By Sarabjit (Sabi) Marwah, Toronto Star, OpEd, June 20, 2017
The CIB is a creative, risk-mitigating and cost-effective way to deliver some of our public infrastructure projects that may otherwise not be built, or be built over an extended period of time. Delaying the CIB serves little purpose.
Newcomers to the Senate lacking experience in government often find themselves, like me, absorbing a lot of lessons that might first appear to have little to do with our role of soberly examining and, when necessary, amending legislation.
I’ve learned, for example, that passing a bill can be an often-technical process; that the rules of debate are complex and, even though this Senate is becoming a more independent place, that political matters can sometimes obscure what the Senate really does.
And while I’ve become appreciative that these are necessary facets of governing, the recent debate surrounding the Canada Infrastructure Bank (CIB) suggests to me that perhaps we ought to be talking a little more about the substance of this proposal, rather than having a breathless procedural discussion about how to split this government’s budget in two.
The real issue is that some want the CIB to take effect as soon as possible, while others would prefer to delay it until the fall. Put me firmly in category one.
A large part of the 2015 federal election was fought on the critical policy debate over whether Canada should undertake investments in productivity-enhancing infrastructure projects to address the national infrastructure deficit of $500 billion-plus. Canadians decided our country’s roads, highways and other infrastructure are in need of massive replacement and upgrade, and the $35 billion proposal the Senate is currently studying is a good start toward addressing this deficit.
The CIB will bring in badly needed private capital, reduce risk to government and tap valuable expertise from the private and institutional sectors. It would fund projects that are too costly for government alone to undertake, but also too risky for private sector investors to assume on their own.
Despite these good reasons, critics have raised a number of concerns. Notably, they argue that the CIB is not really a bank; that there aren’t enough details available on how projects become eligible; and, finally, that the Bank’s CEO and its board should not serve at the pleasure of the government.
With respect to the first argument, as a former banker myself, I can attest that the CIB is, indeed, a bank. It may not take deposits in traditional way that we all know, but it is very much a merchant bank that structures projects, takes equity positions and makes investments.
Second, the fact that there aren’t enough details on projects that would be eligible for funding shouldn’t be a surprise when establishing a major new initiative like the CIB. I have seldom found that all of the details of a new institution’s undertakings are laid out before the institution itself is enacted into law. Furthermore, projects of the CIB should be funded on a case-by-case basis, and only after careful review by the experts at the bank.
Lastly, and perhaps most controversially, there are those who argue the bank’s CEO and board should not serve at the pleasure of the government, because that would provide elected officials with the temptation to direct the banks’s activities. With this I also disagree.
The legislation contains forward-looking provisions that require the minister responsible to consult with the bank’s board of directors prior to any termination, removal or suspension of the CEO or chairperson.
This is a standard higher than that at Export Development Canada or Canada Mortgage and Housing Corporation and we have been happy with the governance there for years. Why then would we be unhappy with something that has a higher standard?
Moreover, this bank will be a steward of taxpayer funds and therefore the government has a responsibility to ensure it is properly managed and in the public interest. We cannot risk control of a public institution such as this by private interests.
Further, should the private sector have the impression that their investments would be subject to undue political interference, the bank’s reputation would suffer and be contrary to its long term success.
I believe this governance structure strikes the right balance between the interests of taxpayers, and institutional autonomy in the interest of optimal performance.
The argument that the CIB has not been studied carefully enough runs counter to what I’ve seen. In a thorough prestudy of the bill, the Senate banking committee held six meetings and senators heard from a 29 expert witnesses. This qualifies as a solid review.
The CIB is a creative, risk-mitigating and cost-effective way to deliver some of our public infrastructure projects that may otherwise not be built, or be built over an extended period of time. This is in the best interest of taxpayers, the overall economy and Canada. Delaying the CIB serves little purpose.
Before his appointment to the Senate in 2016 as an independent senator from Ontario, Sabi Marwah was the vice chairman and chief operating officer of the Bank of Nova Scotia (Scotia Bank), a position he had held since 2008.
Our Comment
Of course we need an Infrastructure Bank! That’s why the Bank of Canada Act enabled the federal government to finance projects at the federal, provincial, and municipal levels, on a near interest-free basis.
The “real issue” of the senate debate had to do with the bad habit of burying controversial legislation in an omnibus bill to avoid the scrutiny afforded by a proper debate in the House.
The need for an infrastructure bank hasn’t been in doubt since 1934, when the Bank of Canada Act made provision for the Central Bank to make loans to the government of Canada or any province. In 1938, parliament passed Bill 143, Municipal Improvements Assistance Act, an act to assist municipalities to make self-liquidating improvements. This Act was not rescinded until 1975.
In creating the credit to finance such projects, our public Bank of Canada does what we allow private banks to do, except that it does so in the public interest, subject to monetary policy established by the federal government. In 1935 Liberal Prime Minister, MacKenzie King, in a nationwide broadcast said: “Once a nation parts with control of its currency, it matters not who makes that nation’s laws. Usury, once in control, will wreck any nation. Until the control of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile.”
From 1938, when the bank was nationalized, it was used to create funding for physical infrastructure like the Trans-Canada Highway and the St. Lawrence Seaway, and social infrastructure like Medicare and Old Age Security – without undue debt or inflation.
Since joining the Basel Committee of the Bank for International Settlements (BIS) in 1974, Canada has borrowed instead, at compound interest. By 2012 this change of policy had cost Canadian taxpayers C$ 1 trillion in interest – twice the national debt! That debt has been used to justify a neoliberal austerity agenda in Canada.
Ironically, the need for further debate is made clear in comments like: “The CIB will bring in badly needed private capital, reduce risk to government, and fund projects to costly for government alone to undertake”; “This bank will be a steward of taxpayer funds”; “I believe this governance structure strikes the right balance between the interests of taxpayers, and the institutional autonomy in the interest of optimal performance”; “The CIB is a creative riskmitigating and cost-effective way to deliver some of our public infrastructure projects… This is in the best interest of taxpayers, the overall economy and Canada.”
The difference between the Bank of Canada and the proposed Canada Infrastructure Bank (BIS) is that the Bank of Canada is public and legally committed to serve the public interest.
The proposed Canada Infrastructure Bank is private in its structure and in its operation, and will be used to serve the perceived best interests of those who have designed and been put in charge of it.
Graham Towers, first Governor of the Bank of Canada, confirmed that “Anything physically possible and desirable can be made financially possible.”
No wonder this government has been in such a hurry to establish and staff their preferred infrastructure bank, and bury its legislation in a 300-page omnibus bill!
Élan
