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“No one should be surprised when corporate executives recommend governments should help their companies increase their profits by using expensive privatization schemes for roads, transit routes or airport facilities. What should shock us is that the federal government is agreeing to the suggestion.” — Larry Brown, NUPGE President
Ottawa (17 May 2017) — Recent reports make it very clear that private investors played a key role in designing the federal government’s Canada Infrastructure Bank and that they are likely to do very well out of it.
A blog post from the Institute of Fiscal Studies and Democracy (IFSD) at the University of Ottawa questioned why the federal government will be giving investors returns of up to 12 per cent on their infrastructure investments when the federal government could borrow the money for only 2.2 per cent. Then a Globe and Mail article revealed that investment fund managers and others who profit from privatizing public services played key roles in the decision of the federal government to rely on private investment and in decisions about how the infrastructure bank should work.
“The federal government isn’t just putting the fox in charge of the henhouse, it’s letting the fox design it.,” said Larry Brown, President of the National Union of Public and General Employees (NUPGE).
Using infrastructure bank means higher costs, loss of public control
In addition to the higher cost of private investment, the IFSD also warned about the loss of public control. If governments have to rely on private investors for infrastructure funding, what gets built will be determined by investor profits, not by what Canadians need.
Because private investors will want to put money where it will generate the highest rate of return, the way the proposed infrastructure bank works will mean that it will be the most profitable infrastructure that will be privatized. Traditionally, revenues from profitable infrastructure have been used to subsidize other public services, but that isn’t possible when the most profitable infrastructure is controlled by private investors.
As the blog post put it, “Why would taxpayers sell their most valuable assets to the private sector, thereby transferring these high risk-adjusted returns from the public sector to the private sector?”
Government policy making privatized
According to the Globe and Mail article, the federal government has given BlackRock, one of the largest investment management companies in the world, an important role in setting up the Canada Infrastructure Bank. This included allowing BlackRock to help “ensure the message cabinet ministers delivered at the closed-door event would be what BlackRock’s clients wanted to hear.”
In fact, the privatization industry played a key role in the whole plan to use private finance instead of public borrowing to fund infrastructure. Key members of the Minister of Economic Advisory Council on Economic Growth, which originally recommended that the Infrastructure Bank focus on attracting private investment, includedg executives from BlackRock, McKinsey & Co., and General Electric — all of which profit from privatization. As was also pointed out in the Globe and Mail article, another council member, Michael Sabia, is pushing for the federal government to fund a light rail project in Montreal that would effectively privatize much of that city’s transit system.
“No one should be surprised when corporate executives recommend governments should help their companies increase their profits by using expensive privatization schemes to build new roads, transit routes or airport facilities. What should shock us is that the federal government is agreeing to the suggestion,” said Brown.