences for how our infrastructure should be developed and operated.
Half a loaf may be better than none, but there is also a full-loaf option for Canadians. Give Canadian investors the same protections as foreigners by enshrining property rights in our constitution. In 1982, when then prime minister Pierre Elliott Trudeau ushered in Canada’s Charter of Rights and Freedoms, property rights were specifically excluded, opposed by nationalists who feared that property rights would lead to privatizations, foreign takeovers and loss of national sovereignty. Ironically it is the absence of property rights that now threatens our sovereignty, and their presence that would strengthen it. It will be up to Pierre Elliott Trudeau’s heir and successor to determine whether Canadians should settle for half a loaf, or whether he should finish the project his father started.